Chairman McWilliams Issues Remarks on Second Quarter 2019 FDIC Quarterly Banking Profile
"Welcome to our release of second quarter 2019 performance results for
"The banking industry reported another positive quarter. Quarterly net income expanded from higher net interest income, as loan growth increased, asset quality indicators showed modest improvement, and the number of "problem banks" continued to decline. Community banks also reported another positive quarter. Net income at community banks benefited from higher net operating revenue, and the annual rate of loan growth at community banks was stronger than the overall industry.
"In July, this economic expansion became the longest on record in
"Awareness of interest rate, liquidity, and credit risks at this stage of the economic cycle will position banks to be more resilient in maintaining lending through the economic cycle.
"I would like to highlight that the deposit insurance fund reserve ratio reached 1.40 percent at the end of the second quarter. As a result of the reserve ratio exceeding 1.38 percent, in September the
"I am joined here today by
"Pat, I will turn this over to you. Thank you."
* * *
"Thank you, Chairman McWilliams.
"Our first chart shows that the banking industry reported quarterly net income of
"Community banks reported quarterly net income of
"The next chart shows that net operating revenue totaled
"Noninterest income declined by 2.7 percent from a year earlier, due to lower servicing fee income, lower investment banking fee income, and net losses on loan sales.
However, less than half - 41 percent - of all banks reported lower noninterest income from a year ago.
"Chart 3 shows that the average net interest margin for the industry was 3.39 percent in the second quarter, down from a recent high of 3.48 percent at year-end 2018. In the first six months of 2019, the yield on earning assets has been relatively flat while the cost of funding earning assets has increased by 11 basis points.
"Community banks continue to report a higher average net interest margin compared to the overall banking industry. Large institutions have benefitted more than community banks from rising short-term interest rates, as large institutions have a greater share of assets that reprice quickly. With the recent cut in short-term interest rates, we could see a reversal of this trend in the future.
"Chart 4 shows that the share of longer-term assets relative to total industry assets remains elevated, with more than one-third of industry assets maturing or repricing in three or more years.
"Banks face a challenging interest rate environment. Some banks responded by "reaching for yield" through investing in longer-term assets or reducing liquid assets to increase their yield on earning assets and maintain net interest margins.
"Community banks are particularly vulnerable to interest rate risk, as nearly half of their assets mature or reprice in three or more years.
"Chart 5 shows that loan balances increased by
"Over the past 12 months, loan balances increased by 4.5 percent, up from the 4.1 percent annual growth rate reported last quarter. Loan growth was led by commercial and industrial loans, consumer loans, and residential mortgages.
"Loan growth at community banks was strong, measuring 6.3 percent from a year ago. The annual growth rate was led by commercial real estate loans, residential mortgages, and commercial and industrial loans.
"The next chart shows that overall asset quality indicators remain strong. The noncurrent rate declined from the previous quarter to 0.93 percent, while the net charge-off rate rose modestly to 0.50 percent from 0.48 percent a year ago.
"Credit card balances registered the largest dollar increase in net charge-offs this quarter. The net charge-off rate for credit cards increased to 4.03 percent from 3.97 percent last quarter, but remains well below the previous high of 13.21 percent reported in first quarter 2010.
"We continue to monitor risks in the agriculture sector connected to low commodity prices and farm incomes. While the net charge-off rate for agriculture loans remains low, some farm banks are experiencing asset quality deterioration. The noncurrent rate for agriculture loans at community banks rose 13 basis points from a year ago to 1.28 percent, but is below levels reached during previous downturns.
"Chart 7 shows that the industry's reserve coverage ratio, which measures loan-loss reserves relative to total noncurrent loan balances, rose to 130.5 percent in the second quarter. The banking industry's capacity to absorb credit losses improved from a year ago, as noncurrent loan balances declined and loan-loss reserves increased.
"Chart 8 shows that the number of banks on the
"
"Chart 9 shows that the reserve ratio--the amount in the
"Small banks earned a total of
"In summary, the banking industry reported another positive quarter. Quarterly net income improved from higher net interest income, as loan balances grew, asset quality indicators showed modest improvement, and the number of "problem banks" continued to decline.
"We will now answer any questions you may have regarding second quarter performance of the banking industry.
"Thank you."
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