FDIC: Widening Interest Margins Drive Bank Revenue Growth

FDIC-insured banks and savings institutions earned $47.9 billion in the third quarter, up 5.2 percent from the industry’s earnings a year before, the FDIC said today. The rise in net earnings was largely driven by a 7.4 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 1.12 percent — up from 1.1 percent a year before.

“America’s banks continued their solid performance in the third quarter and remain well positioned to finance growth over the next year with strong capital, earnings and asset quality,” said ABA Chief Economist James Chessen. “The industry’s strong results came against the backdrop of the significant financial distress many businesses and individuals faced after the recent hurricanes.”

With interest rates slowly rising, net interest margin improved to 3.3 percent, up from 3.18 percent the year before and the highest level in nearly five years. Noninterest income was 1 percent lower compared to the same point in 2016, driven by declines in servicing fees, trading income and gains on loan sales.

Total loans and leases rose by 3.5 percent over third-quarter 2016 figures, a decline from the 3.7 percent annual rate the quarter before. While loan growth remains robust, the rate of growth slowed for the fourth consecutive quarter — a trend that FDIC Chairman Martin Gruenberg said was “not unusual at this stage of the credit cycle.” Community banks reported more than double the loan growth of the industry as a whole, with loans balances 7.3 percent higher than a year before. Community banks also earned $6 billion in net income during the third quarter, up 9.4 percent from the same time last year.

Chargeoffs rose 8 percent year-on-year to $813 million, which Chessen attributed to extensive hurricane damage. “The devastation did lead to a noticeable increase in past-due accounts, and spurred banks to take the conservative step of adding to their reserves for potential losses,” he said. Across the industry, capital rose by 0.8 percent to $1.95 trillion. Two de novo institutions were added in the third quarter. The number of institutions on the problem bank list dropped from 104, the fewest since 2008, and the Deposit Insurance Fund balance rose to $90.5 billion during the quarter.