FDIC-Insured Institutions Reported Net Income Of US$59.7 Billion In First Quarter 2022

By Godson Umejiego, Senior Correspondent, USA

Reports from 4,796 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reflect aggregate net income of US$59.7 billion in first quarter 2022, a decline of US$17.0 billion (22.2 per cent) from a year ago.  An increase in provision expense drove the annual reduction in net income.  These and other financial results for first quarter 2022 are included in the FDIC’s latest Quarterly Banking Profile just released .

QBP 1st Quarter 2022

“In the first quarter, net income declined from the year-ago quarter as the banking industry raised provision expenses to reflect loan growth as well as economic and geopolitical uncertainty,” Gruenberg said.

Highlights from the First Quarter 2022 Quarterly Banking Profile

Net Income Declined Year Over Year: Quarterly net income totaled US$59.7 billion, a decline of US$17.0 billion (22.2 per cent) from the same quarter a year ago, primarily due to an increase in provision expense.  Provision expenses increased US$19.7 billion from the year-ago quarter, from negative US$14.5 billion during the same period a year ago to positive US$5.2 billion this quarter.  A majority of banks (62.8 per cent) reported an annual decline in quarterly net income.  The increase in provision expense also drove a decline of US$4.1 billion (6.5 per cent) in quarterly net income.

The banking industry reported an aggregate return on average assets (ROAA) ratio of 1.00 per cent, down 38 basis points from the ROAA ratio reported in first quarter 2021 and down 9 basis points from the ROAA ratio reported in fourth quarter 2021.

Net Interest Margin Remained Relatively Stable Quarter Over Quarter: The net interest margin (NIM) declined by one basis point from the prior quarter to 2.54 percent.  NIM was 4 basis points higher than the record low set in second quarter 2021 but 2 basis points lower than the level reported in the year-ago quarter.  While more than half of banks (57.2 per cent) reported higher net interest income compared with a year ago, NIM expansion was limited by earning asset growth, which continued to outpace net interest income growth.

The yield on earning assets declined to 2.70 per cent (down 1 basis point from a quarter ago and down 7 basis points from a year ago) as the growth rate in average earning assets continued to outpace the growth rate in interest income.  Average funding costs were unchanged over the quarter at the record low set in fourth quarter 2021 of 0.16 per cent, but were down 4 basis points from the year-ago quarter.

Community Banks Reported a Decline in Net Income: Community banks reported a decline in net income of US$1.1 billion from the year-ago quarter, driven by a decline in revenue from loan sales.  An increase in interest income on securities (US$655.5 million, or 34.2 per cent) and a decline in interest expense (US$630.3 million, or 28.9 per cent) drove an improvement in net interest income (US$792.7 million, or 4.2 percent) from the year-ago quarter.  However, net interest income declined slightly (US$225.9 million, or 1.1 per cent) from fourth quarter 2021.  Provision expenses declined US$129.7 million (31.0 per cent) from a year ago and US$64.4 million (18.3 per cent) from the previous quarter.  Most of the 4,353 FDIC-insured community banks (63.2 per cent) reported lower quarterly net income compared with the year-ago quarter.

The net interest margin for community banks narrowed 15 basis points from the year-ago quarter to 3.11 per cent, as growth in earning assets outpaced growth in net interest income. 

Loan Balances Increased from the Previous Quarter and a Year Ago: Total loan and lease balances increased US$109.9 billion (1.0 per cent) from the previous quarter. The banking industry reported growth in several loan portfolios, including commercial and industrial (C&I) loans (up US$81.3 billion, or 3.5 per cent), nonfarm nonresidential commercial real estate (CRE) loans (up US$28.2 billion, or 1.7 per cent), and “all other consumer loans” (up US$20.4 billion, or 2.0 per cent).

Annually, total loan and lease balances increased US$531.8 billion (4.9 per cent), as growth in consumer loans (up US$192.6 billion, or 11.4 per cent), nonfarm nonresidential CRE loans (up US$98.0 billion, or 6.2 per cent), and loans to nondepository institutions (up US$91.3 billion, or 15.6 per cent) offset a decline in C&I loans (down US$62.5 billion, or 2.5 per cent).  Paycheck Protection Programme loan forgiveness and repayment drove the annual decline in C&I loan balances.

Community banks reported a 1.3 per cent increase in loan balances from the previous quarter, and a 2.1 per cent increase from the prior year.  Growth in construction and development and nonfarm nonresidential CRE loan balances drove the increases.

Credit Quality Continued to Improve: Loans that were 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) continued to decline (down US$4.5 billion, or 4.5 per cent) from fourth quarter 2021.  The noncurrent rate for total loans declined 5 basis points from the previous quarter to 0.84 per cent.  Total net charge-offs also continued to decline (down US$3.0 billion, or 32.0 per cent) from a year ago.  The total net charge-off rate declined 12 basis points to 0.22 per cent—just above the record low of 0.19 per cent set in third quarter 2021. 

The Reserve Ratio for the Deposit Insurance Fund Fell to 1.23 Per cent: The Deposit Insurance Fund (DIF) balance was US$123.0 billion as of March 31, down approximately US$100 million from the end of the fourth quarter.  The increase in unrealized losses on available-for-sale securities in the DIF portfolio, driven by the rising rate environment, was the primary reason for the decline.  The reserve ratio fell to 1.23 per cent due to both the decline in the DIF and growth in insured deposits.

Merger Activity Continued in the First Quarter: Forty-four institutions merged and no banks failed in first quarter 2022.