Financial Performance

Bank Profits Surge 10.7% to Record $48.3B

An FDIC survey shows the industry is benefiting from increasing net interest margins, which reached an average of 3.22% in Q2.
Matthew HellerAugust 23, 2017

U.S. banks’ profits surged to a record high in the second quarter, fueled by an increase in net interest margins as short-term interest rates rise.

In its latest Quarterly Banking Profile, the Federal Deposit Insurance Corp. said federally-insured commercial banks and savings institutions reported aggregate net income of $48.3 billion, up $4.7 billion (10.7%) from a year earlier.

Net interest income rose $10.3 billion (9.1%) while noninterest income increased only $654 million (1%).

As the New York Post reports, banks have been clearing more profit as the Federal Reserve has hiked its benchmark rate four times since 2015. At the same time, banks “are not raising the interest they pay on accounts — and they can pocket the difference.”

For the second quarter, the industry’s average net interest margin was 3.22%, up from 3.08% a year ago and a post-financial crisis low of 3.02% in the first quarter of 2015.

“Community banks continue to report higher net interest margins than the overall industry,” the FDIC said. “However, the gap has narrowed in recent quarters. Large institutions have benefited more than community banks from rising short-term interest rates, as large institutions have a greater share of assets that reprice quickly.”

In other positive signs for the industry, average return on assets rose to 1.14% in the second quarter from 1.08% a year earlier — the highest level since the second quarter of 2007.  More than half of all banks — 55.5% — reported year-over-year increases in their ROAs.

The number of “problem banks,” meanwhile, fell from 112 to 105, the smallest number since March 31, 2008 and nearly 90% less than the post-crisis peak of 888 in the first quarter of 2011.

“This was another positive quarter for the banking industry,” FDIC Chairman Martin J. Gruenberg said in a news release.

He warned, however, that the “interest-rate environment and competitive lending conditions continue to pose challenges for many institutions … The industry must manage interest-rate risk, liquidity risk, and credit risk carefully to remain on a long-run, sustainable growth path.”