The improvement in net income was led by higher net operating revenue and lower income tax expenses.
“The banking industry continued to report strong results,” said FDIC Chairman Jelena McWilliams. “Growth in net income was attributable to higher net operating revenue and a lower effective tax rate. Loan balances expanded, net interest margins improved, and the number of ‘problem banks’ continued to decline. Community banks also had a strong quarter, with annual loan growth and a net interest margin that exceeded the overall industry.”
Lower income tax expenses coupled with higher net operating revenue boosted quarterly net income in Q4. After adjusting fourth quarters 2017 and 2018 to reflect the average effective tax rate prior to the 2017 tax law, quarterly net income would have been $50.3 billion in fourth quarter 2018, an increase of 18.5% from a year ago.
The banking industry reported full-year 2018 net income of $236.7 billion, up $72.4 billion (44.1%) from 2017. Adjusted for tax reform effects in the same manner as for quarterly net income, full-year 2018 would have been $207.9 billion, an increase of 13.6% from 2017.
The 4,979 insured institutions identified as community banks reported net income of $6.8 billion in the fourth quarter, up $2.7 billion (65.1%) from a year ago. Excluding the benefits of a lower effective tax rate, estimated fourth quarter net income would have increased by 11.2% from a year ago.
Total loan and lease balances increased 2.1% from third quarter 2018, reflecting fourth-quarter growth in all major loan categories. Commercial and industrial loans grew by $80.7 billion (3.9%) from the third quarter, and credit card balances, reflecting a seasonal increase in balances, rose by $47.2 billion (5.5%). Over the past 12 months, total loan and lease balances increased by 4.4%, a slight increase from the 4% annual growth rate reported in the third quarter of 2018. Commercial and industrial loans registered the largest dollar increase from a year ago (up $156.2 billion, or 7.8%).
The amount of loans that were noncurrent – 90 days or more past due or in nonaccrual status – decreased by $1 billion (1%) during the fourth quarter. Noncurrent balances for commercial and industrial loans were down $554.3 million (3.6%), but noncurrent balances for credit cards were up $1.6 billion (13.8%).
The FDIC’s Problem Bank List declined from 71 to 60 during the fourth quarter, the lowest number of problem banks since first quarter 2007. Total assets of problem banks declined from $53.3 billion in the third quarter to $48.5 billion. During the fourth quarter, merger transactions absorbed 70 institutions, while two new charters were added, and no failures occurred.
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