Despite three failed bank acquisitions, the Federal Deposit
Insurance Corp.’s (FDIC) second-quarter banking profile included some high
notes. There were improvements in loan balances and community bank net income
compared with the previous quarter and one year prior, based on financial data
collected from 4,645 federally insured commercial banks and savings
institutions.
Aggregate net income among banks was $70.8 billion in the
second quarter, down $9 billion (11.3 percent) from the first quarter of 2023
but up 1.08 percent from the same quarter last year. Excluding the bank
acquisition failures, quarter-over-quarter net income would have been roughly
flat, the report states. Lower net interest income, and higher provision
expenses, also had a hand in driving the decline in net income.
“Despite the period of stress earlier this year, the banking
industry continues to be resilient,” FDIC Chairman Martin Gruenberg said in a
statement. “In the second quarter, key banking industry metrics were favorable.
Net income remained high by historical measures, asset quality metrics were
stable, and the industry remained well capitalized. However, the banking
industry still faces significant challenges from the effects of inflation,
rising market interest rates, and geopolitical uncertainty. These risks,
combined with concerns about commercial real estate fundamentals, especially in
office markets, as well as pressure on funding levels and net interest margins,
will be matters of continued supervisory attention by the FDIC.”
The complete second quarter financial results can be found in
the FDIC‘s latest Quarterly Banking Profile on the agency’s website.
FDIC-insured community banks saw quarterly net income increase
by $236.2 million (3.4 percent) from the first quarter, reaching $7.1 billion
in the second quarter. A combination of higher non-interest income and reduced
losses on security sales more than offset lower net interest income and higher
noninterest expenses.
Community banks also saw second-quarter net income rise
$50.6 million (0.7 percent) from the second quarter of 2022. The report
attributes this increase to higher net interest income offsetting higher
noninterest expenses. The community bank pretax ROA rose 1 basis point from one
quarter ago to 1.28 percent but declined 7 basis points from a year ago.
Community banks reported a 2.6 percent increase in loan
balances from the previous quarter and a 12.5 percent increase from the prior
year. Growth in one-to-four family residential mortgages and nonfarm,
nonresidential commercial real estate mortgages drove both the quarterly and
annual increases in loan balances.
The net interest margin for community banks dropped 10 basis
points from the first quarter but increased 5 basis points compared with the second
quarter last year, reaching 3.39 percent. The yield on earning assets rose 27
basis points quarter-over-quarter and 136 basis points year-over-year, while
the cost of funds increased 37 basis points quarter-over-quarter and 131 basis
points year-over-year.
Loan and lease balances rose $86.5 billion (0.7 percent)
from the first quarter to the second, with credit card loans increasing (up $45.0
billion, 4.6 percent) and loans to non-depository institutions (up $24.3
billion, or 3.2 percent) spurring loan growth.
Year-over-year, total loan and lease balances increased
$526.8 billion (4.5 percent) with one-to-four family residential loans (up
$158.5 billion, or 6.7 percent) and credit card loans (up $124.4 billion, or
13.8 percent) as the leading sources of loan growth.
Total deposits declined for the fifth straight quarter,
dropping 98.6 billion (0.5 percent). The report observes the decline was driven
by a reduction in estimated uninsured deposits (down $180.6 billion, or 2.5
percent). There was an increase in estimated insured deposits (up $84.9
billion, or 0.8 percent) during the quarter.
The Deposit Insurance Fund balance sat at $117 billion as of
June 30, up $897 million from the end of the first quarter, reflecting
increased assessment income, according to the report. When combined with
insured deposit growth of 0.8 percent throughout the quarter, the reserve ratio
declined 1 basis point to 1.1 percent.
Two banks opened their doors in the second quarter, while
one bank failed, and 27 institutions merged. One bank that failed during the
third quarter did not file a second quarter 2023 Call Report.