FDIC: Bank Profits Up in Third Quarter as Capital, Liquidity Levels Remain Strong

FDIC-insured banks and savings institutions earned $69.5 billion in the third quarter of 2021, a 35.9% increase from a year before, the FDIC reported today in its Quarterly Banking Profile. Continued economic growth, improved credit conditions and a $19.7 billion decline in provision expense drove the increase, the FDIC said.

The average net interest margin declined by 12 basis points year-on-year in the third quarter to 2.56%, but was up six basis points from a record low last quarter. Net interest income increased 4% or $5.2 billion from last quarter and 72.1% of banks reported higher net interest income compared with a year ago. Average return on assets was 1.21%, up from 0.97% in the third quarter of 2020. Community banks reported net income of $8.6 billion, an almost 20% increase in the third quarter year-on-year, the FDIC said.

“The FDIC’s latest quarterly report shows that banks remain fundamentally sound as they continue to support economic recovery. The industry’s asset quality and deposits remain strong, allowing banks to continue funding loans that are making a difference in their communities and the broader economy,” noted ABA Chief Economist Sayee Srinivasan. He added that “backed by strong portfolios, banks recovered reserves for the third straight quarter while maintaining total reserves well above the pre-recession levels from 2019. With interest rates near historical lows, recovering reserves has helped bolster many banks’ bottom line. With the industry’s overall net interest margin still near a historic low, future Fed decisions on interest rates will play an important role going forward.”

Compared with the same quarter last year, total loan and lease balances increased 0.1%, or $10 billion. The total net charge-off rate declined by 27 basis points year-on-year to a record low of 0.19%, and the noncurrent loan rate declined seven basis point to 0.94% from the previous quarter. During the third quarter, three new banks were added, 39 institutions merged with other FDIC-insured institutions, one bank ceased operations and no banks failed. The number of banks on the FDIC’s problem bank list declined by five from the prior quarter to 46, the lowest level on record.