The FDIC's September 5, 2024 quarterly report of bank earnings reflected an increase from the previous quarter, however assets quality weakened and the number of banks declined by 29.
Chairman Gruenberg urged caution, commenting, “Uncertainty in the economic outlook, market interest rates, and geopolitical events, along with continuing weakness in some bank loan portfolios, pose significant downside risks to the banking industry.”
The banking industry’s net income of $71.5 billion in the second quarter rose from $7.3 billion, or 11.4 percent, from the prior quarter, but this was mainly due to one-time items. These items included the absence of an FDIC special assessment expense, one-time gains on equity security transactions, and the sale of an institution’s insurance division.
Community banks reported net income of $6.4 billion, a quarterly increase of 1.1 percent. This was driven by higher net interest income and noninterest income that offset higher noninterest and provision expenses.
Driven in part by write-downs on credit cards, the industry’s quarterly net charge-off rate increased to 0.68 percent, 20 basis points higher than the prior year’s rate and also 20 basis points higher than the pre-pandemic average. The credit card net charge-off rate increased again in the second quarter and was the highest rate reported since third quarter 2011.
Other key highlights:
- Noncurrent loan balances in the non-owner occupied commercial real estate (CRE) loan portfolio continued to increase.
- Weak demand for office space is softening property values.
- Higher interest rates are negatively impacting borrowers' ability to repay or refinance loans.
- The noncurrent loan rate for non-owner occupied CRE loans in Q2 reached its highest level since Q3 2013.
- The total number of FDIC-insured institutions decreased by 29 in the second quarter, bringing the total to 4,539. This decline was due to three banks being sold to credit unions, 26 mergers with other banks, and one bank failure. No new banks opened during the quarter