Net income at 5,406 federally insured banks and thrifts during the fourth quarter of 2018 was up 133.4% from the same period a year ago, totaling $59.1 billion, the Federal Deposit Insurance Corp. (FDIC) reported in its Quarterly Banking Profile (QBP) released Thursday.
The FDIC said he improvement in net income – which was up $33.8 billion from the fourth quarter of 2017 – was led by higher net operating revenue and lower income tax expenses.
The agency also said loan balances were up, net interest margins improved, and the number of problem banks declined from 71 to 60 during the quarter – the lowest since the first quarter of 2007. It said community banks also turned in annual loan growth and a net interest margin that exceeded the overall industry. But Jelena McWilliams, the agency’s chairman, struck a cautionary note overall for the industry. “Low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield, and the recent flattening of the yield curve may present new challenges in lending and funding,” McWilliams said in opening Thursday’s presentation of the data. “Therefore, banks must maintain prudent management of these risks in order to support lending through this economic cycle.”
Highlights from the 4Q QBP include the following:
Quarterly net income was led by lower income tax expense, higher net operating revenue: Again, net income for the fourth quarter totaled $59.1 billion, up $33.8 billion year over year. After adjusting fourth quarters 2017 and 2018 to reflect the average effective tax rate prior to the 2017 tax law, quarterly net income would have been $50.3 billion in fourth quarter 2018, an increase of 18.5% from a year ago.
Full-year 2018 net income increases to $236.7 billion: The banking industry reported full-year 2018 net income of $236.7 billion, up $72.4 billion (44.1%) from 2017. Adjusted for tax reform effects, full-year 2018 would have been $207.9 billion, an increase of 13.6% from 2017.
Community banks’ 4Q net income rose $2.7 billion: The 4,979 insured institutions identified as community banks reported net income of $6.8 billion in the fourth quarter, up $2.7 billion (65.1%) from a year ago. Excluding the benefits of a lower effective tax rate, estimated fourth quarter net income would have increased by 11.2% from a year ago. Net operating revenue was up $1.4 billion to $24.3 billion due to increases in both net interest income and noninterest income. Loan-loss provisions declined 10.4%, and noninterest expenses increased 3.6% compared with a year earlier.
Net interest income rose 8.1% from 4Q 2017: Net interest income totaled $140.2 billion in the fourth quarter, a $10.5 billion (8.1%) increase from a year ago. More than four out of five banks (82.6%) reported an improvement in net interest income from a year ago. The average net interest margin was 3.48% in the fourth quarter, up from 3.31% a year ago.
Total loan and lease balances rose 4.4% over 12 months: Total loan and lease balances increased 2.1% from third quarter 2018, reflecting fourth-quarter growth in all major loan categories. Commercial and industrial (C&I) loans grew by $80.7 billion (3.9%) from the third quarter, and credit card balances, reflecting a seasonal increase in balances, rose by $47.2 billion (5.5%). Over the past 12 months, total loan and lease balances increased by 4.4%, up slightly from the 4% annual growth rate reported in 3Q 2018. Commercial and industrial loans registered the largest dollar increase from a year ago (up $156.2 billion, or 7.8%).
Noncurrent loan rate and net charge-off rate declined: The amount of loans that were noncurrent – 90 days or more past due or in nonaccrual status – decreased by $1 billion (1%) during the fourth quarter. Noncurrent balances for residential mortgages were down $2 billion (4.4%), and commercial and industrial loans were down $554.3 million (3.6%), but noncurrent balances for credit cards were up $1.6 billion (13.8%). The average noncurrent loan rate declined 3 basis points from the third quarter to 0.99%. Net charge-offs declined by $605.9 million (4.6%) from a year ago; the average net charge-off rate fell from 0.55% to 0.50%.
The FDIC said mergers during the fourth quarter absorbed 70 institutions; two new institutions were chartered, and there were no failures. The Deposit Insurance Fund (DIF) reserve ratio remained at 1.36% even as insured deposits rose.