WASHINGTON—The nation’s FDIC-insured banks reported aggregate net income of $70.4-billion during the second quarter of 2021, an increase of $51.9 billion (281%) from one year earlier, even though net interest margin hit an all-time low, according to the agency.
The FDIC said increase among the 4,951 commercial banks and savings institutions it insures was driven by further economic growth and improved credit conditions, which led to a second consecutive quarter of aggregate negative provision expense.
The numbers were released as part of the FDIC’s latest Quarterly Banking Profile released today.
Report Highlights
Among the highlights in the report:
Quarterly Net Income Continued to Increase Year Over Year, Driven by a Second Consecutive Quarter of Negative Provision Expense
Net income totaled $70.4 billion, an increase of $51.9 billion (281%) from the same quarter a year ago, primarily due to a $73 billion (117.3%) decline in provision expense.
“Nearly two-thirds of all banks (66.4%) reported annual improvements in quarterly net income, and the share of profitable institutions increased slightly, up 1.4% year over year to 95.8%,” the FDIC said. “However, net income declined $6.4 billion (8.3%) from first quarter 2021, driven by an increase in provision expense from first quarter 2021 (up $3.7 billion to negative $10.8 billion).”
According to the report, the banking industry reported an aggregate return on average assets ratio of 1.24%, 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%—the lowest level on record, the FDIC reported. NIM contraction was accompanied by a decline in net interest income of $2.2 billion (1.7%) 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,” the FDIC said. “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%) reported higher net interest income compared with a year ago.”
Community Banks Reported a 28.7% Increase in Quarterly Net Income Year Over Year
Community banks reported annual net income growth of $1.9 billion, supported by a decline in provision expense and an increase in net interest income, the FDIC data show.
The regulator said provision expenses declined $2.3 billion (98.1%) from a year ago and $345.1 million (88.2%) 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 Program (PPP) loans, helped lift net interest income $1.4 billion (7.2%) from the same quarter a year ago, according to the report.
“More than half (53.1%) of the 4,490 FDIC-insured community banks reported higher quarterly net income,” the FDIC said. “However, the net interest margin for community banks narrowed further, with a decline of 26 basis points to 3.25%, 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 $33.2 billion (0.3%) from the previous quarter.
“This was the first quarterly increase in loan volume since second quarter 2020,” the FDIC said. “An increase in credit card loan balances (up $30.9 billion, or 4.1%), supplemented by an increase in auto loan balances (up $18.9 billion, or 3.8%), drove the growth.”
The new Quarterly Report found loan volume contracted slightly compared with the same quarter a year ago. A reduction in C&I loans (down 13.4%) drove an annual decline of $133.9 billion (1.2%) in loan volume.
Community banks reported a 0.5% 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% in total loans and leases, the FDIC said.
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 $13.2 billion, or 10.8%) from first quarter 2021, the report found. The noncurrent rate for total loans declined 12 basis points from the previous quarter to 1.01%. Net charge-offs also continued to decline (down $8.3 billion, or 53.2%) from a year ago.
The total net charge-off rate dropped 30 basis points to 0.27%—the lowest level on record, the FDIC added.
The Reserve Ratio for the Deposit Insurance Fund Increased Slightly to 1.27%
The Deposit Insurance Fund (DIF) balance was $120.5 billion as of June 30, up $1.2 billion from the end of the first quarter. The reserve ratio increased 2 basis points to 1.27%, due to continued growth in the fund balance and a 0.2% decline in insured deposits, according to the FDIC.
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.