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FDIC-Insured Banks' Q2 Earnings Dip on High Provisions, NIM Up
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The Federal Deposit Insurance Corporation (“FDIC”)-insured commercial banks and savings institutions reported second-quarter 2022 earnings of $64.4 billion, down 8.5% year over year. The decline was primarily due to higher provision expenses.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the June-ended quarter. Though such banks constitute only 3% of the total number of FDIC-insured institutes, these accounted for approximately 80% of the industry’s earnings. Some of the notable names in this space are JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) .
Of all FDIC-insured institutions, 51.8% reported a reduction in quarterly net income, while the remaining registered a rise from the prior-year level. Also, the percentage of institutions reporting net losses in the quarter was 4.9% of all FDIC-insured institutions.
Banks’ earnings were adversely impacted by higher provisions on expectations of a deteriorating operating backdrop. Further, a rise in non-interest expenses and lower deposit balance were headwinds.
However, a rise in net operating revenues driven by solid growth in net interest income and a modest increase in non-interest income acted as a major tailwind. Also, higher interest rates and robust loan demand offered support. In addition, the number of problem banks remained near historic lows.
Community banks, constituting 91% of all FDIC-insured institutions, reported a net income of $7.6 billion, down 6.5% year over year. Almost 52% of community banks witnessed a fall in net income.
The return on average assets in second-quarter 2022 fell to 1.08% from 1.24% as of Jun 30, 2021.
Net Operating Revenues & Expenses Rise
Net operating revenues came in at $228 billion, up 11.2% year over year.
Net interest income (NII) was $151.1 billion, jumping 16.9% year over year. Of all banks, 70.5% witnessed a rise in NII from the prior year.
Net interest margin (NIM) grew 26 basis points (bps) to 2.80%. JPMorgan, Bank of America, Citigroup and Wells Fargo also witnessed an increase in NIM. Nonetheless, NIM was still below the pre-pandemic average of 3.25%.
Non-interest income grew 1.5% to $76.9 billion.
Total non-interest expenses were $134.8 billion, increasing 6.9%. The rise was mainly due to higher compensation expenses, data processing and marketing costs. Nearly 71.2% of banks witnessed higher non-interest expenses.
Despite the rise in expenses, the banking industry recorded a fall in efficiency ratio to 58.7% in the second quarter from 61% in the prior-year quarter. This was mainly attributable to “strong growth in net interest income.”
Credit Quality: Mixed Bag
Net charge-offs (NCOs) for loans and leases were $6.7 billion, down 8.2% year over year. The fall was primarily due to lower NCOs for credit cards loans.
The level of non-current loans and leases declined 19.8% from the year-ago quarter to $98 billion. The non-current rate for total loans was 0.75%. This was the lowest level since the third quarter of 2006.
Provisions for credit losses were $11.1 billion during the second quarter against a provision benefit of $10.8 billion in the year-ago quarter. Almost 33% of all institutions, including JPMorgan, Bank of America, Citigroup and Wells Fargo, reported higher provisions. The rest of the banking industry either recorded a year-over-year fall or no change in provision expenses.
Loans Rise, Deposits Fall
As of Jun 30, 2022, total loans and leases were $11.8 trillion, growing 3.7% from the prior quarter. The rise in consumer loan balance (up 4.2%), 1-4 family residential mortgages (up 4.2%) and commercial and industrial loans (up 3.9%) were the key reasons for the improvement.
Total deposits amounted to $19.6 trillion, down 1.9% sequentially. This marked the first decline in deposits since the second quarter of 2018. Nearly 48.8% of all banks recorded a sequential fall in deposit balances.
As of Jun 30, 2022, the Deposit Insurance Fund (DIF) balance increased marginally from the March 2022 level to $124.5 billion. Higher assessment income and interest earned on investment securities largely supported the growth in DIF balance.
No Bank Failures, Six New Banks
During the reported quarter, no banks failed, while six new banks were added. Further, 28 banks were absorbed following mergers.
As of Jun 30, 2022, the number of ‘problem’ banks was 40, unchanged from the prior quarter. This number remains at historic lows. Total assets of the ‘problem’ institutions decreased to $170.4 billion from $173.1 billion reported in the first quarter of 2022.
Our Viewpoint
With rising interest rates and decent loan demand, banks are expected to witness solid top-line growth. Also, banks have been changing the revenue mix toward non-interest sources, which are likely to provide additional support to the revenues. Nonetheless, a worsening macroeconomic environment is likely to weigh on banks’ financials in the near term.
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FDIC-Insured Banks' Q2 Earnings Dip on High Provisions, NIM Up
The Federal Deposit Insurance Corporation (“FDIC”)-insured commercial banks and savings institutions reported second-quarter 2022 earnings of $64.4 billion, down 8.5% year over year. The decline was primarily due to higher provision expenses.
Banks, with assets worth more than $10 billion, accounted for a major part of earnings in the June-ended quarter. Though such banks constitute only 3% of the total number of FDIC-insured institutes, these accounted for approximately 80% of the industry’s earnings. Some of the notable names in this space are JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) .
At present, JPMorgan, Bank of America, Citigroup and Wells Fargo carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Of all FDIC-insured institutions, 51.8% reported a reduction in quarterly net income, while the remaining registered a rise from the prior-year level. Also, the percentage of institutions reporting net losses in the quarter was 4.9% of all FDIC-insured institutions.
Banks’ earnings were adversely impacted by higher provisions on expectations of a deteriorating operating backdrop. Further, a rise in non-interest expenses and lower deposit balance were headwinds.
However, a rise in net operating revenues driven by solid growth in net interest income and a modest increase in non-interest income acted as a major tailwind. Also, higher interest rates and robust loan demand offered support. In addition, the number of problem banks remained near historic lows.
Community banks, constituting 91% of all FDIC-insured institutions, reported a net income of $7.6 billion, down 6.5% year over year. Almost 52% of community banks witnessed a fall in net income.
The return on average assets in second-quarter 2022 fell to 1.08% from 1.24% as of Jun 30, 2021.
Net Operating Revenues & Expenses Rise
Net operating revenues came in at $228 billion, up 11.2% year over year.
Net interest income (NII) was $151.1 billion, jumping 16.9% year over year. Of all banks, 70.5% witnessed a rise in NII from the prior year.
Net interest margin (NIM) grew 26 basis points (bps) to 2.80%. JPMorgan, Bank of America, Citigroup and Wells Fargo also witnessed an increase in NIM. Nonetheless, NIM was still below the pre-pandemic average of 3.25%.
Non-interest income grew 1.5% to $76.9 billion.
Total non-interest expenses were $134.8 billion, increasing 6.9%. The rise was mainly due to higher compensation expenses, data processing and marketing costs. Nearly 71.2% of banks witnessed higher non-interest expenses.
Despite the rise in expenses, the banking industry recorded a fall in efficiency ratio to 58.7% in the second quarter from 61% in the prior-year quarter. This was mainly attributable to “strong growth in net interest income.”
Credit Quality: Mixed Bag
Net charge-offs (NCOs) for loans and leases were $6.7 billion, down 8.2% year over year. The fall was primarily due to lower NCOs for credit cards loans.
The level of non-current loans and leases declined 19.8% from the year-ago quarter to $98 billion. The non-current rate for total loans was 0.75%. This was the lowest level since the third quarter of 2006.
Provisions for credit losses were $11.1 billion during the second quarter against a provision benefit of $10.8 billion in the year-ago quarter. Almost 33% of all institutions, including JPMorgan, Bank of America, Citigroup and Wells Fargo, reported higher provisions. The rest of the banking industry either recorded a year-over-year fall or no change in provision expenses.
Loans Rise, Deposits Fall
As of Jun 30, 2022, total loans and leases were $11.8 trillion, growing 3.7% from the prior quarter. The rise in consumer loan balance (up 4.2%), 1-4 family residential mortgages (up 4.2%) and commercial and industrial loans (up 3.9%) were the key reasons for the improvement.
Total deposits amounted to $19.6 trillion, down 1.9% sequentially. This marked the first decline in deposits since the second quarter of 2018. Nearly 48.8% of all banks recorded a sequential fall in deposit balances.
As of Jun 30, 2022, the Deposit Insurance Fund (DIF) balance increased marginally from the March 2022 level to $124.5 billion. Higher assessment income and interest earned on investment securities largely supported the growth in DIF balance.
No Bank Failures, Six New Banks
During the reported quarter, no banks failed, while six new banks were added. Further, 28 banks were absorbed following mergers.
As of Jun 30, 2022, the number of ‘problem’ banks was 40, unchanged from the prior quarter. This number remains at historic lows. Total assets of the ‘problem’ institutions decreased to $170.4 billion from $173.1 billion reported in the first quarter of 2022.
Our Viewpoint
With rising interest rates and decent loan demand, banks are expected to witness solid top-line growth. Also, banks have been changing the revenue mix toward non-interest sources, which are likely to provide additional support to the revenues. Nonetheless, a worsening macroeconomic environment is likely to weigh on banks’ financials in the near term.