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Lower taxes help boost net income at FDIC-insured banks by 27.5%

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Lower taxes help boost net income at FDIC-insured banks by 27.5%

A lower corporate tax rate helped boost income at Federal Deposit Insurance Corp.-covered instutions by about 27.5% in the first quarter of 2018.

The FDIC said the 5,606 institutions it insures had net income of $56 billion in the quarter, an increase of $12.1 billion from the first quarter of 2017, due to banks' lower tax rates and higher net operating revenue. Banks took a temporary one-time hit to earnings in the last quarter of 2017 after the passage of the new tax law. The cut in the corporate tax rate to 21%, however, is expected to continue helping banks going forward.

Without the tax changes, the institutions' net income would have been $49.4 billion, or a 12.6% increase, FDIC Chair Martin Gruenberg said at a news conference.

More than 70 percent of the institutions saw year-over-year growth in quarterly earnings, while banks reporting negative profits fell to 3.9%, down from 4.3% in the year-ago quarter. The institutions' net interest income rose $131.3 billion in the quarter, a $10.3 billion increase, or 8.5%, from a year earlier. Average net interest margins rose to 3.32%, up from 3.19% in the year-ago quarter.

Community banks grew net income by 17.7% in the first quarter compared to the first quarter a year ago. The 5,168 community institutions insured by the FDIC reported $6.1 billion in net income.

Gruenberg described it as "another positive quarter" for the industry, though he warned that years of low interest rates have pushed banks to reach for yield and seek higher-risk assets. Banks, he said, need to manage their risk and liquidity standards carefully in case of a coming economic slump.

"The industry needs to be prepared to manage the inevitable downturn whenever it may occur," he said.

Overall, the FDIC-insured institutions saw loan balances go up 4.9% over the year, reporting increases in all major loan categories except credit card balances. Those decreased $44.6 billion, or 5.2%, over the year, which the agency said was due to seasonal factors. Commercial and industrial loans jumped 1.9%, nonfarm nonresidential loans ticked up 0.8% and residential mortgage loans grew by 0.4%.

Noncurrent loan amounts fell 3.4% during the quarter, while net charge-offs rose by $540.6 million, or 4.7%, over the year, largely due to higher net charge-offs for credit cards.

The FDIC's deposit insurance fund ratio remained unchanged from the fourth quarter of 2017 at 1.30%. Gruenberg has said the agency will meet the required ratio of 1.35% ahead of the Sept. 30, 2020, statutory deadline.

The agency also reported another drop in its "problem bank" list, with 92 institutions getting that designation in the quarter, down from 95. That was the lowest number of problem banks since the first quarter of 2008, according to the FDIC.