Interest income pushes 1Q bank earnings up 9% to $61B: FDIC

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WASHINGTON — More than 66% of the banking industry reported a jump in net income during the first quarter as earnings continued to rise largely due to growth in interest income, the Federal Deposit Insurance Corp. said Wednesday.

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, according to the FDIC’s quarterly report on the industry’s health. Nearly two-thirds of banks saw increases in net income from a year earlier and less than 4% were unprofitable, the agency said.

“This was another positive quarter for the banking industry,” said FDIC Chairman Jelena McWilliams in prepared remarks. “Quarterly net income improved from a year ago, led by higher net interest income. Net interest margins widened, asset quality indicators remained stable, and the number of ‘problem banks’ remains low.”

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.

However, FDIC officials cautioned Wednesday that banks face “new challenges” in funding risks due to interest rate trends.

“With the recent stabilization of interest rates, new challenges for banks in lending and funding may emerge. The competition to attract deposits and loan customers is strong, and therefore, banks need to maintain rigorous underwriting standards and prudent risk management,” McWilliams said in her remarks. “These factors have increased banks’ exposure to interest rate, liquidity and credit risk.”

The FDIC said asset quality remains “stable” despite a slight increase in the loans that were noncurrent for 90 days or more past due. Noncurrent loans rose by $461.6 million, or half a percent, from the previous quarter largely within commercial and industrial loans.

Net charge-offs also increased in the first quarter by 5.5% to $12.7 billion compared to a year earlier mainly due to credit card losses. The net charge-off rate for credit cards has risen for eight of the past 10 quarters, the FDIC said.

Loan growth lost a bit of momentum as total loan and lease balances grew 4.1% during the first quarter from the same point a year earlier. But total loans and leases fell by $4.8 billion from the fourth quarter. Commercial and industrial loans grew 1.1% (or $37.7 billion) from a year earlier, but that increase was offset by credit card balances, which fell by 4.8% (or $43.5 billion), the FDIC said.

The FDIC's "problem bank list" dropped by one institution to 59, the lowest level since the first quarter 2007. Total assets of problem banks dropped 4% to $48.5 billion. During the first quarter, mergers absorbed 43 institutions while one new charter was added, the FDIC said.

The Deposit Insurance Fund's ratio of reserves to insured deposits stayed steady at 1.36%.

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Earnings Net interest margin Commercial lending Credit cards Interest rate risk Jelena McWilliams FDIC