FDIC-Insured Institutions Reported Net Income Of US$70.4 Billion In Second Quarter 2021

By Godson Umejiego, Correspondent USA

 “With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic,” according to FDIC Chairman Jelena McWilliams

Reports from the 4,951 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reflect aggregate net income of US$70.4 billion in second quarter 2021, an increase of US$51.9 billion (281 per cent) from a year ago. This increase was driven by further economic growth and improved credit conditions, which led to a second consecutive quarter of aggregate negative provision expense.  These and other financial results for second quarter 2021 are included in the FDIC’s latest Quarterly Banking Profile released Wednesday.

 “The banking industry reported strong earnings in second quarter 2021, supported by continued economic growth and further improvements in credit quality,” McWilliams said.

Highlights from the Second Quarter 2021 Quarterly Banking Profile

Quarterly Net Income Continued to Increase Year Over Year, Driven by a Second Consecutive Quarter of Negative Provision Expense: Net income totaled US$70.4 billion, an increase of US$51.9 billion (281 per cent) from the same quarter a year ago, primarily due to a US$73 billion (117.3 per cent) decline in provision expense.  Nearly two-thirds of all banks (66.4 per cent) reported annual improvements in quarterly net income, and the share of profitable institutions increased slightly, up 1.4 per cent year over year to 95.8 per cent.  However, net income declined US$6.4 billion (8.3 per cent) from first quarter 2021, driven by an increase in provision expense from first quarter 2021 (up US$3.7 billion to negative US$10.8 billion).

The banking industry reported an aggregate return on average assets ratio of 1.24 per cent, up 89 basis points from a year ago but down 14 basis points from first quarter 2021.

Net Interest Margin Continued to Contract to a New Record Low: The average net interest margin (NIM) contracted 31 basis points from a year ago to 2.50 per cent—the lowest level on record.  NIM contraction was accompanied by a decline in net interest income of US$2.2 billion (1.7 per cent) from the same quarter a year ago. 

The year-over-year reduction in earning asset yields continued to outpace the decline in average funding costs, both of which declined further from first quarter 2021 to record lows.  Reductions in net interest income at the largest institutions drove the aggregate decline in net interest income, as more than three-fifths of all banks (64.1 per cent) reported higher net interest income compared with a year ago.

Community Banks Reported a 28.7 Per cent Increase in Quarterly Net Income Year Over Year: Community banks reported annual net income growth of US$1.9 billion, supported by a decline in provision expense and an increase in net interest income.  Provision expenses declined US$2.3 billion (98.1 per cent) from a year ago and US$345.1 million (88.2 per cent) from the previous quarter.  Higher commercial and industrial (C&I) loan income, reflecting, in part, increased fee income from the payoff and forgiveness of Paycheck Protection Programme (PPP) loans, helped lift net interest income US$1.4 billion (7.2 per cent) from the same quarter a year ago.

More than half (53.1 per cent) of the 4,490 FDIC-insured community banks reported higher quarterly net income.  However, the net interest margin for community banks narrowed further, with a decline of 26 basis points to 3.25 per cent, as the continued reduction in average earning asset yields outpaced the decline in average funding costs.

Loan Volume Grew Slightly from First Quarter 2021, Driven by an Increase in Credit Card Balances: Total loan and lease balances increased US$33.2 billion (0.3 per cent) from the previous quarter.  This was the first quarterly increase in loan volume since second quarter 2020.  An increase in credit card loan balances (up US$30.9 billion, or 4.1 percent), supplemented by an increase in auto loan balances (up US$18.9 billion, or 3.8 per cent), drove the growth.

Loan volume contracted slightly compared with the same quarter a year ago.  A reduction in C&I loans (down 13.4 per cent) drove an annual decline of US$133.9 billion (1.2 per cent) in loan volume.

Community banks reported a 0.5 per cent decline in loan balances from the previous quarter, led by a decrease in C&I loan balances resulting from payoffs and forgiveness of PPP loans.  Annually, community banks reported a slight increase of 0.3 per cent in total loans and leases.

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$13.2 billion, or 10.8 per cent) from first quarter 2021.  The noncurrent rate for total loans declined 12 basis points from the previous quarter to 1.01 percent.  Net charge-offs also continued to decline (down US$8.3 billion, or 53.2 per cent) from a year ago.  The total net charge-off rate dropped 30 basis points to 0.27 per cent—the lowest level on record. 

The Reserve Ratio for the Deposit Insurance Fund Increased Slightly to 1.27 Per cent: The Deposit Insurance Fund (DIF) balance was US$120.5 billion as of June 30, up US$1.2 billion from the end of the first quarter.  The reserve ratio increased 2 basis points to 1.27 per cent, due to continued growth in the fund balance and a 0.2 per cent decline in insured deposits.

Three New Banks Opened During the Quarter: Three new banks opened, 28 institutions merged with other FDIC-insured institutions, and no banks failed in second quarter 2021..