FDIC: Bank net income down but sector shows signs of strength

FDIC-insured banks and savings associations earned $64.4 billion in the second quarter of 2022, an 8.5% decrease from the year prior, the FDIC reported today in its Quarterly Banking Profile. The decrease was driven by an increase in provision expense. Still, FDIC Acting Chairman Martin Gruenberg said the banking industry reported generally positive results for the quarter, but added that looking forward, “downside risks from inflation, rising interest rates, slowing economic growth and continuing pandemic and geopolitical uncertainties will continue to challenge bank profitability, credit quality and loan growth.”

The average net interest margin increased 26 basis points from the prior quarter to 2.8%, the highest quarterly growth since first quarter 2010, according to the report. Most banks (70.5%) reported higher net interest income compared to a year ago. Total loan and lease balances increased 3.7% from the previous quarter, with growth in several loan portfolios, including family residential loans, commercial and industrial loans, and consumer loans. Community banks reported a decline in net income of $523 million from a year ago.

Meanwhile, the average net charge-off rate fell 4 basis points year-on-year to 0.23. During the second quarter, six banks opened and no banks failed. The number of banks on the FDIC’s problem bank list held steady at a record low of 40.

American Bankers Association Chief Economist Sayee Srinivasan said the FDIC assessment reveals a strong banking sector that continues to support the economy during challenging times, noting the report shows bank lending experienced the largest year-to-year increase in 14 years. Srinivasan pointed out, however, that “total deposits fell for the first time in four years, signaling that the unprecedented surge since the onset of the pandemic is beginning to run off.”

“With FDIC-insured deposits declining at a 2.8% annualized rate in the second quarter, the FDIC should reexamine its proposed increase in bank assessments, which assumed that elevated deposit balances would continue,” he said. “The new data suggest that the proposed assessment increase is not necessary to assure that the insurance fund achieves the statutory goal of 1.35% by September 2028.”