Seven Key Takeaways from FDIC's Industry Scorecard
June 1, 2015 9:00 AM
U.S. banks enjoyed their ninth straight quarter of total profits exceeding $35 billion, according to the Federal Deposit Insurance Corp.'s first-quarter report on the industry's health. The FDIC said the growth in net income was "broad-based", spurred by a solid increase in net operating revenue, while community banks once again outpaced the industry at large. Here are some key takeaways.
(Nearly) Everyone's a Winner
Not only did the industry as a whole score a 6.9% increase in earnings, but very few banks individually lost money during the quarter. Nearly two out of every three banks had higher net income than a year earlier, while only 5.6% of institutions had a net loss. "This is the lowest percentage of unprofitable institutions since second quarter 2005," the FDIC report said.
Trading Income Surged
Net operating revenue rose 2.6% from the previous year, helped in part by a 4.6% jump in noninterest income. Among the factors boosting revenue was nearly 24% growth in trading income, which totaled more than $7.6 billion.
Revenue Helped by Loan Sales
The industry enjoyed a 15.6% increase compared with a year earlier in noninterest income from the sale, securitization and servicing of residential mortgages. That growth was a lot higher for community banks, which saw such income jump nearly 73% from the first quarter of 2014. But at the agency's briefing to release the report, FDIC Chairman Martin Gruenberg noted that mortgage-related noninterest income is still below pre-2013 levels.
Interest Margins Are Ever Tighter
Revenue and net interest income were stronger in spite of the continued squeezing of net interest margins. The industry's average net interest margin fell 14 basis points from a year earlier to 3.02%. The FDIC said high-yielding assets, which matured, were replaced by lower-yielding investments. Only 43.2% of banks had a higher net interest margin from a year earlier.
End of Reserve Phasedown Draws Near
Just as banks set aside a higher amount of loan-loss provisions compared with a year earlier for the third consecutive quarter, the FDIC said the decline in the industry's overall amount of loss reserves eased. Loss reserves declined 1.3% from the previous quarter to $121 billion. Although it was the 20th straight quarter of lower reserves, the quarterly decline was the smallest registered over that entire period, and the average ratio of reserves-to-loans of 1.45% was the lowest level since 2007.
Lending Stayed on the Rise
Bank lending kept its momentum with total loans growing by $52.5 billion or 0.6% from the previous quarter. Loan balances have now risen in all but one of the last 12 quarters. The loan growth rate for community banks of 1.3% outpaced that for non-community banks, which totaled 0.5%. For the industry, commercial loans grew by 1.9%; loans secured by nonfarm, nonresidential real estate grew by 1.2%; and residential mortgages grew by 0.7%.
Hiring at Community Banks Boomed
While the industry's noninterest expenses grew by 1.2% from a year earlier, those expenses rose by 5.9% for community banks. The FDIC said the higher expenses for community banks were significantly due to an 8.2% growth in salary employment benefits. "Full-time employees at community banks totaled 439,114 in first quarter 2015, up 8,789 (2%) from a year earlier, while noncommunity banks reduced fulltime employees by 3,794 (0.2%)," the FDIC report said.
