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Analysis

FDIC Quarterly

Last Updated: June 17, 2021

The FDIC Quarterly provides a comprehensive summary of the most current financial results for the banking industry, along with feature articles. These articles range from timely analysis of economic and banking trends at the national and regional level that may affect the risk exposure of FDIC-insured institutions to research on issues affecting the banking system and the development of regulatory policy. The FDIC Quarterly brings together data and analysis that were previously available through three retired publications -- the FDIC Outlook, the FDIC Banking Review, and the FYI: An Update on Emerging Issues in Banking. Past issues of these publications are archived under their original publication names.

FDIC Quarterly, 2021, Volume 15, Number 2 - PDF (PDF Help)

FDIC-insured institutions reported aggregate net income of $76.8 billion in first quarter 2021, an increase of $17.3 billion (29.1 percent) from fourth quarter 2020 and $58.3 billion (315.3 percent) from a year ago. Aggregate negative provision expense, reflecting improvements in the economy and asset quality, drove the increase in quarterly net income. Three-fourths of all institutions (74.8 percent) reported year-over-year increases in quarterly net income. The share of unprofitable institutions dropped from 7.4 percent a year ago to 3.9 percent. The average return on assets ratio was 1.38 percent for the quarter, up 1 percentage point from a year ago and 28 basis points from fourth quarter 2020.

Community Bank Performance
Community banks—which represent 91 percent of insured institutions—reported year-over-year quarterly net income growth of $3.7 billion (77.5 percent) in first quarter 2021, despite a narrower net interest margin. Nearly three-quarters of all community banks (74 percent) reported higher net income from the year-ago quarter. The pretax return on assets ratio increased 56 basis points from the year-ago quarter to 1.58 percent as net income growth outpaced the growth in average assets.

Insurance Fund Indicators
The Deposit Insurance Fund (DIF) balance totaled $119.4 billion at the end of first quarter 2021, an increase of $1.5 billion from the previous quarter. Assessment income, interest earned on invest-ments, and negative provisions for insurance losses were the largest sources of the increase, offset partially by operating expenses and unrealized losses on available-for-sale securities. The DIF reserve ratio was 1.25 percent on March 31, 2021, down 4 basis points from December 31, 2020, and down 13 basis points from March 31, 2020.

Featured Articles:

The Historic Relationship Between Bank Net Interest Margins and Short-Term Interest Rates - PDF
The years since the Great Recession generally demonstrate that protracted periods of low interest rates tend to compress net interest margin (NIM) at FDIC-insured banks. NIM decreased during the period of historically low interest rates after that recession, increased during the upward interest rate cycle between 2015 and 2019, and decreased again as interest rates fell toward zero with the onset of the COVID-19 pandemic. In most rate cycles since the 1980s, the median NIM, representative of typical banks, has moved in the same direction as changes in the federal funds rate. But this relationship has been much less pronounced for banks with high concentrations of long-term assets. Those banks with a relatively high proportion of long-term assets to total assets report greater insulation from changes in short-term interest rates. This means that their NIM falls less during downward rate cycles but rises less during upward rate cycles. The overall positive relationship between short-term interest rates and NIM and the effect of maturity structure on this relationship generally hold true over time for both community and noncommunity banks.

Residential Lending During the Pandemic - PDF
The housing market rebounded from the COVID-19 pandemic-induced recession faster than other sectors of the economy, helped by historically low interest rates and fiscal support. Still, weaker economic fundamentals led to tightening of mortgage credit and underwriting standards as lenders sought to reduce credit risk from new mortgages. Mortgage credit performance improved after deteriorating at the start of the pandemic, but high rates of delinquent loans reflect lingering financial distress for many borrowers. The coming expiration of federal programs that have aided homeowners raises concern about the possible increased risk of mortgage credit quality deterioration and reduced credit availability. Nevertheless, banks have been resilient and, despite the uncertain outlook, continue to extend residential loans.

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