Banks’ Q4 Follows the CU Pattern With Income Dropping

The credit union difference was minimal in terms of financial results as 2022 ended.

The FDIC on Tuesday released fourth-quarter results for the nation’s 4,706 banks that differed in scale, but followed the same trends reported so far for credit unions: High loan balance growth, lower non-interest income, higher loan loss provisions and higher net interest income.

Also, like credit unions, the FDIC said asset quality worsened due to the unusually low delinquency and charge-off rates of the pandemic, but returned to levels that prevailed in 2019.

Banks had $23.62 trillion in average assets in the fourth quarter, up 0.5% from a year earlier and down 0.25% from the third quarter. They held $12.23 trillion in loans and leases on Dec. 31, up 8.7% from a year earlier and up 1.9% from Sept. 30.

Banks’ net income before income taxes and extraordinary items was $85 billion, or an annualized 1.44% of the quarter’s average assets. That return on average assets was down slightly from 1.53% for the third quarter but up from 1.32% in the fourth quarter of 2021.

FDIC Chairman Martin Gruenberg said fourth-quarter net income at banks in the three months ending Dec. 31 was lower than in the third quarter but higher than the pre-pandemic average. Net income fell from the third quarter as lower noninterest income and increased provisions offset gains in net interest income. But net income gained from the fourth quarter of 2021 on the strength of those net interest margins.

Annualized net interest income as a percent of average assets was 3.05% for the fourth quarter — returning to levels last seen in 2019. It was up from 2.85% in the third quarter and 1.32% a year earlier.

“Rising short-term interest rates and continued loan growth supported a quarter-over-quarter increase in the net interest margin for the industry as a whole and community banks,” Gruenberg said. “The change in deposit rates paid by banks continued to lag the change in rates charged on loans.”

Gruenberg said banks face significant risks from inflation, rising market interest rates and continued geopolitical uncertainty. “Credit quality and profitability may weaken due to these risks and may result in tighter loan underwriting, slower loan growth, higher provision expenses and liquidity constraints,” he said.

Unrealized losses on available-for-sale and held-to-maturity securities remained elevated at $620 billion. “Higher market interest rates may also erode real estate and other asset values as well as weaken borrowers’ loan repayment ability,” he said.