FDIC-insured banks saw net income tick up during the second quarter, but rising past-due loans and charge-offs to C&I borrowers raised regulators’ attention in the period ended June 30.
The industry as a whole posted aggregate net income totaling $43.6 billion in the second quarter, representing an increase of 1.4 percent or $584 million from the year-ago period. The FDIC attributed that mainly to a $5.2 billion increase in net interest income and a $981 decline in expenses for litigation reserves at a few large banks.
By contrast, community banks collectively posted a 9 percent year-over-year increase in earnings, totaling $5.5 billion across the 5,602 institutions the FDIC identifies as community banks. Loans and leases at community banks increased $122.8 billion, or 9.1 percent, over the prior 12 months, and net operating revenue increased $1.5 billion, or 7.1 percent, from the year ago period.
Of the 6,058 insured institutions reporting second quarter financial results, 60.1 percent reported year-over-year growth in quarterly earnings, the FDIC said. The proportion of banks that were unprofitable in the second quarter fell to 4.5 percent from 5.8 percent a year earlier, representing the lowest percentage since the first quarter of 1998.
However, the regulator highlighted some potential troubled spots – particularly among those institutions lending to the energy sector.
“More recently, persistent stress in the energy sector has resulted in asset quality deterioration at banks that lend to oil and gas producers. We likely have not yet seen the full impact of low energy prices on the banking industry, particularly for consumer and commercial and industrial loans in energy-producing regions of the country,” FDIC Chairman Martin J. Gruenberg said in a statement.
Noncurrent loans and leases – or those that were 90 days or more past due – fell $4.8 billion, or 3.4 percent, during the second quarter, but noncurrent commercial and industrial (C&I) loans increased $2.1 billion, or 8.9 percent, during that same period. The FDIC attributed this latter phenomenon largely to weakness in the energy sector. Net charge-offs of loans to C&I borrowers increased $1.1 billion, or 100.3 percent, over the year-ago period. Net charge-offs to all borrowers increased $1.2 billion, or 13.1 percent, from the same period in 2015.
Total loan and lease balances increased $574.1 billion, or 6.7 percent, from the year-ago period. Residential mortgages increased $42.4 billion, or 2.2 percent, during the quarter, while real estate loans secured by nonfarm nonresidential real estate properties rose $26.9 billion, or 2.1 percent, and credit card balances increased $22.3 billion, or 3.1 percent.
The deposit insurance fund (DIF) increased $2.8 billion during the second quarter, from $75.1 billion in the prior quarter to $77.9 billion. The FDIC said that was driven largely by $2.3 billion in assessment income. The DIF reserve ratio rose from 1.13 percent to 1.17 percent during the quarter. Under previously approved regulations, once the reserve ratio exceeds 1.15 percent, lower regular assessment rates will go into effect, the agency said. Consequently, the FDIC estimates that regular assessments paid by banks will decline by about 30 percent.
