Tuesday, November 29, 2022

Pandemic strikes banks’ net income in second quarter

On August 25, the Federal Deposit Insurance Corporation reported the banking industry saw a 70 percent decline in net income when compared to net income in 2019.

The Agency said liquidity and capital levels remain strong enough to meet loan demand and absorb any losses in the future.

Although economic stress related to the COVID-19 pandemic continued to affect bank earnings, the industry has remained a source of strength for the economy. Banks of all sizes supported their customers and communities, including by originating more than $480 billion in Paycheck Protection Program loans in the second quarter.

Aggregate net income across the industry totaled $18.8 billion in the second quarter of 2020, down $43.7 billion (70.0 percent) from a year ago. The decline in net income is a continuation of uncertain economic conditions, which drove an increase in provision expenses.

Oklahoma banks also experienced a decrease in earnings, which dropped by $31 million when compared to last year.

“The drop in income conforms to earlier trends we’ve been seeing,” OBA EVP/Government Relations Adrian Beverage said. “Once again, bank assets grew, in spite of the drop in earnings, primarily as a result of the various government efforts to jump-start the nation’s economy.

“Return on assets (1.05 percent) is off by some 17% compared to this same period last year (1.54). Non-current loans are also up over last year which, given the pandemic, is not much of a surprise.”

The FDIC report also pointed out:

Net interest margin compressed at record rate.
Deposits expanded by more Than $1 trillion for second consecutive quarter.
Deposit Insurance Fund increased to record $114.7 billion, while reserve ratio falls to 1.30% due to inflow of deposits.
Community banks registered a 3.2% increase in net income.

Meanwhile, here’s what the trend in Oklahoma bank earnings looks like through June 30, 2020:
And, finally at the national level, second quarter banking industry earnings look like this:

“Ending the Covid-19 pandemic should help all banks when and if it does end,” Beverage said. “We’ll keep you informed as we continue to fight our way through the viruses wake, both at the OBA and as individuals.”