Richard X. Bove of Rafferty Capital Markets says you don’t have to look too hard to see a number of silver linings in the FDIC report reviewing the banking industry’s third quarter results. Granted, you have to get past the headline that this is the first time in 17 quarters that the banking industry has not produced an overall improvement year-over-year, but once you get over that hurdle, there’s actually a lot to feel good about in this quarterly review.

Federal Deposit Insurance Corporation FDIC

FDIC quarterly review

Bove breaks down the good news in the third quarter FDIC Quarterly Review:

  • Loans grew by 0.9% in the quarter and 3.0% year-over-year. This is actually accelerating growth.

– Real estate loans declined 0.2% sequentially due to

  • Home equity falling 2.1% and
  • 1-4 Family declining 0.7%.

– However all other aspects of real estate showed gains

  • Multifamily was up by 3.3%,
  • All other non-residential mortgages grew by 0.8%, and
  • Construction was up by 1.8%.

– Commercial and industrial was disappointing but it still grew by 0.5%.

– Virtually every other category from agriculture to financial was up.

  • Deposits grew by 2.3% sequentially and 5.0% year-over-year. Again, this was an accelerating pace of growth.

– Non-interest bearing deposits were up a very strong 4.2%, sequentially.

– Foreign office deposits gained 3.1%.

  • The industry’s net interest margin was flat on a sequential basis after falling 16 basis points year-over-year.
  • After a string of quarterly downturns, net interest income was up reflecting flat margins on better loan volume.
  • The declines in non-performing loans continued.

– Sequentially they fell by another 5.5% while

– Charge-offs fell by 17.1% sequentially

Problems in non-traditional banking sector

As the statistics above make clear, the traditional banking sector did just fine in the third quarter. It was the non-traditional sector that dragged the Q3 overall numbers down – and it was areas such as capital markets, investment management and mortgage banking that were lagging. Investment banking was down 6.5% year-over-year, and trading was down a eye-popping 38.4%. Investment management also slipped 2.8% y-o-y.


Bove pulls no punches in coming to his conclusions about the current state of the industry. Traditional banks are doing well – taking in deposits, making loans and maintaining healthy margins. Non-traditional banks are not performing well, but they are making the necessary moves to keep personnel costs down.