The banking industry demonstrated steady earnings performance in the first quarter despite signs of stress in real estate portfolios, according to the Federal Deposit Insurance Corp.
FDIC acting Chairman Travis Hill offered a measured outlook for the industry during a Tuesday press conference announcing the quarterly , noting banks were putting aside slightly more provisions in case of losses even as asset quality was "relatively stable."
"Overall, this was generally a very stable quarter," Hill said. "Net income increased for the industry, but this was mostly driven by noninterest income from a small number of large banks."
Overall, FDIC-insured banks reported net income of $70.6 billion, a 5.8% increase from the previous quarter. This rise, according to the agency report, was driven by a $5.4 billion boost in noninterest income, helped along by gains in the market and lower realized losses on sales of securities.
The industry's interest margins were somewhat squeezed in the three months ended March 31, with net interest income decreasing by $278 million, or roughly 0.2%, as growth in interest income was depressed compared with the rates banks pay depositors for their funds. The industry's net interest margin settled at 3.25%, a rate equal to its average prior to the COVID-19 pandemic.
Community banks -- generally defined by regulators as those with less than $10 billion in assets under their jurisdiction -- drew $6.8 billion in net income. That marks a 10% boost from the fourth quarter.
Unlike the broader industry, smaller firms enjoyed higher net interest income.
Community bank margin also outperformed, posting a modest NIM increase of two basis points bringing the community bank NIM to 3.46%, the fourth straight quarterly gain for such firms. However, smaller firms still have a ways to go before they surpass their pre-pandemic average NIM of 3.63%.
Loans across the industry rose 0.5%, or $62 billion, led by lending to nondepository financial institutions -- partially due to changes in how certain loan products are reported -- as well as growth in commercial and industrial and multifamily commercial real estate loans. Community bank loans rose 0.8% from the prior quarter and 4.9% from the first quarter of the previous year, supported by growth in nonfarm nonresidential CRE lending and 1-4 family residential mortgage portfolios.
Credit quality metrics were mixed. The industry's past-due and nonaccrual loan rate decreased by one basis point to 1.59%, below the pre-pandemic average of 1.94%.
Commercial real estate portfolios, however, showed historically elevated signs of stress. CRE delinquencies reached 1.49%, the highest rate since 2014 while multifamily past-due and nonaccrual loan rates rose 88 basis points from the year-ago quarter to 1.47%.
The net charge-off rate declined by three basis points to 0.67% and credit card charge-offs stood out at 4.71% in the first quarter, both sitting above their pre-pandemic average.
The Deposit Insurance Fund balance increased by $3.8 billion to a total of $140.9 billion, a movement that boosted the reserve ratio three basis points to 1.31%.
The FDIC no longer discloses the total assets of institutions on the Problem Bank List, and the number of problem banks was not reported in this release.