Bank Loan Growth Slows in First Quarter

Loan growth slowed across all major lending categories in the first quarter, according to the FDIC’s Quarterly Banking Profile released today. Total loan and lease balances rose by $358.1 billion, or 4 percent, year-on-year. The first quarter also saw total loan balances decline by 0.1 percent, the first quarterly decline since 2013.

“As the U.S. economy approaches the end of the eighth year of expansion, a slowdown in loan growth is not unusual at this stage of the credit cycle,” said FDIC Chairman Martin Gruenberg. “It is also worth noting that despite the slowdown, loan growth has remained at or above nominal GDP growth, which is a typical benchmark against which loan growth is compared.”

However, FDIC-insured banks and savings institutions earned $44 billion in the first quarter, 12.7 percent higher from the industry’s earnings a year before. The rise in net earnings was driven largely by 6.3 percent growth in net operating revenue and a 4.3 decline in loan loss provisions — the first time in the past 11 quarters banks have reduced what they set aside for losses.

“Banks took a more cautious approach to lending, reflecting lingering uncertainty about the direction of the economy,” said ABA Chief Economist James Chessen. “While lending moderated a bit from its rapid pace last year, it remains on target to grow about 5 percent in 2017. The pace of borrowing for the rest of the year will largely depend upon whether the cloud of uncertainty lifts.”

Community banks earned $552.9 million in net income during the first quarter, up 10.4 percent from the same time last year. The proportion of banks that were unprofitable in the first quarter was at 5.1 percent. Banks also saw capital levels increase in the first quarter. Across the industry, capital rose to $1.89 trillion, a 1.5 percent increase over last year.

“With strong capital levels, continued deposit growth and higher asset quality, the industry is well prepared for any ups and downs in the road ahead,” Chessen added. According to the FDIC report, the number of institutions on the problem bank list dropped from 123 to 112, a nine-year-low, and the Deposit Insurance Fund balance rose to $84.9 billion during the quarter. One true de novo charter, in Costa Mesa, Calif., was reported during the quarter.