Bank industry earnings set yet another record in 2Q: FDIC

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WASHINGTON — The banking industry posted another record profit in the second quarter despite apparent tightening in net interest margins, the Federal Deposit Insurance Corp. said Thursday.

The nation’s 5,303 FDIC-insured institutions earned net income of $62.6 billion, an increase of 4.1% from the same time in 2018 and yet another all-time high. Net interest income grew 3.7% from a year earlier to $139 billion. The FDIC also attributed higher profits to growth in realized securities gains.

Yet despite growth in net interest income, the FDIC said it was the weakest year-over-year growth rate since the end of 2015. The average net interest margin reached 3.39%, nine basis points lower than the margin at the end of last year. Still, the net interest margin was up one basis point from a year earlier.

In remarks prepared for the FDIC’s release of Quarterly Banking Profile, FDIC Chairman Jelena McWilliams highlighted the positive results but said banks need to be vigilant as they manage risks from the low interest rate environment.

"With the recent lowering of short-term rates and inversion of the yield curve in the second quarter, new challenges for banks in lending and funding may emerge,” McWilliams said. “The competition to attract and maintain loan customers and deposits is strong, and therefore, banks need to maintain rigorous underwriting standards and prudent risk management.”

Noninterest income fell by 2.7% from last year, owing largely to a decline in service and investment fees. And the value of uncollectable loans reported by banks ticked upward by 9.3% to $12.8 billion.

But overall, the report pointed to a healthy banking sector. Almost 60% of all banks reported an annual increase in net income from last year, and less than 4% of banks were unprofitable. And more than 75% of banks reported an increase in net income in the same period.

Loans continue to grow, albeit slowly. Balances rose by $152.3 billion from the previous quarter, or about 1.5%, and deposits followed suit with an increase of $114 billion, or 0.8%.

The number of “problem banks” watched by the FDIC also ticked down by three, from 59 to 56. Their total assets increased about 3.8%, from $46.7 billion to $48.5 billion.

Community banks performed particularly well in the second quarter. Their income grew by 8.1% to $6.9 billion, driven in large part by a 656% increase in securities sales as well as a 5.1% increase in net income. More than 96% of community banks reported a profit, according to the FDIC.

And community banks' average net interest margin continues to outpace the industry at large, reaching 3.68%. Yet that was down 1 basis point from a year earlier. Loan and lease balances increased by 2.2% in the second quarter, to $1.6 trillion, and 73% of community banks reported higher loan balances overall.

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