WASHINGTON–The nation’s FDIC-insured banks reported a net income increase of 29.1% during the first quarter of this year, primarily due to negative provisions for credit losses reflecting bad loans that never appeared, according to new data.
The FDIC reported in its Quarterly Banking Profile net income totaled $76.8 billion, an increase of $17.3 billion over the fourth quarter pf 2020. Aggregate negative provision expense bolstered both quarterly and annual net income growth, the FDIC said, with three-fourths of all banks (74.8%) reporting annual improvements in quarterly net income.
As a result, the share of unprofitable institutions dropped from 7.4% a year ago to 3.9%. The banking industry reported an aggregate return on average assets ratio of 1.38%, up one percentage point from a year ago and up 28 basis points from fourth quarter 2020.
Among other Q1 data points for FDIC-insured banks:
Net Interest Margin Contracted Further to a New Record Low
The average net interest margin contracted 57 basis points from a year ago to 2.56%—the lowest level on record for the Quarterly Banking Profile. Net interest income fell by $7.6 billion (5.6%) from a year ago, the FDIC said.
The year-over-year reduction in yields on earning assets outpaced the decline in average funding costs, both of which are at record lows. Despite the aggregate decline in net interest income, which was driven by the largest institutions, more than three-fifths of all banks (64.4%) reported higher net interest income compared with a year ago, the FDIC said.
Community Banks Reported a 77.5% Increase in Quarterly Net Income Year-Over-Year
According to the agency, community banks reported annual net income growth of $3.7 billion, supported by an increase in noninterest income and a decline in provision expense. Higher revenue from loan sales (up $1.3 billion or 126.4%) supported a 45% increase in noninterest income. Provision expenses declined $1.4 billion (78.4%) from a year ago, and $826.2 million (67.9%) from the previous quarter.
The FDIC said nearly three quarters (73%) of the 4,531 FDIC–insured community banks reported higher quarterly net income. However, the net interest margin for community banks continued to narrow to the lowest level on record for the Quarterly Banking Profile, with a decline of 27 basis points to 3.26%, as the continued reduction in average earning asset yields outpaced the decline in average funding costs.
Loan Volume Continued to Contract, Driven by a Reduction in Credit Card Balances
Total loan and lease balances contracted $38.7 billion (0.4%) from the previous quarter. A reduction in credit card balances (down 7.4%) drove the quarterly decline in loan volume, the FDIC said.
“Compared with the year ago quarter, total loan and lease balances declined $136.3 billion (1.2%). This was the first annual contraction in loan and lease volume reported by the banking industry since third quarter 2011,” the FDIC said. “Reduced commercial and industrial (C&I) loan (down 12.8%) and credit card balances (down 3.7%) drove the annual decline in loan volume.
“Unlike the banking industry as a whole, community banks reported a 1.4% increase in loan balances from the previous quarter, led by strong C&I growth through participation in the Paycheck Protection Program (PPP),” the FDIC continued. “Annually, total loans and leases increased 10.8%—also led by loans originated through the PPP.”
Asset Quality Improved
Loans that were 90 days or more past due or in nonaccrual status (noncurrent loans) declined $5.9 billion (4.6%) from fourth quarter 2020. The noncurrent rate for total loans declined 5 basis points from the previous quarter to 1.14%. Net charge-offs declined $5.4 billion (36.8%) from a year ago. The total net charge-off rate dropped 20 basis points to 0.34%, the FDIC said.
The Deposit Insurance Fund’s Reserve Ratio Declined from the Previous Quarter to 1.25%
The Deposit Insurance Fund (DIF) balance was $119.4 billion as of March 31, up $1.5 billion from the end of the fourth quarter. However, the reserve ratio declined four basis points to 1.25%, “solely because of strong insured deposit growth,” the FDIC said.