Second Quarter Bank Profits Rebound to Post-Crisis High

bank profits

Bank profits were higher for the second quarter of 2017 than they have been since the economic crisis, according to the Quarterly Banking Profile released by the Federal Deposit Insurance Corp. (FDIC). Quarterly net income rose 10.7% for the quarter compared to Q2 2016 and totaled $48.3 million.

Higher Bank Profits Due to Interest Income

According to the FDIC, the higher bank profits can be attributed to a $10.3 billion or 9.1% increase in net interest income, compared to the same quarter last year. Banks also reportedly did a relatively good job of limiting growth in operating expenses for the quarter.

Of the 5,787 insured institutions reporting second quarter financial results, 63.4% reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the first quarter fell to 4.1 percent from 4.6 percent the same quarter last year.

“This was another positive quarter for the banking industry,” FDIC Chairman Martin J. Gruenberg said in a press release. “Revenue and net income growth were both strong, profitability reached a post-crisis high, and net interest margins improved. While the quarterly results were largely positive, the operating environment for banks remains challenging.”

Community Bank Profits Up, But Loan Growth Sluggish

“Community banks also reported another solid quarter of revenue, net income, and loan growth,” Gruenberg said. “However, as the economy enters the ninth year of an expansion characterized by modest growth, the annual rate of loan growth continued to slow for a third consecutive quarter. The industry must manage interest-rate risk, liquidity risk, and credit risk carefully to remain on a long-run, sustainable growth path.”

Community Bank net income rose 8.5% from a year ago. The 5,338 insured institutions identified as community banks reported a $444.5 million increase in net income.

The rate of annual loan growth remained sluggish in Q2, rising by 3.7% over the same quarter last year. This was the third consecutive month loan growth has slowed, with total loans and leases rising just 1.7%, or $161.2 billion, from the first quarter.

Two Statistics that Signal Caution

Beyond the slowing loan growth, there were a couple FDIC statistics that raise some concern. First, there was an 11.2% increase in charge-offs over Q2 2016, with credit card charge-offs alone up 24.5%, or $1.4 billion. Second, the proportion of assets with a three year or more maturity timeline stagnated at 35.4%, remaining close to the all-time high of 35.5% reached two quarters ago.

“Banks have been extending maturities to increase yields and maintain margins in a low-rate environment,” Gruenberg said. “However, this has left many institutions vulnerable to interest rate risk.”

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