The net income of U.S. banks dipped for the first time in two years in the first quarter but strong loan and operating revenue growth provided some cause for optimism.
In its latest Quarterly Banking Profile, the Federal Deposit Insurance Corp. said federally-insured commercial banks and savings institutions reported aggregate net income of of $39.1 billion in the first quarter of 2016, down $765 million (1.9%) from a year earlier.
The decline in earnings was largely attributable to a $4.2 billion increase in loan-loss provisions and a $2.2 billion decline in non-interest income. Lenders to the energy sector, in particular, have been facing rising levels of troubled loans.
But on the more positive side, loan balances increased 1.1% in the first quarter, bringing balance growth over the past 12 months to 6.9%, the highest rate since 2008. Net operating revenue grew 2.7% to $172.9 billion year over year.
“The mixed first quarter results reflect an evolving economic environment,” FDIC Chairman Martin Gruenberg said in a news release, noting that “a prolonged period of low interest rates has narrowed margins and caused some institutions to reach for yield.”
Overall net interest margins in the first quarter remained low by historical standards at an average of about 3.1%, although community banks averaged nearly 3.6%. Net income for community banks was up 7.4% and revenue rose 6.9%.
“Energy loans are concentrated at big banks, and community banks with fewer ties to the sector performed well in the quarter,” Reuters said.
Gruenberg cautioned that community banks were more exposed to interest rate risk and that the effects of the oil price slump could spread to those institutions, especially in the regions that benefited most from the boom.
The number of loan payments by commercial and industrial borrowers past due increased 65%, to $9.3 billion, in the first quarter.
“Banks’ exposure to the oil and gas industry is small and won’t restrain them from continuing to meet the credit needs of businesses and individuals,” James Chessen, chief economist at the American Bankers Association, told The Wall Street Journal.