Strong Economy, Tax Law Drive Strong Bank Performance in Q1

FDIC-insured banks and savings institutions earned $56 billion in the first quarter, a 27.5 percent increase from the industry’s earnings a year before, the FDIC said today. The increase was attributed to higher net operating revenue and the effects of the 2017 tax reform law, the agency said. In the absence of the tax law, income would have risen only 12.6 percent from the previous year. As interest rates continued to creep up, net interest income rose 8.5 percent, and noninterest income also reported strong growth of 7.9 percent year-on-year. Average return on assets rose by 24 basis points from a year before to reach 1.28 percent, and average net interest margin rose 8.5 percent to 3.32 percent.

Community banks earned $6.1 billion during the first quarter, up 17.7 percent from the same period last year. Community institutions also reported a 9.7 percent increase in net interest income and a 2.9 percent increase in noninterest income. Community banks’ loan and lease growth rate exceeded that of the broader industry, rising by 7.4 percent year-over-year, compared to 4.9 percent for banks as a whole. Industry-wide, credit card balances saw the strongest year-over-year growth at 8.5 percent, while home equity lines of credit continued shrinking.

“A broad-based uptick in lending, increased non-interest income such as trading revenue and a lower effective tax rate all contributed to a notable increase in net income,” said ABA Chief Economist James Chessen. “Tax reform has allowed an already strong banking industry to grow even stronger, and to increase safety and soundness. It has added to bank capital levels, which now stand at nearly $2 trillion, and will allow institutions to increase lending to meet future demand.”

Net charge-offs rose 4.7 percent from a year ago, while the amount of loans that were 90 or more days past due declined by 3.4 percent from the fourth quarter. Meanwhile, the number of institutions on the problem bank list fell to 92, and three de novo banks were added in the first quarter. The Deposit Insurance Fund balance rose $2.3 billion during the quarter to total $95.1 billion.