The FDIC has released their “Quarterly Banking Profile: Fourth Quarter 2018” report (1), which provides for a comprehensive summary of the most current financial results for the banking industry. The FDIC’s Quarterly release analyzes the economic and banking trends at the national and regional levels. Following is our summary of the reported data which is pertinent to Commercial Portfolios and Risk Management, as well as illustrating Community Bank performance indicators where available.
Commercial and Savings Bank institutions insured by the FDIC performed well in 4Q2018, with an aggregate net income of $59.1B, and an increase of $33.8B, or 133.4% year-over-year (YoY) increase. The improvement in net income has been primarily attributed to lower income tax rate expenses and higher net operating revenue –although, the gain was offset in part by higher loan-loss provisions and noninterest expense. The percentage of unprofitable banks in 4Q2018 declined to 6.5% from 16.6% a year ago.
Community Banks reflected an increase in the fourth quarter net income of $2.7B (65.1%) from a year earlier to $6.8B. Community Banks reported lower income tax expense and higher net interest income contribute to the improvement in earnings.
Net Interest Income
Due to the growth in interest-bearing assets and wider net interest margins, net interest income rose by $140.2B, up to $10.5B (8.1%) YoY. The majority of banks reported 82.6% YoY increase in net interest income. Net interest margin, or the difference between the interest income generated by banks or other financial institutions was 3.48% for this quarter and has shown improvement from the 3.31% margin in 4Q2017.
In 4Q2018 loan-loss provisions increased modestly and had reached its highest level since 4Q2012. In 4Q2018 banks set aside $14B in loan-loss provisions during the quarter. Loan-loss provisions rose by $397.3 million (2.9%) from 4Q2017, with close to 40% of all banks reporting increases in their reserves. Net operating revenue declined from 8.3% at year-end 2017 to 8.2%.
Total Loan and Lease Balances were $213B (2.1%) higher compared with the previous quarter.
The major loan categories registered quarterly increases; that was discussed are:
- Commercial and industrial loans increased by $80.7B (3.9%),
- Consumer loans (including credit card balances) rose by $52.2B (3.1%)
During the 12 months ended December 31, total loan and lease balances rose by $431.2B (4.4%), a slight increase from the 4% annual grow rate reported last quarter.
Reported year-over-year increases, led
- Commercial and Industrial loans, which increased by $156.2B (7.8%),
- Consumer loans (including credit card balances), which rose by $64.9B (3.9 %).
Net Charge off Rate
For the first time since 3Q2015, Banks charged off $12.6B in uncollectable loans during the quarter, a decline of $605.9million (4.6%) from a year ago. The largest contributing factor in this decline is within the commercial and industrial loan segment as this loan type had the largest annual dollar decline, down $522.6 million, or 23.4 percent. The annual dollar increases in net-charged offs was primarily driven by the credit card population which increased to $347.7 million, or 4.4%. The average net charge-off rate declined from 0.55% in 4Q2018 from 4Q2017 which was 0.50%.
A decline in net charge-off rates also occurred in the community banks landscape. Specific to Community Bank’s the net charge-off rate for loans declined 8 basis points to 0.14%. The net charge-off rate for C&I loans registered the greatest annual improvement (down 29 basis points to 0.36% YoY) despite a 9-basis point increase during the fourth quarter. The net charge-off rate for farm loans, which make up 7.9% of total loans and leases, increased 2 basis points since the year-ago quarter and 8 basis points during the quarter to 0.15%.
Noncurrent Loan Rate
Nonaccrual status, or 90 days or more past due were $1B (1%) lower than 3Q2018. More than half of all banks (53.3%) reported lower noncurrent loan balances.
Major contributors to the noncurrent loan rate decline is:
- Residential mortgages – declined by $2B (4.4%)
- Commercial and Industrial loans – declined by $554.3MM (3.6%)
- Credit cards – increasing by $1.6B (13.8%)
Number of Banks on the “Problem Bank List” declined to 60
At the end of 2018 the FDIC has reported a decline in the “Problem Bank List” from 71 to 60 institutions, the fewest since first quarter 2007. Some of the factors that come into play this past year were that total assets fell from $53.3B to $48.5B. During the 4Q2018, two new facets were reported on – 70 institutions were absorbed by mergers, and there were no bank failures. 2018 also showed that eight new charters were added, 259 institutions absorbed by mergers and there were no bank failures.
- Posted by Justin Hill
- On Tuesday March 19th, 2019
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