WASHINGTON—The nation’s FDIC-insured banks are reporting a near 40% increase in profits as of the end of the third quarter.
According to the FDIC, reports from the 4,914 commercial banks and savings institutions it insures show those banks had net income of $69.5 billion in the third quarter 2021, an increase of $18.4 billion (35.5%) from a year ago.
“This increase was driven by further economic growth and improved credit conditions, which led to a third consecutive quarter of aggregate negative provision expense,” the FDIC reported.
The data was released as part of the FDIC’s latest Quarterly Banking Profile.
The Key Highlights
Among the key points in the report, according to the agency.
Net Income Continued to Increase Year Over Year
Two-thirds of all banks (66.5%) reported annual improvements in quarterly net income, and the share of profitable institutions increased slightly year over year to 95.9%. However, net income declined $875.5 million (1.2%) from second quarter 2021, driven by an increase in provision expense from second quarter 2021 (up $5.5 billion to negative $5.2 billion.
The banking industry reported an aggregate return on average assets ratio of 1.21%, up 24 basis points from a year ago but down three basis points from second quarter 2021, the FDIC said.
Net Interest Margin Rose Modestly from Last Quarter’s Record Low
The net interest margin (NIM) improved to 2.56% in the third quarter, up six basis points from the recent record low in the previous quarter but down 12 basis points from the previous year. Quarterly NIM expansion was accompanied by an increase in net interest income of $5.2 billion (4%) from the prior quarter.
The yield on earning assets rose 5 points from the previous quarter’s record low to 2.73% while average funding costs declined one basis point from the previous quarter to a new record low of 0.17%. Improvements in net interest income were widespread, as nearly three-quarters of banks (72.1%) reported higher net interest income compared with a year ago.
Community Banks Reported a 19.6% Increase in Quarterly Net Income Year Over Year
Community banks reported annual net income growth of $1.4 billion, supported by an increase in net interest income and a decline in provision expense.
Provision expenses declined $1.4 billion (83.5%) from a year ago and increased $219.2 million (427.9%) from the previous quarter.
“Higher commercial and industrial (C&I) loan income, reflecting, in part, increased fee income from the payoff and forgiveness of Paycheck Protection Program (PPP) loans, helped lift net interest income $2.2 billion (11.7%) from the same quarter a year ago,” the FDIC said.
The net interest margin for community banks expanded three basis points from the year-ago quarter to 3.31%, as the continued reduction in average funding costs outpaced the decline in earning asset yields. Nearly two-thirds (65.8%) of the 4,450 FDIC-insured community banks reported higher quarterly net income.
Loan Balances Increased From the Previous Quarter and a Year Ago
Total loan and lease balances increased $62.7 billion (0.6%) from the previous quarter. Several portfolios contributed meaningfully to the industry’s growth, including 1-4 family residential mortgages (up $41.3 billion, or 1.9%), consumer loans (up $39.6 billion, or 2.3%), nonfarm nonresidential commercial real estate loans (CRE) (up $24.5 billion, or 1.5%), and loans to nondepository institutions (up $24.2 billion, or 3.9%).
The FDIC further reported that annually, total loan and lease balances increased $10 billion (0.1%) as growth in loans to nondepository institutions (up $95.9 billion, or 17.5%), consumer loans (up $87.1 billion, or 5.1%), and nonfarm nonresidential CRE loan balances (up $63.2 billion or 4.1%) help offset declines in C&I loans (down $301.8 billion, or 11.9%). The decline in C&I balances was driven by Paycheck Protection Program loan forgiveness and repayment.
Community banks reported a 0.2% decline in loan balances from the previous quarter, and a 1.1% decline from the prior year. Declines in C&I loan balances resulting from payoffs and forgiveness of PPP loans drove the change.
Credit Quality Continued to Improve
Loans 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) continued to decline (down $6.9 billion or 6.3%) from second quarter 2021. The noncurrent rate for total loans declined seven basis points from the previous quarter to 0.94%. Net charge-offs also continued to decline (down $7.4 billion, or 58.4%) from a year ago, the FDIC reported. The total net charge-off rate dropped 27 basis points to 0.19%—the lowest level on record.
The Reserve Ratio for the Deposit Insurance Fund Remained Stable at 1.27%
The Deposit Insurance Fund (DIF) balance was $121.9 billion as of September 30, up $1.4 billion from the end of the second quarter. The reserve ratio remained at 1.27%, due to modest growth in the DIF balance and insured deposits.
Three New Banks Opened During the Quarter
The FDIC said three new banks opened, 39 institutions merged with other FDIC-insured institutions, one bank ceased operations, and no banks failed in third quarter 2021.