WASHINGTON — Banks earned $47.9 billion in the third quarter, a 5.2% year-over-year increase, the Federal Deposit Insurance Corp. said Tuesday in the release of the Quarterly Banking Profile.

The overall improvement in net income was largely attributed to better net interest income, which increased 7.4% year over year, boosted by an improvement in the average net interest margin. The industry's net interest margin rose from 3.18% in the third quarter of 2016 to 3.30%.

Almost two out of three banks reported higher net interest margins compared with the third quarter of 2016, the agency said.

Bank earnings, 3Q 2017

However, noninterest income fell 1% as gains on loan sales fell $1.1 billion and servicing fee income was down $290 million. But income from fiduciary activities increased $612 million.

The industry’s overall return on assets was 1.12%, versus 1.10% a year earlier.

Bank earnings were down slightly from $48.1 billion in the second quarter. Even though total assets increased by $168.8 billion, or 1%, during the quarter, asset growth slowed for the fourth consecutive quarter. However, asset growth rose 2.8% year over year.

“While overall performance improved from the prior year, the interest rate environment and competitive lending conditions continue to pose challenges for many institutions,” said FDIC Chairman Martin Gruenberg. “In addition, with the economy in the ninth year of an expansion that has been characterized by modest economic growth, the annual rate of loan growth has slowed in recent quarters.”

FDIC chairman Martin Gruenberg
“While overall performance improved from the prior year, the interest rate environment and competitive lending conditions continue to pose challenges for many institutions,” said FDIC Chairman Martin Gruenberg. Bloomberg News

The report indicated that loan balances increased $96 billion during the third quarter, just 60% of second-quarter growth. That said, all major loan categories increased in the latest quarter.

Growth in equity capital at banks slowed in the third quarter, as banks issued more in dividends. The report said that four of the five largest banks increased their quarterly dividends from last year and that overall dividends were 17.2% higher than a year earlier. However, equity capital still grew by $16.3 billion or 0.8% in the quarter.

Community banks' earnings grew 9.4% from a year earlier.

The industry's net chargeoff rate continued to gradually increase, the agency said, as banks charged off $11 billion in uncollectible debt during the quarter. It was the eighth consecutive quarter that chargeoffs increased.

The FDIC's Deposit Insurance Fund continued to grow, with the ratio of insurance reserves to insured deposits increasing to 1.28% as of Sept. 30. That is the highest reserve ratio since the second quarter of 2005, when it was 1.24%. The FDIC is required by the Dodd-Frank Act to increase the reserve ratio to 1.35% by the third quarter of 2020.

The FDIC said that the number of problem banks fell by one institution to 104, and that two new charters were added in the quarter. However, the total number of institutions fell to 5,737 from 5,787 as 50 were absorbed by mergers.

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