| The banking industry boosted earnings in the second quarter of 2017 with net income for the quarter surpassing $48 billion, a 10.7 percent increase from one year ago, according to data from the Federal Deposit Insurance Corp.
Community banks reported net income of $5.7 billion in the second quarter, an increase of 8.5 percent from a year earlier.
Nearly two-thirds of all banks reported year-over-year growth in quarterly net income, according to FDIC data, and only 4 percent of banks reported a net loss during the second quarter.
“This was another positive quarter for the banking industry, as performance improved compared to last quarter and a year ago,” FDIC Chairman Martin Gruenberg said in a statement. “Revenue and net income growth were both strong, profitability reached a post-crisis high, net interest margins improved and the number of unprofitable banks and ‘problem banks’ continued to fall.”
Overall, the banking industry reported a net interest margin of 3.22 percent, up from 3.08 percent one year ago.
Community banks continued to outperform with a NIM of 3.61 percent, but Gruenberg in his remarks said the gap between community banks and larger banks on the NIM has narrowed.
Rising short-term interest rates have benefited larger institutions more than community banks because large institutions have a greater share of assets that reprice quickly, he said.
Loan balances through the second quarter increased $161 billion, with all major loan categories registering growth in the second quarter.
Loan growth continued to be stronger at community banks in the second quarter than the rest of the industry, with 2.7 percent growth during the quarter and 7.8 percent growth over the past year.
Community banks, which account for 43 percent of the industry’s small loans to businesses, also continued to increase their lending to small businesses at a faster pace than the industry.
Gruenberg pointed out, however, that the low interest rate environment is posing challenges for many banks.
“Some banks have responded to this environment by ‘reaching for yield’ through higher-risk and longer-term assets,” he said. “The industry must manage interest-rate risk, liquidity risk and credit risk carefully to remain on a long-run, sustainable growth path. These challenges will continue to be a focus of supervisory attention.”
Banks have been extending asset maturities to increase yields and maintain margins in a low-rate environment, leaving many institutions vulnerable to interest-rate risk, he said; community banks are particularly vulnerable to interest-rate risk because half of their assets mature or reprice in three or more years.
Overall, the FDIC reported strong asset quality and declining net charge-offs in most loan categories except credit card and auto loan charge-offs, which had a higher amount than one year ago.
The number of banks on the FDIC’s problem bank list fell from 112 to 105 during the quarter, the smallest number of problem banks since the first quarter of 2008. Three banks failed during the second quarter.
