Declining noninterest expense gives Q1 earnings a boost, FDIC reports

Commercial banks collectively earned $64.2 billion in the first quarter of 2024, an increase of $28.4 billion, or 79.5 percent from fourth quarter 2023, according to the FDIC’s industry earnings report. A large decline in noninterest expense because of several substantial, non-recurring items recognized by large banks in the prior quarter, as well as higher noninterest income and lower provision expenses this quarter, contributed to the quarterly increase.  

While industry results were mostly impacted by the largest banks, the nation’s 4,128 community banks collectively earned $6.3 billion in the first quarter, an increase of $363.2 million (6.1 percent) from fourth quarter 2023. Lower realized losses on the sale of securities and lower noninterest and provision expenses more than offset lower noninterest and net interest income. Community bank pretax ROA increased six basis points from one quarter ago to 1.13 percent.

The industry’s net interest margin declined ten basis points to 3.17 percent in the first quarter. It was the second consecutive quarterly decline. NIM declined as funding costs continued to increase while the yield on earning assets declined during the quarter. The industry’s first-quarter NIM was seven basis points below the pre-pandemic average NIM. The community bank NIM of 3.23 percent also declined quarter over quarter; it is down 12 basis points from the prior quarter and 41 basis points from its pre-pandemic average. 

Asset quality metrics remained generally favorable with the exception of material deterioration in credit card and commercial real estate portfolios.

“The banking industry continued to show resilience in the first quarter,” commented FDIC Chair Martin Gruenberg. “Net income rebounded, asset quality metrics remained generally favorable, and the industry’s liquidity was stable. However, the banking industry still faces significant downside risks from the continued effects of inflation, volatility in market interest rates, and geopolitical uncertainty. In addition, deterioration in certain loan portfolios, particularly office properties and credit cards, continues to warrant monitoring.”

The total number of FDIC-insured institutions declined by 19 during the quarter to 4,568.  One bank opened, four banks did not file a Call Report, and 16 institutions merged with other banks during the quarter.