Net income at the nation’s banks was down in the second quarter compared to the previous quarter, the federal bank deposit insurance agency said Thursday, adding that net interest margins at banks also fell for the second straight quarter.
In the mid-year numbers released by the Federal Deposit Insurance Corp. (FDIC), the agency said second-quarter net income decreased by $9.0 billion (11.3%), to $70.8 billion, from first quarter 2023. However, the agency attributed at least some (not all) of that decrease to the effects on the income of acquirers of three banks that failed in March and May. Still, the agency said, the quarter-over-quarter net income for banks would have been roughly flat for the second consecutive quarter even if the costs of failed banks weren’t considered.
Overall, the FDIC said, declines in noninterest income — reflecting the accounting treatment of the acquisition of three failed institutions — lower net interest income, and higher provision expenses were the drivers of the decline in net income.
FDIC Board Chairman Martin Gruenberg, in a release, acknowledged the decline in net income, but argued it was just a dent in bank’s resiliency. “Net income remained high by historical measures, asset quality metrics were stable, and the industry remained well capitalized,” he said.
Gruenberg did, however, point out the banking industry faces some “significant challenges.” He cited the effects of inflation, rising market interest rates, and geopolitical uncertainty.
“These risks, combined with concerns about commercial real estate (CRE) fundamentals, especially in office markets, as well as pressure on funding levels and net interest margins, will be matters of continued supervisory attention by the FDIC,” Gruenberg vowed.
Other key indicators for the midyear banking industry released by the FDIC included:
- Unrealized losses on securities increased quarter over quarter.
- Loan balances increased from last quarter and one year ago.
- Total deposits declined for a fifth consecutive quarter.
- Asset quality metrics remained favorable despite modest deterioration.
- The reserve ratio for the deposit insurance fund declined to 1.10%.