US Commercial Banks Report 22% Drop in Overall Net Profit for Q1 2022

Changes in banking are now happening at an accelerating pace, a bank is now seeing changes in a year that took decades to materialize. These changes are reflected in loan-to-deposit ratios as well as what is on banks’ balance sheets, which in turn influences bank performance.

Banking sector quarterly net profit fell 22% in first quarter of 2022 from 2021, FDIC says report published on May 24. With community banks reporting a slight decline in net profit, credit quality improved with net interest margins remaining stable quarter-on-quarter (QT).

After going through the pandemic, the banking sector has focused on better understanding the current situation in order to speed up reform. However, 2022 has made things even more difficult with rising inflation and the war in Ukraine causing various market disruptions.

Quarterly net income of banks Source: FDIC

Meanwhile, Acting FDIC Chairman Martin J. Gruenberg offered an explanation of the state of banking in the FDIC Press release:

“The banking sector recorded a decline in its net income due to an increase in provision charges. Capital and liquidity levels remain strong. In addition, loan growth and credit quality measures remain generally supportive. Going forward, inflationary pressures, rising interest rates and continued pandemic and geopolitical uncertainty are likely to be headwinds for bank profitability, credit quality and loan growth.

Deposit growth and reserve ratios

Overall, deposits at banks continued to grow for the first quarter of 2022, driven by growth in insured deposits totaling $230.7 billion, an increase of 1.2% from the previous quarter. Compared to historical levels, filings remain elevated while growth rates are below outlier quarters in 2020 and 2021.

Quarterly change in deposits Source: FDIC

Similarly, the assets of banks listed as “problem banks” increased by $3 billion, to a total of $173.1 billion, which is comparable to 2013 levels. as “problem banks” has declined and is at its lowest since quarterly data collection on bank performance began in 1984.

Conversely, the Depositors Insurance Fund (DIF) balance was $123 billion, down $100 million for the quarter, the first decline in more than a decade. . Insured deposits rose 2.5% in the first quarter to $10 trillion. These factors contributed to the decline in the reserve ratio of 1.23%, without taking into account the increase in deposits observed during the pandemic, a decline in reserve ratios that has not been observed since 2009.

T1 reserved ratio and balance Source: FDIC

It would be hard to argue that the banking sector hasn’t made great strides since the crash of 2008, causing some banks to implode and lose their savings. Bank stocks at the time saw massive revaluations, but as it appears now, bank balance sheets are stable and continue to improve.

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