Net income for the nation’s banks fell 3.4 percent to $68.4 billion in the third quarter, according to the Federal Deposit Insurance Corporation’s (FDIC) Quarterly Banking Profile.
The report found that a 5.2 percent decrease in noninterest income along with higher realized losses on securities were the primary culprits for the third quarter earnings decline. However, it noted that first and second quarter income benefitted from non-recurring gains from the accounting treatment for the acquisition of the three large bank failures this spring. Excluding these one-time gains, net income would have been roughly flat for the past four quarters.
Among other findings, the banking industry reported an average return on assets (ROA) of 1.17 percent in the third quarter, down from 1.21 percent in both second quarter 2023 and third quarter 2022.
Also, the net interest margin (NIM) increased three basis points to 3.30 percent in the third quarter. While deposit costs increased faster than loan yields over the quarter, the cost of non-deposit liabilities was stable, which resulted in increased NIM. The industry’s NIM remains 16 basis points higher than it was a year ago in this quarter and above the pre-pandemic average of 3.25 percent.
In addition, quarterly net income for the 4,166 community banks insured by the FDIC declined by 4.8 percent from second quarter 2023 to $6.7 billion in third quarter 2023. Meanwhile, the community bank NIM declined for the third consecutive quarter, down four basis points to 3.35 percent. The yield on earning assets rose 21 basis points quarter over quarter, while the cost of funds increased 25 basis points quarter over quarter.
Further, total loan and lease balances increased by 0.4 percent from the previous quarter with an increase in credit card loans, up 2.5 percent, and residential mortgages, up 0.9 percent, drove loan growth. Loans that were 90 days or more past due or in nonaccrual status increased to 0.82 percent of total loans, up seven basis points from the prior quarter. This is well below the industry’s 1.28 percent pre-pandemic average noncurrent rate. Further, net charge-offs as a ratio of total loans increased two basis points from the prior quarter to 0.51 percent. The industry’s net charge-off rate is three basis points above its pre-pandemic average.
Additionally, total deposits declined by 0.5 percent between the second and third quarter 2023, marking the sixth consecutive quarter of lower total deposits. Estimated insured deposits increased modestly during the quarter, 0.1 percent. The Deposit Insurance Fund (DIF) balance was $119.3 billion on Sept. 30, up approximately $2.4 billion from the second quarter. The reserve ratio increased two basis points in the third quarter to 1.13 percent.
Finally,, two banks opened in the quarter, 28 institutions merged, and two banks voluntarily liquidated.