FDIC: Q1 Bank Earnings Up 27.5%; Chairman Warns of ‘Reach for Yield’

Commercial banks and savings institutions insured by the FDIC reported aggregate net income of $56 billion in Q1/18, up $12.1 billion (27.5%) from a year ago. The improvement in earnings was attributable to higher net operating revenue and a lower effective tax rate.

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

FDIC Chairman Martin J. Gruenberg said, “The banking industry reported another positive quarter. However, the interest-rate environment and competitive lending conditions continue to pose challenges for many institutions. The industry must manage risks carefully to continue to grow on a long-run, sustainable path.”

“The banking industry once again reported positive results for the quarter,” Gruenberg noted. “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.”

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