Dive Brief:

• Federal Deposit Insurance Corp.-insured financial institutions reported a net income of $70.8 billion in the second quarter of 2023 — an 11.3% drop from the previous three-month span, according to the Quarterly Banking Profile released by the agency Thursday.
• Excluding the three failed-bank acquisitions in the last two quarters, net income was 5.7% higher than the second quarter of 2022 because growth in net interest income exceeded growth in provision expenses and noninterest expenses.
• Total deposits declined for the fifth consecutive quarter — by 0.5% to $98.6 billion — driven by a reduction in estimated uninsured deposits, the FDIC found.

Dive Insight:

"Despite the period of stress earlier this year, the banking industry continues to be resilient,” FDIC Chairman Martin Gruenberg said in a statement. "In the second quarter, key banking industry metrics were favorable. Net income remained high by historical measures, asset quality metrics were stable, and the industry remained well capitalized."

He pointed out the banking industry's significant challenges — inflation, rising market interest rates, and geopolitical uncertainty.

"These risks, combined with concerns about commercial real estate fundamentals, especially in office markets, as well as pressure on funding levels and net interest margins, will be matters of continued supervisory attention by the FDIC," he noted.

Gruenberg's comments aligned with what bankers told the Federal Reserve in a July report on senior loan officer opinion survey on bank lending practices, which stated banks tightened its standards on a wide range of consumer and business loans with more planned for the year's second half.

The FDIC’s quarterly report is a closely watched one, especially following this year's banking crisis. The second quarter’s report is the first to show the impact of the failure of First Republic Bank. JPMorgan Chase bought the San Francisco-based lender in May in a sale orchestrated by the FDIC.

The collapses of Silicon Valley Bank and Signature Bank in March fell under the agency’s report for the first quarter of 2023.

Unrealized losses on securities increased quarter over quarter, totaling $558.4 billion in the second quarter — up $42.9 billion or 8.3% from the previous one, the FDIC found.

Year over year, total loan balances increased $526.8 billion, while community banks reported a 2.6% boost in loan balances from the previous quarter and a 12.5% increase from last year.

Meanwhile, the Deposit Insurance Fund’s balance rose to $117 billion from the end of the first quarter, mainly reflecting increased assessment income.

Two banks opened and one failed in the second quarter, and 27 institutions announced mergers, according to the report.