FDIC: Banks show Q2 resilience as net income rises to $71.5 billion, but CRE, credit-card, multifamily risks persist

FDIC Chair Gruenberg said Thursday that the U.S. banking industry “continued to show resilience” in the second quarter of 2024, with industry net income reaching $71.5 billion — up $7.33 billion, or 11.4%, from the prior quarter — even as the agency flagged persistent vulnerabilities in several loan portfolios.

Gruenberg attributed some of the quarter’s profit improvement to one-time items, including the absence of a special FDIC assessment and gains tied to securities transactions and the sale of an insurer division, while noting those gains were partially offset by realized losses on bond sales and higher provision expenses. “Unrealized losses … remain a point of vulnerability,” he said, describing the level of unrealized losses as still “quite high.”

Why it matters: FDIC figures show pockets of stress that could affect credit and liquidity if economic or market conditions deteriorate. The bank-level details — weaker office-property values, elevated credit-card noncurrent rates and rising nonowner-occupied CRE delinquencies — mean supervisors will continue heightened monitoring.

Key figures and trends - Industry net income: $71.5 billion in Q2, up $7.33 billion (11.4%) from the prior quarter. - Community banks net income: $6.4 billion, a 1.1% quarterly increase driven by higher net interest income and noninterest income. - Industry net interest margin: aggregate NIM declined 1 basis point to 3.16%; community banks’ margin rose 7 basis points while the largest banks (assets > $250 billion) saw a 4 basis-point decline. - Unrealized securities losses: down $4 billion to $513 billion in Q2, but some banks realized losses by selling bonds. - Total loans: grew $126 billion (1%) in Q2; annual loan growth rose to 2%. - Noncurrent loan rate: unchanged at 0.91%; still below the pre-pandemic average of 1.28% but rising in CRE and multifamily categories. - Net charge-off rate: 0.68%, about 20 basis points higher than a year earlier and the pre-pandemic average; credit-card charge-offs were the highest since 2011. - Deposits: domestic deposits fell by $198 billion (1.1%); brokered deposits fell $10 billion. - Problem banks: institutions with CAMELS 4 or 5 rose from 63 to 66 (about 1.5% of banks). - Deposit Insurance Fund balance: $129 billion as of June 30, up $4 billion from Q1; reserve ratio rose to 1.21% and is “on track” to reach a 1.35% minimum by the statutory deadline of 09/30/2028.

During a Q&A, reporters pressed Gruenberg on whether the data was net-positive for the industry and whether unrealized losses were less worrying this quarter. He said the quarter reflected continuing stability but cautioned that underlying vulnerabilities persist in a high-rate environment. He said a reduction in Federal Reserve policy rates, if it occurs, would likely reduce unrealized losses and benefit balance-sheet exposures and loans that have accumulated such losses.

On commercial real estate, Gruenberg said a lower-rate environment and an economic stimulus would likely help CRE exposures — including office loans — but he resisted detailed forecasting. On capital standards, he declined to announce timing or specifics for work under the Basel III/’III capital rule but said the agencies are focused on resolving the issue.

What the FDIC will do next: Gruenberg emphasized ongoing supervisory attention to weak portfolios and funding/margin pressures and said the agency has been applying lessons from last year’s bank failures in examinations and rulemakings. He did not announce new final rules in the briefing.

The FDIC concluded the public livestream and offered follow-up availability with senior staff.