FDIC: the increase in provision charges lowers the net income of banks

FDIC-insured banks and thrift associations earned $59.7 billion in the first quarter of 2022, down 22.2% from a year earlier, the FDIC reported in its Banking Profile yesterday. quarterly. This decrease is due to an increase in provision charges. Despite the decline, Acting FDIC Chairman Martin Gruenberg said “capital and liquidity levels remain strong” and “loan growth and measures of credit quality remain generally supportive.”

The average net interest margin fell slightly by 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 increased 6.4% from the fourth quarter to $138 billion, the fourth consecutive year. increase. Meanwhile, a 65.9% drop in revenue from the sale of loans led to a reduction in non-interest revenue compared to the same quarter last year. Community banks reported a $1.1 billion drop in first-quarter net income year-on-year, the FDIC said.

American Bankers Association Chief Economist Sayee Srinivasan highlighted the continued strength of the banking sector. “Credit quality is exceptionally strong and lending continues to gain momentum after robust growth in the prior quarter,” Srinivasan said. “Banks increased loan loss provisions in the first quarter due to heightened uncertainty, which reduced net income for the industry. Nonetheless, banks are well capitalized and the industry remains well positioned to meet the challenges. challenges caused by the Fed’s efforts to fight inflation.

The average net write-off rate fell 12 basis points year-over-year to 0.22%, and the non-current loan rate fell five basis points to 0.84%. During the first quarter, three banks opened and no bank failed. The number of banks on the FDIC’s problem bank list fell from four to 40, a new record.

FDIC Weighing Up Assessment Rates

In June, the FDIC will review “options for modifying [the 2020 Deposit Insurance Fund]restoration plan, including increases in assessment rates,” Acting FDIC Chairman Martin Gruenberg said today in remarks after the release of the QBP report.

The statement came after the DIF balance fell from $102 million in the first quarter to $123 billion, the first decline in the DIF balance in more than a decade. The decline was attributed to unrealized losses on available-for-sale securities in the DIF portfolio, driven by rising interest rates, which offset income from insurance contributions. At the same time, deposits insured by industry continued to grow at a high rate. These two factors caused the DIF’s reserve rate to fall to 1.23% as of March 31.

After the DIF’s reserve ratio fell below the required reserve ratio of 1.35% in June 2020, the FDIC announced a plan to restore the fund by September 2028 with no planned increase in the assessment rate schedule . However, Gruenberg noted that “a key assumption surrounding the restoration plan was that growth in insured deposits would normalize and that the surge in insured deposits associated with the pandemic would recede over time. However, more than a year after the last round of pandemic-related fiscal stimulus, the sector continued to show strong growth in insured deposits. »