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Higher net interest income helped drive near-record earnings at Massachusetts banks in 2022, according to FDIC data.
The FDIC’s latest state banking performance summary showed that Massachusetts’ 100 FDIC-insured institutions together had $4.44 billion in net income in 2022, less than 1 percent off the 2021 record of $4.47 billion in net income. The past two years saw the highest totals of net income for Massachusetts-based banks since the FDIC began reporting state performance.
FDIC Chairman Martin Gruenberg said in a statement announcing the latest FDIC Quarterly Banking Profile that the banking industry nationwide had net income below 2021 totals but still above pre-pandemic levels.
“The banking industry reported continued positive results amid persistent economic uncertainty,” Gruenberg said. “Net interest income grew, loan growth continued, and asset quality measures remained favorable despite modest deterioration.”
He added that at community banks, higher net interest income and securities gains in the fourth quarter offset increased noninterest expenses and higher provisions that were set aside to protect against future credit losses.
The net interest income at Massachusetts banks was $8.64 billion in 2022 compared to $6.95 billion in 2021, a 24.3 percent increase.
The net interest margin at Massachusetts institutions was 2.00 percent at the end of 2022 compared to 1.64 percent in 2021.
Massachusetts institutions saw an increase in the yield on earning assets as well. The collective yield on earning assets was 2.46 percent in 2022 compared to 1.72 percent in 2021.
Despite some higher performance measures, fewer Massachusetts banks reported earnings gains last year. In 2022, 57 percent of banks reported earnings gains compared to 82 percent in 2021.
While most banks are still considered profitable, unprofitable ones increased from less than 1 percent of all institutions in 2021 to 3 percent at the end of 2022.
The returns on assets and on equity were 0.89 percent and 9.29 percent, respectively, in 2022 compared to 0.91 percent and 9.48 percent in 2021.
Total loans and leases reached a record level at Massachusetts-based banks last year, with $182.24 billion in total loans compared to $163.68 billion in 2021.
For the sixth straight quarter, Massachusetts’ banks collectively saw deposits decline. The state’s banks had $408.13 billion in deposits at the end of the fourth quarter compared to $409.84 billion at the end of the third quarter, a 0.4 percent decrease. Nationwide deposits decreased 0.7 percent from the third quarter.
“While this reduction slightly offsets the unprecedented growth in deposits reported during the pandemic, total deposits are still well above pre-pandemic average levels,” Gruenberg said.
Deposits at Massachusetts-based banks peaked in the second quarter of 2021 at $438.23 billion. At the end of 2021, the state had $425.25 billion in deposits.
Total assets at the state’s institutions were $500 billion at the end of 2022 compared to $504.5 billion at the end of 2021.
The number of full-time-equivalent employees at these institutions continues to increase. Massachusetts-based institutions at the end of December had 60,676 full-time equivalent employees compared to 59,677 at the end of September and 56,967 a year ago.
Gruenberg in his statement did say that the banking industry continued to face risks from the effects of inflation, rising interest rates and geopolitical uncertainty.
“Credit quality and profitability may weaken due to these risks and may result in tighter loan underwriting, slower loan growth, higher provision expenses, and liquidity constraints,” Gruenberg said. “Additional short-term interest rate increases combined with longer asset maturities may also affect bank balance sheets in coming quarters. Unrealized losses on available-for-sale and held-to-maturity securities remained elevated at $620 billion. Higher market interest rates may also erode real estate and other asset values as well as weaken borrowers’ loan repayment ability.”
Gruenberg added that these matters would receive ongoing FDIC supervisory attention.
