Banking industry earnings up 281% in second quarter

The 4,951 commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported aggregate net income rose by 281%, or by $51.9 billion, to $70.4 billion in the second quarter of 2021, from the same period last year.

Arkansas banks reported net income increased by 127.9% to $1.17 billion in the first half of 2021, from $515 million in the same period in 2020.

The FDIC released Wednesday (Sept. 8) its Quarterly Banking Profile that showed the increase was driven by further economic growth and improved credit conditions, which led to a second consecutive quarter of aggregate negative provision expense. Link here for the profile.

“The banking industry reported strong earnings in second quarter 2021, supported by continued economic growth and further improvements in credit quality,” FDIC Chairman Jelena McWilliams said. “With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic.”

Nearly two-thirds of all banks reported annual improvements in quarterly net income, and the share of profitable institutions increased by 1.4% to 95.8% in the second quarter, from the same period last year. However, net income declined by 8.3%, or by $6.4 billion, from the first quarter of 2021, as a result of a rise in provision expense from the period. It was up $3.7 billion to negative $10.8 billion.

Following are other highlights in the profile:
• The aggregate return on average assets ratio was 1.24%, up 0.89 percentage points from a year ago, but down 0.14 percentage points from the first quarter of 2021.
• The average net interest margin fell 0.31 percentage points to 2.5% in the second quarter, the lowest level on record.
• Community banks reported net income increased by 28.7%, or $1.9 billion, in the second quarter, from the same period in 2020.
• Loan volume increased 0.3%, or by $33.2 billion, in the second quarter, from the first quarter, but declined 1.2%, or by $133.9 billion, from the second quarter of 2020.
• Credit quality continued to improve as loans at least 90 days past due or in nonaccrual status declined by 10.8%, or $13.2 billion, from the first quarter, while the total net charge-off rate fell 0.3 percentage points to 0.27%, the lowest level on record.
• The reserve ratio for the Deposit Insurance Fund increased to 1.27%.
• Three new banks opened in the second quarter.