The Federal Deposit Insurance Corp. today reported that U.S. commercial banks and savings institutions saw a second-quarter decrease in net income of 70% from a year ago, while liquidity and capital levels remained “very strong” to meet loan demand and absorb any losses in the future, the agency said in a release.

For the 5,066 commercial banks and savings institutions insured by the FDIC, aggregate net income totaled $18.8 billion in second quarter 2020, down $43.7 billion, or 70%, from a year ago. The decline in net income is a continuation of uncertain economic conditions, which drove an increase in provision expenses. Financial results for second quarter 2020 are included in the FDIC’s latest Quarterly Banking Profile released today.

“Lower levels of business activity and consumer spending – combined with uncertainty about the path of the economy and the low interest-rate environment – contributed to higher provisions for loan and lease losses, as well as a decrease in net interest margins,” stated FDIC Chairman Jelena McWillians. “Notwithstanding these disruptions, however, the banking industry maintained strong capital and liquidity levels at the end of the second quarter, which will protect against potential losses in the future.” 

Iowa’s 268 FDIC-insured institutions reported $559 million in net income for the second quarter, down from $571 million a year ago. Profitable institutions represented 59.7% of the banks reporting, up from 54% profitable in the prior year’s quarter. Net interest margin for Iowa banks, an indicator of growth, was 3.34%, down from 3.41% in the second quarter of 2019. 

Nationally, the average net interest margin fell by 58 basis points from a year ago to 2.81%, the lowest level ever reported in the Quarterly Banking Profile. Net interest income fell by $7.6 billion (5.4%) from second quarter 2019, marking a third consecutive quarterly decline. The decline in yields on earning assets (down 119 basis points) contributed to the decline in net interest income. Fewer than half (42.2%) of all banks reported annual declines in net interest income.

Community banks registered a 3.2% increase in net income year-over-year, reflecting annual net income growth of $202.5 million among the 4,624 FDIC-insured community banks. Despite a 273% increase in provision expenses to $2.4 billion and continued net interest margin compression, more than half of all community banks reported higher net income. This increase was primarily attributable to higher revenue from gains on the sale of loans (up $1.4 billion). 

Total loan and lease balances rose by $33.9 billion (0.3%) from the previous quarter. Quarterly results were mixed among the major loan categories. The commercial and industrial loan portfolio reported the largest quarterly dollar increase, up $146.5 billion (5.8%). Most of this growth was driven by the implementation of the federal Paycheck Protection Program, as $482.2 billion in credit was extended by the banking industry to businesses. Conversely, consumer loans declined $67.1 billion due to reductions in credit card balances.