Financial institutions insured by the Federal Deposit
Insurance Corp. (FDIC) reported $68.4 billion in aggregate net income in the
third quarter. This total represents a $2.4 billion (3.4 percent) decline
compared with second-quarter earnings reported by the country’s 4,614
FDIC-insured commercial banks and savings institutions.
The decline was driven by lower noninterest income and
higher realized losses on securities, according to the FDIC’s latest Quarterly
Banking Profile. It also coincided with a decline in total deposits for the
sixth straight quarter, as well as lower net income for community banks. However,
loan and lease balances increased both for community banks and for the banking
sector as a whole.
The report notes that first and second quarter income levels
benefitted from non-recurring gains related to the accounting treatment for the
acquisition of the three large bank failures in the spring. Excluding those
one-time gains, net income would have been roughly flat for the past four
quarters at approximately $68 billion, the FDIC noted in a press release.
“The banking industry continued to show resilience in the
third quarter. Net income remained high, overall asset quality metrics remained
favorable, and the industry remained well capitalized,” FDIC Chairman Martin
Gruenberg said in the release. “The banking industry still faces significant
downside risks from the continued effects of inflation, rising market interest
rates, and geopolitical uncertainty. In addition, deterioration in the
industry’s commercial real estate portfolio is beginning to materialize in
office properties. These issues, together with funding and earnings pressures,
will remain matters of ongoing supervisory attention by the FDIC.”
Banks reported a 1.17 percent average return on assets (ROA)
in the third quarter, down from 1.21 percent in each of the two preceding
quarters.
The net interest margin (NIM) ticked up three basis points
to 3.3 percent. Although the pace of increases in deposit costs exceeded that
of loan yields throughout the quarter, the cost of non-deposit liabilities remained
stable, which accounts for in the increase in NIM, the FDIC explained in the
report. The NIM is still 16 basis points higher than it was at the same time
last year and is higher than the pre-pandemic average of 3.25 percent.
Total loan and lease balances increased by $45.9 billion
(0.4 percent) from the previous quarter. The FDIC indicated this loan growth was
driven by a 2.5 percent ($25.9 billion) increase in credit card loans and a 0.9
percent ($23.1 billion) increase in one-to-four family residential mortgages.
Year-over-year, total growth among loan and lease balances totaled
$343 billion (2.9 percent), led by a 12.7 percent uptick in credit card loans
(up $118.4 billion), a 4.7 percent increase in one-to-four family residential
loans ($113.5 billion) and a 3.3 percent increase in nonfarm nonresidential
commercial real estate loans ($58.4 billion).
Community banks reported a 1.7 percent increase in loan
balances from the previous quarter and a 9.8 percent increase from the prior
year. Growth in one-to-four family residential mortgages and nonfarm,
nonresidential commercial real estate loans drove both the quarterly and annual
increase in loan balances.
Unrealized losses on securities totaled $683.9 billion in
the third quarter, up $125.5 billion (22.5 percent) from the previous quarter.
Unrealized losses on securities held to maturity totaled $390.5 billion while unrealized
losses on securities available for sale totaled $293.5 billion.
For the nation’s 4,166 FDIC-insured community banks, quarterly
net income dropped by $335.5 million (4.8 percent) to $6.7 billion from the
second quarter to the third, with larger losses on the sale of securities and
higher noninterest expense more than offsetting higher noninterest income.
Third quarter net income declined by $1.2 billion (15 percent) from the
year-ago quarter, driven primarily by higher noninterest expense and lower net
interest income. The community bank pretax ROA dropped six basis points to 1.21
percent and was 13 basis points lower than its pre-pandemic average.
For the third consecutive quarter, the community bank NIM dropped
by four basis points from the previous quarter and 28 basis points from the same
quarter one year prior to 3.35 percent. Community banks saw a 21-basis-point
uptick in yield on earning assets, quarter-over-quarter. Year-over-year, they
saw an increase of 110 basis points, while the cost of funds increased 25 basis
points quarter-over-quarter and 138 basis points year-over-year.
Total deposits declined by $90.4 billion (0.5 percent)
between the second and third quarters. This was the sixth consecutive quarter
that the industry reported a lower level of total deposits. Deposits experienced
a drop in both domestic offices (down $39.6 billion, or 0.2 percent) and in
foreign offices (down $50.8 billion, or 3.5 percent). Interest-bearing deposits
increased as noninterest-bearing deposits fell. Estimated insured deposits (up
$6.9 billion, or 0.1 percent) increased modestly during the quarter.
Deposit Insurance Fund (DIF) balance was $119.3 billion as
of Sept. 30, up approximately $2.4 billion from the second quarter. The FDIC
said the increase largely reflects higher assessment revenue. The reserve ratio
increased two basis points in the third quarter to 1.13 percent.
The third quarter saw 28 bank mergers, two bank openings and
two voluntary bank liquidations.