FDIC: Increase in Provision Expense Drives Bank Net Income Down

FDIC-insured banks and savings associations earned $59.7 billion in the first quarter of 2022, a 22.2% decrease from the year prior, the FDIC reported yesterday in its Quarterly Banking Profile. The decrease was driven by an increase in provision expense. Despite the decrease, FDIC Acting Chairman Martin Gruenberg said that “capital and liquidity levels remain strong” and that “loan growth and credit quality metrics remain generally favorable.”

The average net interest margin edged down one basis point from the previous quarter to 2.54%, four basis points higher than the record low in the second quarter of 2021. Net interest income rose 6.4% from the fourth quarter to $138 billion—the fourth consecutive increase. Meanwhile, a 65.9% decline in income from loan sales drove a reduction in noninterest income from the same quarter last year. Community banks reported a $1.1 billion decline in first quarter net income year-on-year, the FDIC said.

ABA Chief Economist Sayee Srinivasan emphasized the continued strength of the banking industry. “Credit quality is exceptionally strong and lending continues to gain steam following robust growth in the previous quarter,” Srinivasan said. “Banks increased loan-loss provisions in the first quarter due to heightened uncertainty, which lowered industry net income. Nonetheless, banks are well capitalized and the industry remains well positioned to handle the challenges caused by the Fed’s efforts to combat inflation.”

The average net charge-off rate fell 12 basis points year-on-year to 0.22%, and the noncurrent loan rate fell five basis points to 0.84%. During the first quarter, three banks opened and no banks failed. The number of banks on the FDIC’s problem bank list declined by four to 40, a new record low. Read the QBP.