5 takeaways on industry’s health, from FDIC’s 1Q report

May 29, 2019 4:09 PM

Wider net interest margins compared to a year earlier helped make up for a slight decline in loan balances, as nearly two-thirds of banks reported higher profits in the first quarter, the FDIC said in its Quarterly Banking Profile. Here are key takeaways from the report.

Loan balances fall for second time in five years

Total loan and lease balances fell slightly from the prior quarter, down $4.8 billion or 0.05% — just the second time a decline has been reported over the past five years. Still, loan balances rose $395 billion, or 4.1%, over the previous 12 months.

Consumer loans, including credit card balances, fell by $37 billion, or 2.1%, from last quarter, while commercial and industrial loans increased by $37.7 billion, or 1.7%.

All of the major loan categories reported year-over-year increases, with commercial and industrial loans leading — up $155.6 billion, or 7.6%. At the same time, consumer loans grew $71.3 billion, or 4.4% since a year earlier.

Net income grew nearly 9% from a year earlier

Banks' net income jumped 8.7% to $60.7 billion from a year earlier, helped by an $8 billion increase in net interest income, which totaled $139.3 billion. Nearly two-thirds of banks saw increases in net income from a year earlier and less than 4% were unprofitable.

The average net interest margin for banks — the amount banks earn from interest against the amount they pay out — grew to 3.42% from 3.32% a year ago. More than 79% of the 5,362 insured banks reported higher net interest income.

Community bank loan growth outpaced the industry at large

Loan growth rates for community banks outpaced the rest of the industry, both on a quarterly and year-over-year basis. Loans at smaller institutions rose during the quarter by 0.9% to $1.6 trillion, a 6.6% jump from the previous year. Nearly 60% of community banks reported higher loan balances compared to the previous quarter. During the first quarter, commercial and industrial loans rose by 1.5% and construction and development loans rose by 2.2%.

“Annual loan growth was broad based as every major loan category increased, and nearly eight out of ten (79 percent) community banks reported higher loan balances year over year,” the FDIC report said.

Noncurrent, charge-off rates remained unchanged

The FDIC reported that the ratios of noncurrent loans to total loans, as well as net charge-offs to total loans, remained unchanged. This is despite the fact that net charge-offs increased by over 5% from a year earlier, with the increase in credit card charge-offs leading the way at 6.6%. The noncurrent loan rate remained below 1% as less than half of all banks reported increases in noncurrent loans. Noncurrent C&I loans rose by 22.8% from the previous quarter, but banks “continued to reduce noncurrent loans for residential mortgages, which declined by $2.2 billion (5 percent) from the previous quarter.”

Largest decline in FHLB advances since first quarter of 2010

Even though the industry’s nondeposit liabilities grew by 2.5% from the previous quarter, outstanding Federal Home Loan Bank advances on institutions’ balance sheets declined by 8.8%, or $50.3 billion. It was the largest quarterly drop, on a dollar basis, in FHLB advances since the first quarter of 2010.