FDIC: Bank net income, unrealized losses increased in Q3

FDIC-insured banks and savings associations earned $71.7 billion in the third quarter of 2022, a 3.2% increase from the same period last year, according to the FDIC’s most recent Quarterly Banking Profile released today. The report painted a healthy portrait of the banking industry but also showed that unrealized losses grew by 47% quarter over quarter to $689.9 billion. FDIC Acting Chairman Martin Gruenberg said that due to the industry’s current liquidity strength, there is no necessity for institutions to sell assets and take unrealized losses. “The issue will be how things play out for the economy and the financial system going forward,” he said.

The net interest margin increased 35 basis points from a quarter ago and 58 basis points from a year ago to 3.14%, with both being the largest reported increases in the history of the QBP. Total loan and lease balances increased by a record 9.9% year over year, or $1.1 trillion. The increase was driven by growth in commercial and industrial loans (up 11.6%), one-to-four family residential mortgages (up 9.6%) and consumer loans (up 11.4 %). Net income for community banks grew $1 billion (13.5%) from the previous quarter.

Total net charge-offs increased six basis points from a year ago to 0.26%, driven by higher credit card and auto loan net charge-offs. Twenty-six institutions merged, three new banks opened and no banks failed in Q3. The number of banks on the FDIC’s problem bank list increased by two to 42.

The report shows that the banking sector remains strong even as banks of all sizes exercise appropriate caution during a period of economic uncertainty, ABA Chief Economist Sayee Srinivasan said.

“Broad-based loan growth and higher net interest income spurred by the Federal Reserve’s rate increases combined to boost bank revenue over the quarter,” Srinivasan said. “At the same time, banks remain well capitalized with strong liquidity while continuing to shore up loan-loss provisions. In the third quarter alone, banks increased provisioning by more than 30% to $14.6 billion to ensure they are ready for any economic circumstance that could arise.

“Despite high inflation and wavering economic growth, credit quality held firm with little to no deterioration,” he added. “Total deposits were down and insured deposits were essentially flat, reflecting the gradual normalization of deposit levels following an unprecedented surge during the pandemic. We continue to urge the FDIC to reexamine its recent decision to increase bank assessments based on an assumption that elevated deposit levels would continue.”