Banks’ net income up 4.1% year over year in 2Q, FDIC reports

DIF report shows $320 million in small-bank assessment credits to be applied

Aggregate net income for the nation’s 5,303 federally insured banks and savings institutions totaled $62.6 billion in the second quarter of 2019, up $2.5 billion – or 4.1% – from the same time one year ago, according to data released Thursday by the Federal Deposit Insurance Corp. (FDIC).

The FDIC said the growth was due to a $4.9 billion, or 3.7%, increase in net interest income. It added that nearly 60% of all institutions reported a year-over-year increase in net income, and less than 4% of institutions were unprofitable. The average return on assets remained stable at 1.38%, it said.

The second-quarter figures, from the agency’s latest Quarterly Banking Profile (QBP), also showed an 8.1% increase, year over year, in net income for the 4,873 community banks reporting. Net income rose $522.7 million to a total of $6.9 billion during the 12-month period. Net interest income for community banks rose 5.1% to $19.3 billion, and noninterest income was up 4.8% to $4.7 billion.

The FDIC said gains on community banks’ securities sales – which rose 654.8% to $233 million – drove the annual increase in profitability. “Combined growth in these areas offset increases in noninterest expense (up 5.6 percent to $15.3 billion) and provision expense (up 2.2 percent to $672.7 million),” the agency said.

Source: FDIC

In other highlights, the QBP shows that:

  • Total loan and lease balances rose by $152.2 billion (1.5%) from first quarter 2019. Growth among major loan categories was led by consumer loans, which includes credit cards (up $42.2 billion, or 2.5%) and residential mortgage loans (up $38.3 billion, or 1.8%). Over the past 12 months, total loan and lease balances rose by 4.5%, a slight increase from the 4.1% annual growth rate reported last quarter. Commercial and industrial loans registered the largest dollar increase from a year earlier (up $142.7 billion, or 6.9%).
  • Asset quality indicators improved modestly. The amount of noncurrent loans (90 days or more past due or in nonaccrual status) fell $4.9 billion (4.8%) during the second quarter. Noncurrent balances declined for all major loan categories, especially for residential mortgages (down $2.1 billion, or 5%) and credit card balances (down $1.1 billion, or 8.7%). The average noncurrent loan rate declined by 6 basis points from the previous quarter to 0.93%. Net charge-offs increased by $1.1 billion (9.3%) from a year ago, and the average net charge-off rate rose to 0.50%.

The FDIC said the number of “problem banks” declined from 59 to 56 during the second quarter, the lowest number of problem banks since the first quarter of 2007. Five new banks opened, and 60 were absorbed in merger transactions. There was one bank failure, the agency said.

Meanwhile, the FDIC Deposit Insurance Fund’s (DIF) reserve ratio grew 4 basis points to 1.4%. The fund balance grew $2.6 billion from the previous quarter to $107.4 billion.

In a second-quarter report on the DIF, the agency said it will apply about $320 million in assessment credits to offset the second-quarter assessments of small banks; assessments are due Sept. 30.

In the report, the FDIC noted that small banks earned a total of $765 million in credits for the portion of their assessments that contributed to growth in the DIF reserve ratio from 1.15% to 1.35%. The credits are automatically applied to offset the assessments of small banks when the reserve ratio is at least 1.38%.

FDIC Quarterly Banking Profile release

FDIC Deposit Insurance Fund trends