For the 5,066 commercial banks and savings institutions insured by the FDIC, aggregate net income totaled $18.8 billion in second quarter 2020, down $43.7 billion from second quarter 2019.
The average net interest margin fell by 58 basis points from a year ago to 2.81 percent, the lowest level ever reported in the Quarterly Banking Profile. Net interest income fell by $7.6 billion (5.4 percent) from second quarter 2019, marking a third consecutive quarterly decline.
Slightly less than half of all institutions reported annual declines in net income. The share of unprofitable institutions increased from a year ago to 5.4 percent. The average return on assets ratio fell from 1.38 percent in second quarter 2019 to 0.36 percent.
“Lower levels of business activity and consumer spending – combined with uncertainty about the path of the economy and the low interest-rate environment – contributed to higher provisions for loan and lease losses, as well as a decrease in net interest margins,” said FDIC Chair Jelena McWilliams. “Notwithstanding these disruptions, however, the banking industry maintained strong capital and liquidity levels at the end of the second quarter, which will protect against potential losses in the future.”
Reports from 4,624 FDIC-insured community banks reflect annual net income growth of $202.5 million. Despite a 273 percent increase in provision expenses to $2.4 billion and continued net interest margin compression, more than half of all community banks reported higher net income. This increase was primarily attributable to higher revenue from gains on the sale of loans (up $1.4 billion or 142.2 percent) and gains on the sale of securities (up $299.8 million or 130.7 percent).
Community banks reported strong loan growth of 13.5 percent year-over-year, driven by lending activity related to the Paycheck Protection Program. The net interest margin for community banks compressed 17 basis points year-over-year to 3.51 percent, as the decline in average earning asset yields outpaced the decline in funding costs.
Total loan and lease balances rose by $33.9 billion (0.3 percent) from the previous quarter. Quarterly results were mixed among the major loan categories. The commercial and industrial loan portfolio reported the largest quarterly dollar increase, up $146.5 billion (5.8 percent). Most of this growth was driven by PPP, with $482.2 billion in credit extended by the banking industry to businesses.
Conversely, consumer loans declined $67.1 billion due to reductions in credit card balances. Over the past 12 months, total loan and lease balances grew by 6.7 percent, slightly below the annual growth rate of 8 percent reported last quarter.