Banks See First Quarter Drop in Net Income

FDIC-insured banks and savings institutions earned $39.1 billion in the first quarter, down 1.9 percent from the industry’s earnings a year before, the FDIC said today. The decline in net earnings was largely driven by a $4.2 billion increase in provisions for loan losses set aside to recognize future loan losses –particularly to loans close to the volatile energy sector — and a $2.2 billion decline in noninterest income, the agency said.

“While most institutions saw an increase in earnings, banks continue to experience the lingering effects of the slowdown in the oil and gas sector and weaker-than-expected economic growth,” said ABA Chief Economist James Chessen. “These challenges have led to greater provisioning against possible losses, which is prudent management to ensure resources are available in a turndown.”

Despite the decline in net income, lending remained strong in the first quarter. Loans to small businesses were up 6 percent from 2015, and lending to all businesses saw a 9 percent increase from last year. Construction and development loans rose 16 percent year-over-year, the largest increase since 2007. Total loan and lease balances increased 1.1 percent to $99.7 billion.

Community banks earned $5.2 billion in net income during the first quarter, up 7.4 percent from the same time last year. The proportion of banks that were unprofitable in the first quarter fell slightly from 2015 to land at 5 percent — the lowest level since the first quarter of 1998.

Banks also saw capital levels increase in the first quarter. Across the industry, capital rose to $1.8 trillion, a 4 percent increase over last year. “Banks continue to set aside funds to cover possible loan losses. Combined with strong capital levels, this ensures the industry is well equipped to handle any economic circumstance that could arise,” Chessen said. According to the FDIC report, the number of institutions on the problem bank list dropped from 183 to 165, and the Deposit Insurance Fund rose to $75.1 billion during the quarter.