First Quarter Net Income of $44 Billion Is 12.7 Percent Higher Than a Year Ago Higher net operating revenue helped lift quarterly earnings of FDIC-insured institutions to $44 billion in the first quarter of 2017. First quarter net income was $5 billion (12.7 percent) higher than the year-earlier total. More than 57 percent of all banks reported year-over-year increases in quarterly earnings, while only 4.1 percent reported negative net income for the quarter. In the first quarter of 2016, 5.1 percent of banks were unprofitable. The average return on assets (ROA) rose to 1.04 percent, from 0.97 percent a year ago.
Banks Post 6.3 Percent Year-Over-Year Growth in Net Operating Revenue Net operating revenue - the sum of net interest income and total noninterest income - totaled $183.6 billion, an increase of $10.9 billion (6.3 percent) from a year ago. More than two out of three banks - 69.7 percent - reported year-over-year growth in net operating revenue. Noninterest income increased $2.1 billion (3.4 percent) over first quarter 2016, as trading income rose by $1.5 billion (26 percent), and servicing income increased by $1.9 billion (220.6 percent). Net interest income was $8.8 billion (7.8 percent) higher, as average interest-bearing assets rose 4.9 percent, and the average net interest margin (NIM) improved to 3.19 percent from 3.10 percent a year ago. Much of the NIM improvement occurred at large banks, as higher short-term interest rates lifted average asset yields. Smaller banks, which have a larger share of their assets in longer-term investments, did not see their NIMs benefit from the rise in short-term rates. More than half of all banks - 53.7 percent - reported lower NIMs than a year ago. Noninterest expenses were $4.5 billion (4.3 percent) higher than a year ago. Salary and employee benefits costs rose $3.3 billion (6.6 percent), as FDIC-insured institutions reported 41,469 more employees than a year ago, a 2 percent increase. Expenses for premises and fixed assets increased by $435 million (3.9 percent) compared to first quarter 2016.
Provisions Register First Decline in Almost Three Years Banks set aside $12 billion in provisions for loan losses in the first quarter, a decline of $541 million (4.3 percent) from a year earlier. This is the first time in the past 11 quarters that loss provisions have fallen. A slightly larger proportion of banks reported higher provision expenses - 34.8 percent - compared to the 31.5 percent who had lower quarterly provisions.
Banks Report Higher Charge-Offs on Loans to Individuals During the first quarter, banks charged-off $11.5 billion in loans, an increase of $1.4 billion (13.4 percent) over the total for first quarter 2016. This is the sixth consecutive quarter that charge-offs have posted a year-over-year increase. Most of the increase consisted of higher losses on loans to individuals. Net charge-offs of credit card balances were up $1.3 billion (22.1 percent), while auto loan charge-offs increased $199 million (27.7 percent), and charge-offs of other loans to individuals rose by $474 million (66.4 percent). In contrast, charge-offs on loans to commercial and industrial (C&I) borrowers were $291 million (15.7 percent) lower than a year ago, while residential mortgage charge-offs were $221 million (52.5 percent) lower. The average net charge-off rate in the first quarter was 0.49 percent, compared to 0.46 percent a year earlier.
Noncurrent Loan Balances Continue to Decline The amount of loans and leases that were noncurrent - 90 days or more past due or in nonaccrual status - fell for the 27th time in the last 28 quarters. In the first three months of 2017, noncurrent loan balances declined by $7 billion (5.3 percent). All major loan categories saw noncurrent balances fall during the quarter. Noncurrent residential mortgage loans declined by $5.3 billion (8.2 percent), while noncurrent C&I loans fell by $1.2 billion (4.6 percent). The average noncurrent loan rate improved from 1.42 percent at year-end 2016 to 1.34 percent at the end of March. This is the lowest average noncurrent rate for the industry since third quarter 2007.
Equity Capital Posts Relatively Strong Increase Equity capital increased by $28.6 billion (1.5 percent) during the quarter. Retained earnings contributed $16.7 billion to equity growth in the quarter. This is $1.6 billion (8.9 percent) less than a year ago, as first quarter dividends were $6.6 billion (31.7 percent) higher. Accumulated other comprehensive income posted a $3.3 billion improvement, as a slight decline in long-term interest rates caused a reduction in unrealized losses in securities portfolios.
Pace of Loan Growth Slows Total loans and leases declined by $8.1 billion (0.1 percent) during the three months ended March 31. This is the first quarterly decline in loan balances since first quarter 2013. Credit card loans posted a seasonal decline of $43.7 billion (5.5 percent), as cardholders paid down outstanding balances. Residential mortgage loans fell by $10.2 billion (0.5 percent), reflecting increased loan sales activity. C&I loans increased by $25.6 billion (1.3 percent), while real estate loans secured by nonfarm nonresidential properties rose by $22.5 billion (1.7 percent). Unused loan commitments increased by $119.3 billion (1.7 percent) during the quarter. The slowing in loan growth that began in the second half of last year continued through the first quarter. The 12-month loan growth rate slowed to 4 percent, down from 5.3 percent in calendar year 2016. While all major loan categories saw balances rise over the past 12 months, annual growth rates are now lower than they were in the previous quarter and a year ago. The rate of loan growth remains above the nominal GDP growth rate.
FDIC Quarterly Banking Profile