Banks saw drop-off in net income in ’22, some worsening in asset quality; lending heated up

Net income for the nation’s banks declined in 2022 from the previous year but was still higher than the average posted by the institutions before the coronavirus crisis emerged in 2020, the federal bank deposit insurance agency said Tuesday.

In releasing fourth-quarter (and full year) statistics for banks, the Federal Deposit Insurance Corp. (FDIC) said total net income at year’s end was $263 billion, down $16.1 billion (5.8%) from 2021. The agency attributed the decline to to higher provision expenses that offset an increase in net interest income.

A downturn in net income led to a lower aggregate return-on-assets (ROA) ratio, according to the FDIC figures. ROA fell from 1.23% in 2021 to 1.12% in 2022, the figures show.

The agency also noted that fourth-quarter net income (at $68.4 billion) was down $3.3 billion from the previous quarter. “Lower noninterest income and higher provision expenses more than offset an increase in net interest income,” the FDIC reported.

However, the FDIC also said that loan balances at banks increased from both a year ago and from the previous quarter. In fact, the agency said, the annual increase in loan balances was the second largest in the history of the FDIC’s quarterly reporting, second only to the increase in the previous quarter.

Total loan and lease balances in 2022 were up by $979.9 billion (8.7%), which the FDIC said were driven by growth in commercial and industrial (C&I) loans (up $223.3 billion for 9.7%), one-to-four-family residential mortgages (up $220.5 billion for 9.8%), and consumer loans (up $188.6 billion for 10%).

For the quarter, loans and leases were up $225.5 billion (1.9%) with increases in consumer loans (up 3.5%) and one-to-four-family residential loans (up 1.8%).

Overall, the agency said, asset quality metrics showed some deterioration. Noncurrent loans (those 90 days or more past due or on nonaccrual status) were up to 0.73%, with noncurrent credit card and commercial and industrial (C&I) loans driving the increase. Total net charge-offs (as a ratio of total loans) were up to 0.36%, 10 bp higher than the prior quarter and 15 bp higher than the year before that. FDIC said the increase was driven by credit card, C&I, and auto loan losses.

Early delinquencies (i.e., loans past due 30-89 days) increased to 0.56%, up 4 bp from the prior quarter. The FDIC said one-to-four-family real estate and auto loans contributed mostly to the growth.

FDIC-Insured Institutions Reported Net Income of $68.4 Billion in Fourth Quarter 2022