U.S. banks posted aggregate net income of $70.8 billion in second quarter of 2023, down about $9 billion, or 11.3 percent, from first quarter 2023, according to the Federal Deposit Insurance Corporation’s (FDIC) latest Quarterly Banking Profile.
However, after excluding the effects on acquirers’ incomes of their acquisition of three failed banks in 2023, the quarter-over-quarter net income would have been roughly flat in the second quarter. The primary drivers of the declines were decreases in non-interest income, reflecting the accounting treatment of the acquisition of three failed institutions, lower net interest income, and higher provision expenses.
However, net income was up about 5.7 percent for the 4,645 FDIC-insured commercial banks and savings institutions compared to the second quarter of 2022. Quarterly net income for the 4,198 community banks insured by the FDIC increased by 3.4 percent from the first quarter 2023.
Further, the banking industry reported an average return on assets (ROA) of 1.21 percent in the second quarter, down from 1.36 percent in first quarter 2023 but up from 1.08 percent in second quarter of 2022.
The net interest margin (NIM) declined 3 basis points to 3.28 percent in the second quarter but remains 48 basis points higher than the year-ago quarter. It is also above the pre-pandemic average of 3.25 percent. The decline in the NIM reflects the cost of funds, or the interest banks pay on deposits, rising at a faster rate than the interest banks earn on loans and securities. The yield on earning assets increased 40 basis points from the first quarter of 2023 to 5.32 percent, while the cost of funds increased 43 basis points to 2.05 percent.
Among other findings, total loan and lease balances increased $86.5 billion, about 1 percent, from the previous quarter. An increase in credit card loans, up 4.6 percent, and loans to non-depository financial institutions, up 3.2 percent, drove loan growth. Compared to Q2 2022, total loan and lease balances increased 4.5 percent. Loans that were 90 days or more past due or in nonaccrual status increased to 0.76 percent of total loans, up 1 basis point from the prior quarter. Net charge-offs as a ratio of total loans increased 7 basis points from the prior quarter and 25 basis points from a year prior to 0.48 percent. The industry’s net charge-off rate is now equal to its pre-pandemic average.
Finally, total deposits declined $98.6 billion, or 0.5 percent, between the first and second quarter 2023. This was the fifth consecutive quarter that the industry reported lower levels of total deposits. A reduction in estimated uninsured deposits, down 2.5 percent, drove the quarterly decline. Insured deposits were up 0.8 percent in the quarter.
Overall, in the quarter, two banks opened, one bank failed, and 27 institutions merged.