FDIC-insured community banks made $7 billion in net income during the first quarter of this year, a $306 million or 4.2 percent drop from the previous quarter. The decrease was caused by lower net interest margins and noninterest income outpacing decreases in provision and noninterest expenses, according to the FDIC’s Quarterly Banking Profile.
Community bank’s net interest income increased 6.1 percent or $403.6 million on an annual basis, according to the report. Community banks’ pre-tax return on assets fell 21 basis points from the fourth quarter to 1.27 percent, but increased one basis point from the year-ago mark.
Loan balances increased 1.8 percent from the previous quarter and 15 percent on an annual basis, due to growth in nonfarm, nonresidential commercial real estate and 1-4 family residential mortgages.
Community banks’ NIM fell 22 basis points from the prior quarter, but increased 37 basis points from the first quarter of 2022 to 3.49 percent. Loan yields increased 16 basis points from the fourth quarter and 94 basis points on an annual basis. Cost of deposits increased 39 basis points on a quarterly basis and 92 basis points from the year-ago mark.
“The banking industry has proven to be quite resilient during this period of stress,” said FDIC Chair Martin Gruenberg. “Net income still remains high in relation to historical measures, asset quality metrics remain favorable and the industry remains well capitalized. However, the industry continues to face significant downside risks from the effects of inflation, rising market interest rates, slowing economic growth and geopolitical uncertainty.”
The nation’s 4,672 commercial banks and savings institutions made $79.8 billion in net income in the first quarter, an $11.5 billion or 16.9 percent increase from the fourth quarter of last year, due almost entirely to the income Raleigh, N.C.-based First Citizens Bank generated from buying Silicon Valley Bank and New York Community Bancorp made from acquiring Signature Bank.
“Strong growth in noninterest income, reflecting the accounting treatment of the acquisition of two failed institutions and record-high trading revenue at large banks, outpaced lower net interest income and higher noninterest expense,” the FDIC stated.
Year-over-year net income increased $20.1 billion or 33.6 percent as net interest income growth exceeded increases in noninterest and provision expenses. The banking industry reported an average ROA of 1.36 percent, higher than the 1.16 percent in the fourth quarter of 2022. NIM fell seven basis points to 3.31 percent on a quarterly basis as deposit costs rose at a faster rate than loan yields, but remained 77 basis points higher than the year-ago quarter and above the pre-pandemic average of 3.25 percent.
Other quarterly report findings included:
- Loan asset quality metrics remained favorable. Loans 90 days or more past due increased two basis points to 0.75 percent. Total net charge-offs as a ratio of total loans increased five basis points to 0.41 percent, which is still lower than the pre-pandemic average of 0.48 percent. The 30-89 day delinquency rate fell four basis points to 0.52 percent.
- Total loan and lease balances fell $14.6 billion or 0.1 percent due to loans being transferred out of the banking system to the FDIC as receiver and a seasonal decline in credit card loan balances.
- The reserve ratio for the Deposit Insurance Fund fell $12.1 billion or 1.11 percent due to provisions from the Silicon Valley and Signature failures and the anticipated failure of San Francisco-based First Republic Bank, which went under on May 1. “When combined with insured deposit growth of 2.5 percent over the quarter, the reserve ratio decreased 14 basis points to 1.11 percent,” the FDIC stated.
- Thirty-one institutions merged and one bank opened.