Rising Rates, Strong Economy Drive Higher Q2 Bank Profits

FDIC-insured banks and savings institutions earned $60.2 billion in the second quarter, a 25.1 percent increase from the industry’s earnings a year before, the FDIC said today. The agency attributed the growth to higher net operating revenue and the continuing effects of the 2017 tax reform law. American Bankers Association Chief Economist James Chessen also attributed earnings growth to economic conditions. ​“The banking industry’s strong performance reflected the robust economy in the second quarter,” he said. ​“While banks, like other industries, benefited from tax reform, the FDIC noted that bank earnings grew roughly 12 percent independent of the lower effective tax rate. The real driver of earnings was strong lending by banks.”

As interest rates continued to rise, net interest income rose 8.7 percent; noninterest income rose by only 2 percent year-on-year, outpaced by noninterest expense, which grew by 4.6 percent and was driven by higher salaries and benefits. Average return on assets rose by 24 basis points from a year before to reach 1.37 percent, and average net interest margin rose by 16 basis points to 3.38 percent. Total deposits dipped by 0.4 percent from the previous quarter.

Community banks earned $6.5 billion during the second quarter, up 21.1 percent from the same period last year. They also reported an 8 percent increase in net interest income and a 4.5 percent increase in noninterest income. Community banks’ loan and lease growth rate continued to exceed that of the broader industry, rising by 7 percent year-over-year, compared to 4.2 percent for all banks.

Net charge-offs rose 4 percent from a year ago, a slower pace than the previous quarter, while the amount of loans that were 90 or more days past due declined by 6.8 percent from the first quarter. Meanwhile, the number of institutions on the problem bank list fell to 82, and two de novo banks were added in the first quarter. The Deposit Insurance Fund balance rose by $2.5 billion during the quarter to total $97.6 billion.