Return on assets (ROA) for the nation’s banks was down at midyear as was net income, which the federal bank deposit insurance agency Tuesday blamed on an increase in provision expenses related to a large bank acquisition.
Absent that, the Federal Deposit Insurance Corp. (FDIC) said, net income for banks would have increased.
The second quarter performance numbers showed that banks’ ROA – which is the basic yardstick of bank profitability – at 1.13% has fallen three basis points from the end of the first quarter (when it stood at 1.16%) and is down 7bp from midyear 2024 (when it was 1.20%).
The agency said net income, on the other hand, at $69.9 billion, fell by $677.3 million – largely because of the large bank acquisition provision expenses. The FDIC said accounting standards require an acquiring institution to recognize a provision expense related to certain acquired assets.
As if to illustrate the point, the agency said net income of community banks (those with assets less than $10 billion) rose 12.5% ($842.9 million) in the second quarter. The agency also said community bank pretax ROA increased 15bp from the prior quarter to 1.33%.
In another key area for banks and the strength of their deposit insurance fund (DIF), the agency reported that the DIF reserve ratio (the amount of funds held in the DIF relative to total deposits insured) increased by 5bp in the second quarter, to 1.36%. Since the reserve ratio now exceeds the statutory minimum for the fund (1.35%), the agency said that beginning in the third quarter it will no longer be operating under the “restoration plan.” That plan was instigated for rebuilding the DIF’s reserve ratio and was adopted in September 2020. The deadline for reaching the required DIF ratio was Sept. 30, 2028. The DIF balance, the FDIC said, at midyear was $145.3 billion.
The FDIC also said:
- Although bank’s net charge-off ratio fell by 6bp from the first quarter, and is down 8bp from the same time a year ago, the ratio is 12bp above the pre-pandemic average. The agency also noted that most bank loan portfolios have net charge-off rates above their pre-pandemic averages.
- Past-due and nonaccrual (PDNA) loans for non-owner-occupied commercial real estate (CRE), multifamily CRE, and credit card portfolios remain well above pre-pandemic averages. However, there were some declines in these loans in the second quarter: credit card PDNA loans were down $1.9 billion (24bp) to 2.98%, and 1–4 family residential loans were down $1.5 billion (7bp) to 1.86%.
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