Banks’ Net Income Rises Strongly in Third Quarter

FDIC-insured banks and savings institutions earned $45.6 billion in the third quarter, up 12.9 percent from the industry’s earnings a year before, the FDIC said today. The rise in net earnings was largely driven by a $10 billion increase in net interest income and a $1.2 billion rise in non-interest income, the agency said.

“American banks continue to spur economic growth with another strong quarter of activity,” said American Bankers Association Chief Economist James Chessen. “Banks are well-positioned to meet the needs of customers seeking to manage their finances or expand their businesses.”

Total loan balances increased by $590.8 billion, or 6.8 percent, from a year prior. Residential mortgages rose by 2.2 percent during the quarter, while real estate loans secured by non-farm, non-residential real estate properties rose by 1.5 percent and credit card balances grew by 2.1 percent. ““Lending rose to an all-time high,” Chessen added. “Small business loan growth was particularly strong at community banks, which reflects a broad-based improvement in economic conditions in many communities across the country.”

However, the FDIC report also noted continued growth in loan-loss provisions — up 34 percent year-on-year — in response to rising levels of troubled loans to commercial and industrial borrowers. Net charge-offs during the third quarter rose by 16.9 percent year-over-year to $10.1 billion, with a sharp spike of 82.7 percent in charge-offs on C&I loans. As loss provisions exceeded charge-offs, loss reserves rose by 0.3 percent.

Community banks earned $5.6 billion in net income during the third quarter, up 11 percent from the same time last year. The proportion of banks that were unprofitable in the third quarter fell from 5.2 percent in 2015 to land at 4.6 percent — the lowest level since 1997.

Banks also saw capital levels increase in the third quarter. Across the industry, capital rose to $1.89 trillion, a 0.9 percent increase over last year. The number of institutions on the problem bank list dropped from 147 to 132, and the Deposit Insurance Fund balance rose to $80.7 billion during the quarter.