Interest Income Boosts Bank Profits in Second Quarter

FDIC-insured banks and savings institutions earned $48.3 billion in the second quarter, up 10.7 percent from the industry’s earnings a year before, the FDIC said today. The rise in net earnings was largely driven by a 9.1 percent increase in net interest income as the Federal Reserve continues the process of normalizing interest rates, the agency said. Return on assets, a benchmark for industry performance, hit 1.14 percent — a level not seen since 2007.

“America’s banks continue to finance the businesses that drive growth and create jobs,” said ABA Chief Economist James Chessen. “Small business lending was particularly strong in the second quarter, showing confidence by entrepreneurs that our eight-year expansion will continue well into 2018.”

With interest rates slowly rising, net interest margin improved to 3.22 percent, up from 3.08 percent the year before and the highest level since 2013. Higher net interest margins were reported at larger institutions, which have a greater share of assets that reprice or mature in the short term. Noninterest income was 1 percent higher compared to the same point in 2016.

Total loans and leases increased by 1.7 percent, or $161.2 billion, during the second quarter. While loan growth remains strong — with FDIC Chairman Martin Gruenberg noting that it has been at or above nominal GDP growth — the rate of growth slowed for the third consecutive quarter. Residential mortgages grew by 1.8 percent, credit card balances by 3.1 percent and commercial loans by 1.1 percent. Banks set aside $12 billion in second-quarter loan loss provisions, up 2.3 percent from 2016, and noninterest expenses rose by 3.3 percent.

Community banks earned $5.7 billion in net income during the second quarter, up 8.5 percent from the same time last year. Loan growth at community banks outpaced the industry as a whole at 2.7 percent; community bank C&I loans to businesses rose by 3.1 percent.

The industry continued to report improvements in other metrics of industry health, with the proportion of banks that were unprofitable in the second quarter falling to 4.1 percent. Across the industry, capital rose by 2 percent to $1.9 trillion. According to the FDIC report, the number of institutions on the problem bank list dropped from 112 to 105, the fewest since 2008, and the Deposit Insurance Fund balance rose to $87.6 billion during the quarter.

However, “while today’s report points to an industry that is healthy and robust as a whole, it also reveals the significant regulatory challenges facing the nation’s banks,” Chessen added. “Compliance costs helped push 62 smaller banks to merge or sell in just a three-month period. Not a single new bank started this past quarter, which is shocking in a growing economy and drives home the need for Congress to enact common-sense reforms to ease the burden on banks.”