FDIC: Loan Growth Drives Bank Earnings Increase

FDIC-insured banks and savings institutions earned $43 billion in the second quarter, up 7.3 percent from the industry’s earnings a year before, the FDIC said today. A $3.6 billion rise in net operating revenue — including a 2.3 percent increase in net interest income and a 1.9 percent increase in noninterest income — drove the earnings increase.

Total loans and leases increased $185 billion, or 2.2 percent, during the quarter – up 5.4 percent from a year earlier. For community banks, loan balances grew 2.7 percent during the quarter and were up 8.8 from a year earlier.

Community banks earned $5.3 billion in the quarter, a 12 percent increase from a year ago; and nearly 60 percent of community banks saw higher year-over-year earnings. Net interest income rose 6.2 percent at community banks, while noninterest income increased 14.2 percent year-on-year. Noninterest expenses rose by 7.1 percent for community banks.

In releasing the results, FDIC Chairman Martin Gruenberg noted broad improvement in income growth and asset quality and the fact that just one bank failed during the quarter. “However, the banking industry continues to face challenges. Revenue growth has lagged behind asset growth, as exceptionally low interest rates put downward pressure on net interest margins,” he said. “Many institutions have responded by reaching for yield, which is a matter of ongoing supervisory attention.

The average industry-wide return on assets edged up to 1.09 percent. Asset quality continued to improve; charge-offs were $1.1 billion in the second quarter, down 11.2 percent from a year earlier, and noncurrent loan balances fell for the 21st straight quarter. The number of institutions on the problem bank list dropped to 228, the lowest in seven years, and the Deposit Insurance Fund balance rose to $67.6 billion, bringing the DIF reserve ratio to 1.06 percent.