Bank profits rise 8.7 percent in first quarter of 2019

Federally insured U.S. banks made $60.7 billion in net income in the first three months of 2019, an 8.7 percent increase from the same period last year, according to data released Wednesday.

The Federal Deposit Insurance Corporation (FDIC) reported that the 5,362 commercial and savings banks insured by the regulator saw rising profits as interest on loans outpaced the costs to finance them.

FDIC-insured banks made $4.9 billion more in profits in the first three months of 2019 than over the same period last year. For the first quarter of 2019, 62.3 percent of banks reported an increase in net income from 2018, while less than 4 percent of banks reported a decline.

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The earnings boost for banks was powered in part by a 6 percent annual increase in net interest income, rising $7.9 billion to $139.3 billion in the first quarter. The rise in net interest income helped compensate for a 2.9-percent decline in non-interest net income, which fell $2 billion from 2018.

The FDIC’s quarterly report showed the continued strength of the U.S. banking industry, which has flourished with record profits as the economy recovered from the 2008 recession. U.S. banks reeled in $236.7 billion in profits last year, including more than $28 billion in additional net income thanks to the Republican tax-cut law.

But the data also showed banks taking higher credit losses and bracing for more defaults as 2019 continues. Banks wrote off $12.7 billion in uncollectable loans in the first quarter, an increase of $667.9 million, or 5.5 percent, from the same period last year.   

Banks also set aside $13.9 billion in loan-loss provisions — money allocated to cover defaulted loans and credit losses — in the first three months of 2019, 11.8 percent more than the same time in 2018.

While banks’ balances for non-current mortgages dropped $2.2 billion, or 5 percent, from the previous quarter, overdue corporate debt rose $3.3 billion in that time — a 22.8 percent quarterly increase that was the highest since 2016.

Analysts, economists and federal regulators have expressed varying degrees of fear over the record high levels of corporate debt, particularly to corporations already deep in the red.

The Federal Reserve identified leveraged lending, the practice of lending to companies with debt levels four times greater than their assets, as an area of moderate concern in its annual financial stability report released earlier this month.

Some experts and financial sector critics have raised alarm over the growth of collateralized loan obligations (CLOs) packaging debt from highly leveraged companies. They compare such investment offerings to the bonds based on subprime mortgages that helped trigger the financial crisis in 2007.

But Randal Quarles, the Fed vice chair of supervision, tamped down risks to the financial system from CLOs in a speech earlier this month, arguing that leveraged lending “is not really a direct analog to the subprime [mortgage] lending” that caused the 2007 meltdown.

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