WASHINGTON — Ties to the energy sector hurt the banking industry in the first quarter as earnings fell 1.9% to $39.1 billion compared with a year earlier, the Federal Deposit Insurance Corp. said Wednesday.
But the agency's Quarterly Banking Profile also showed some encouraging signs, including strong loan and operating revenue growth.
"By many measures, the industry had a positive quarter," FDIC Chairman Martin Gruenberg said in prepared remarks for a briefing on the results. "However, banks are operating in a challenging environment."
He cited a rise in noncurrent loans tied to energy exposure, along with low trading income and net interest margins.
One good sign was growth in loan balances, which jumped by $100 billion, largely due to a $71 billion increase in commercial and industrial loans. The year-over-year 6.9% loan balance growth rate was the fastest since 2008, despite a $33 billion drop in credit card balances in the first quarter, which the FDIC attributed to consumers paying down the balances they had run up during the holiday season. Commercial real estate loans also helped drive the trend, shooting up by $38 billion.
Yet noncurrent loan balances also rose sharply; loans 90 days or more past due or in nonaccrual status rose by 2.4%, or $3.3 billion. C&I loans were the main culprit for this trend, the FDIC said.
Net operating revenue grew 2.7% to $172.9 billion year over year. Net interest income grew by 6.4%, or $6.7 billion — a faster clip than noninterest income, which declined 3.4%.
Loan loss provisions also grew 49.7% year-over-year (by $4.2 billion), prolonging a trend of growing reserves that has now lasted for seven quarters. Gruenberg said a "rising share" of loan losses is "attributable to stress in loans to oil and gas producers." The loan-loss growth was the largest quarterly increase since the fourth quarter of 2012.
Many community banks were apparently sheltered from energy exposure, with their net income growing 7.4% year over year and the percentage of unprofitable banks declining to the lowest level since 1998. Net interest income for community banks helped drive the strong quarter: It rose 8.2% from a year earlier, to $17.5 billion.
"Community banks reported another solid quarter, as most of the industry's trading operations and direct loans to oil and gas producers are in larger institutions," Gruenberg said.