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Banks See Boost in C&I Loans in Q1, but Regulators Warn of Lurking Risks

May 23, 2018, 08:00 AM
Filed Under: Economic Commentary
Related: FDIC, Interest Rates

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $56 billion in the first quarter of 2018, up $12.1 billion (27.5 percent) from a year ago. The improvement in earnings was attributable to higher net operating revenue and a lower effective tax rate. Financial results for the first quarter of 2018 are included in the FDIC’s latest Quarterly Banking Profile.

Of the 5,606 insured institutions reporting first quarter financial results, more than 70 percent reported year-over-year growth in quarterly earnings. The percent of unprofitable banks in the first quarter declined to 3.9 percent from 4.3 percent a year ago.  

Among the highlighs of the report, loan and lease balances increased by $31.3 billion from fourth quarter 2017, with commercial and industrial loans up by $38.6 billion

Meanwhile  noncurrent loan rates declined modestly, while net charge-off rates remained stable. The amount of loans that were noncurrent — 90 days or more past due or in nonaccrual status — declined by $3.9 billion (3.4 percent) during the first quarter. Noncurrent balances declined 3.4 percent for commercial and industrial loans (down $617.2 million). The average noncurrent loan rate declined to 1.15 percent from 1.20 percent in fourth quarter 2017. Net charge-offs increased by $540.6 million (4.7 percent) from a year ago, led by a $1.1 billion (16.3 percent) increase in net charge-offs for credit cards. The average net charge-off rate (0.50 percent) remained stable from a year ago.

“The banking industry once again reported positive results for the quarter,” Gruenberg said. “Higher net operating revenue and a lower effective tax rate boosted net income. Loan balances grew, net interest margins improved, and the number of ‘problem banks’ continued to fall. Community banks also reported a solid quarter with loan growth that exceeded the overall industry.”

“While results this quarter were positive, banks face a challenging operating environment in the latter stage of this economic expansion. An extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield. This has led to heightened exposure to interest-rate risk, liquidity risk, and credit risk. In addition, with the current expansion in its latter stage, the industry needs to be prepared to manage the inevitable downturn in order to avoid financial system disruption and sustain lending through the economic cycle.”

Read the report in its entirety here.

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