Banks – in ‘strong shape’ – see net income top $60 billion in Q1 ’19

Net income at federally insured banks and thrifts was $60.7 billion in the first quarter of this year, up 8.7% (or $4.9 billion) from the same quarter a year earlier, the federal insurer of bank deposits said Wednesday, with agency officials saying banks were in strong shape.

In a statement and news conference, the Federal Deposit Insurance Corp. (FDIC) said the increase in net income was “mainly attributable” to a $7.9 billion increase in net interest income (a 6% increase from the previous period). The agency reported the first-quarter performance results in releasing its Quarterly Banking Performance Report (QBP) for the first quarter of 2019.

Significantly, the FDIC reported that almost two-thirds of all federally insured banks and thrifts reported annual increases in net income; less than 4%, the FDIC said, of institutions were unprofitable.  The average return on assets increased to 1.35%, up from 1.28% a year earlier, the agency said.

In a press conference, FDIC Director of Insurance and Research Diane Ellis said the banking industry is “in pretty strong shape.”

“Based on these results, by just about any measure, right now the industry is in pretty good shape – in strong shape,” she said. She acknowledged, in answering a reporter’s question, that there are “always things to be concerned about” and that the FDIC acknowledged some of those concerns in its report (citing the flattening of the yield curve and low prices in the agricultural sector). “But, the good news is, whatever the future may hold with regard to these challenges, the banking industry is entering that period in pretty strong condition.”

The FDIC also said its QBP showed:

  • Net interest income was up 6% over the past 12 months, totaling $139.3 billion in the first quarter, up $7.9 billion from first quarter 2018. Nearly four out of five banks (79.3%) reported an improvement in net interest income from a year earlier.
  • Asset quality indicators remain stable: The amount of loans that were noncurrent – 90 days or more past due or in nonaccrual status – increased by $461.6 million (0.5%) during the first quarter. Noncurrent balances declined for residential mortgages (down $2.2 billion, or 5%), but they increased for commercial and industrial loans (up $3.3 billion, or 22.8%). Net charge-offs increased by $667.8 million (5.5%) from a year ago, but the FDIC said the average net charge-off rate remained unchanged (0.50%).
  • The number of “problem banks” dropped to 59 from 60 during the first quarter, which the agency said was the lowest number of problem banks since first quarter 2007.  Total assets of problem banks declined from $48.5 billion in the fourth quarter to $46.7 billion.  During the first quarter, merger transactions absorbed 43 institutions, one new charter was added, and no failures occurred.
  • The Deposit Insurance Fund’s reserve ratio remained 1.36%, increasing $2.3 billion from the previous quarter to $104.9 billion. The increase was mainly driven by assessment income, interest income, and unrealized gains on securities held by the DIF, the agency said.

FDIC-Insured Institutions Report Net Income of $60.7 Billion in First Quarter 2019