Net income at the nation’s community banks increased $2.7 billion from a year ago to $6.8 billion in the fourth quarter, according to information released Feb. 21 by the Federal Deposit Insurance Corporation. The increase represents an improvement of 65.1 percent. Excluding the benefits of a lower effective tax rate, estimated fourth quarter net income would have increased by 11.2 percent from a year ago.
Net operating revenue was up $1.4 billion to $24.3 billion, due to increases in both net interest income and noninterest income. Loan-loss provisions declined 10.4 percent, and noninterest expenses increased 3.6 percent compared with a year earlier.
Income for the entire industry was 133.4 percent ahead of fourth quarter last year, with 5,406 insured institutions reported quarterly net income of $59.1 billion, up $33.8 billion from a year ago. Lower income tax expenses, coupled with higher net operating revenue boosted quarterly net income. After adjusting fourth quarters 2017 and 2018 to reflect the average effective tax rate prior to the 2017 tax law, quarterly net income would have been $50.3 billion in fourth quarter 2018, an increase of 18.5 percent from a year ago.
The banking industry reported full-year 2018 net income of $236.7 billion, up $72.4 billion (44.1 percent) from 2017. Adjusted for tax reform effects in the same manner as for quarterly net income, full-year 2018 would have been $207.9 billion, an increase of 13.6 percent from 2017.
“The banking industry continued to report strong results,” FDIC Chairman Jelena McWilliams said. “Growth in net income was attributable to higher net operating revenue and a lower effective tax rate. Loan balances expanded, net interest margins improved, and the number of ‘problem banks’ continued to decline. Community banks also had a strong quarter, with annual loan growth and a net interest margin that exceeded the overall industry.”
The FDIC’s “Problem Bank List” declined to 60 from 71 during the fourth quarter, the lowest number of problem banks since first quarter 2007. Total assets of problem banks declined to $48.5 billion from $53.3 billion in the third quarter. During the fourth quarter, merger transactions absorbed 70 institutions, two new charters were added, and no failures occurred.
The Deposit Insurance Fund balance rose by $2.4 billion from the end of the third quarter to $102.6 billion. The increase was mainly driven by assessment income, unrealized gains, and interest income on securities held by the DIF. The DIF reserve ratio remained unchanged from the third quarter at 1.36 percent as insured deposits also rose.