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FDIC-insured banks see 40.9% YOY decrease in net income due to tax law


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FDIC-insured banks see 40.9% YOY decrease in net income due to tax law

Banks insured by the Federal Deposit Insurance Corp. reported a 40.9% year-over-year decrease in net income largely due to a one-time impact from the Tax Cuts and Jobs Act passed at the end of 2017.

In a quarterly report released Feb. 27, the FDIC said its 5,670 insured institutions reported quarterly net income of $25.5 billion for the fourth quarter of 2017, down $17.7 billion from the same quarter of 2016.

Excluding the effects of the new tax law, estimated quarterly net income would have been $42.2 billion, a year-over-year decrease of 2.3% due to higher noninterest expense and loan-loss provisions. Noninterest expenses rose 8.6% to $9.4 billion while loan-loss reserves ticked up 0.2% to $13.6 billion.

The one-time tax hit, which is expected to reward the banking industry over time in the form of a dramatically lower corporate tax rate, weighed heavily on the full-year performance of the FDIC-insured banks. Net income for 2017 totaled $164.8 billion, a decline of $6 billion, or 3.5%, compared to 2016. Without the tax impact, the FDIC estimates that net income for 2017 would have been $183.1 billion, an increase of 7.2% from 2016.

Community banks appeared to see a milder effect of the tax hit. The FDIC said the 5,227 insured institutions classified as community banks reported net income of $4.1 billion in the fourth quarter, down 14.2% from a year ago. Excluding the tax bill-related charges, estimated fourth-quarter net income would have increased by 17% from a year ago.

FDIC Chairman Martin Gruenberg said overall, the banking industry "continued to show steady improvement."

Net interest margin for the industry was 3.31% in the fourth quarter, up from 3.16% a year earlier.

Total loan and lease balances increased by 1.7% quarter over quarter to $164.1 billion, driven mostly by an 8.8% increase in credit card balances. On the funding side, deposits grew 1.4% quarter over quarter mostly due to higher balances in domestic interest-bearing accounts.

The FDIC also said the number of "problem banks" fell from 104 to 95 at year-end 2017.

Operationally, the FDIC said it grew its deposit insurance fund relative to insured deposits to 1.30% in the fourth quarter, up from 1.28% at the end of the third quarter of 2017. Gruenberg said the FDIC expects to reach its requirement of growing the reserve ratio to 1.35% this year, ahead of the statutory deadline of Sept. 30, 2020.