Community bank income increased in Q2 amid loan growth

Quarterly community bank net income increased 12.5 percent in the second quarter of the year to $7.6 billion amid higher net interest income, according to the FDIC Quarterly Banking Profile. .The nation’s 3,982 community banks reported loan growth of 1.7 percent during the quarter. Community banks reported a net interest margin of 3.62 percent, continuing a five-quarter increase. Pretax return on assets increased to 1.33 percent amid higher net interest and noninterest income, according to the report. Community bank domestic deposits were stable in the second quarter, increasing 0.1 percent. Uninsured domestic deposits fell 0.3 percent. Net operating revenue increased 6.5 percent or $1.7 billion during the second quarter amid rises in net interest income and noninterest income. The efficiency ratio fell to 62.95 percent from 64.70 percent in the first quarter. Asset quality metrics remained strong, with the share of loans and leases 30 days or more past due or in non-accural status falling 6 basis points to 1.27 percent, 23 basis points under its pre-pandemic average of 1.50 percent. Community banks’ net charge-off ratio increased 3 basis points from the first quarter and 5 basis points from the second quarter of 2024 to 0.19 percent, higher than the pre-pandemic average of 0.15 percent. The increase was driven by a rise in nonfarm nonresidential CRE loans..Capital One-Discover deal limits overall bank earningsThe nation’s 4,421 commercial banks and savings institutions made nearly $70 billion in aggregate net income in the second quarter, down 1 percent or $677.3 million from the first quarter amid higher provision expenses tied to Capital One’s acquisition of Discover in May, according to the FDIC. Net operating revenue increased 1.4 percent to $266.3 billion amid rises in net interest income and noninterest income. Net operating revenue increased 6.2 percent due to rises in net interest income and noninterest income. The industry-wide NIM remained steady at 3.26 percent, slightly higher than the pre-pandemic average. The industry’s return on assets ratio was 1.13 percent, down from 1.16 percent in the previous quarter.Domestic deposits increased $101.5 billion or 0.6 percent, marking the fourth consecutive quarterly increase. Estimated uninsured deposits rose $186.4 billion, while insured deposits fell $87.3 billion. Total loan and lease balances rose $263.7 billion or 2.1 percent from the prior quarter, driven by lending to non-depository financial institutions, credit card growth and increases in CRE lending. Asset quality metrics remained favorable, with past-due and nonaccrual loans falling to 1.50 percent of total loans. However, elevated past-due and nonaccrual levels continued in non-owner-occupied commercial real estate, multifamily real estate and credit card portfolios.Other report findings included: The Deposit Insurance Fund balance increased $4.4 billion to $145.3 billion. The DIF reserve ratio rose five basis points to 1.36 percent, exceeding the statutory minimum.The number of FDIC-insured institutions declined by 41 during the quarter to 4,421, reflecting new entries, one failure, several mergers and sales to non-FDIC-insured institutions.