Banks’ net income declined $17 billion to $59.7 billion in the first quarter of 2022, a 22.2% drop from the same time a year ago, with growth in provision expense driving that 12-month decline, the federal bank deposit insurance agency said Tuesday.
Banks’ provision expense increased $19.7 billion, or 135.8%, over the 12-month period ending March 31, rising from negative $14.5 billion to positive $5.2, the latest Quarterly Banking Profile (QBP) from the Federal Deposit Insurance Corp. (FDIC) shows. The report shows that banks in the two largest asset size groups ($10 billion to $250 billion, and more than $250 billion) drove the change.
Despite the aggregate increase in provisions, only one-fourth of all institutions (25.2%) reported higher provisions compared with the year-ago quarter, while the rest of the banking industry reported either a decline or no change in provision expense, the report states.
In other results, the FDIC said the first-quarter data from 4,796 commercial banks and savings institutions showed “generally stable” net interest margin (down 1 basis point overall, quarter to quarter), modest growth in loan and lease balances quarter to quarter, and continued growth in credit quality quarter to quarter.
Still, the report shows a decline in aggregate return on average assets (ROAA) ratio, which fell to 1% – down 38 basis points (bps) from first quarter 2021 and down 9 bps from from fourth quarter 2021.
Acting FDIC Chairman Martin Gruenberg, in a statement, noted that capital and liquidity levels remain “strong” and that loan growth and credit quality metrics remain “generally favorable.” However, he said that “inflationary pressures, rising interest rates and continued pandemic and geopolitical uncertainty will likely be headwinds for bank profitability, credit quality, and loan growth.”
Some QBP highlights are shown below:
- The net interest margin (NIM) declined by 1 bp from the prior quarter to 2.54%. It was 4 bps higher than the record low set in second quarter 2021 but 2 bps lower than the level reported in the year-ago quarter. While more than half of banks (57.2%) reported higher net interest income compared with a year ago, NIM expansion was limited by earning asset growth, which continued to outpace net interest income growth.
- The yield on earning assets declined to 2.7% (down 1 bp from the previous quarter and down 7 bps from a year ago). Average funding costs were unchanged over the quarter at the record low set in fourth quarter 2021 of 0.16% but were down 4 bps from the year-ago quarter.
- Total loan and lease balances increased $109.9 billion (1%) from the previous quarter. Commercial and industrial (C&I) loans were up $81.3 billion, or 3.5%; nonfarm nonresidential commercial real estate (CRE) loans were up $28.2 billion, or 1.7%; “all other consumer loans” were up $20.4 billion, or 2%. Year over year, total loan and lease balances increased $531.8 billion (4.9%).
- Loans 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) continued to decline (down $4.5 billion, or 4.5%) from fourth quarter 2021. The noncurrent rate for total loans declined 5 bps from the previous quarter to 0.84%.
- Total net charge-offs continued to decline (down $3 billion, or 32%) from a year ago. The total net charge-off rate declined 12 bps to 0.22% – just above the record low of 0.19% set in third quarter 2021.
- The Deposit Insurance Fund (DIF) reserve ratio dropped to 1.23% (from 1.27% in the previous quarter), the report states. The fund balance was $123 billion as of March 31, down approximately $100 million from the end of the fourth quarter. The report says the increase in unrealized losses on available-for-sale securities in the DIF portfolio, driven by the rising rate environment, was the primary reason for the decline. The decline in the reserve ratio was due to both the decline in the DIF and growth in insured deposits, the report states.
The report shows that 44 banks merged and none failed in the first quarter 2022.