The Federal Deposit Insurance Corporation (FDIC) reported that aggregate net income of commercial banks in the United States was $36 billion, a 3.9% decline from $37.5 billion in the same period last year.

FDIC banks

According to the FDIC, it is the first time for U.S. banks to record a year-over-year decline in aggregate income in 17 quarters since the second quarter of 2019. The primary reason for the decline is the $4 billion increase in litigation expenses of one bank.

Banks generally improving despite net income decline

The FDIC also said that the lower revenue from lesser mortgage activity and lower profits from asset sales also contributed to the decline in the earnings of the banks.  Fifty percent (50%) out of the 6,891 insured financial institutions reported a year-over-year increase in earnings. The rate of banks that reported losses fell from 10.7% to 8.6%.

In a statement, FDIC Chairman Martin J. Gruenberg said, “Most of the positive trends we have been seeing in industry performance continued in the third quarter. Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the ‘Problem List,’ and fewer banks failed.”

The FDIC noted that the average return on assets (ROA), the basic gauge for profitability dropped from 1.06% to 0.99% and the average return on equity (ROE) decline from 9.35%to 8.92%.

The total net operating revenue for the third quarter fell by 3.6% to $163.3 billion due to a $4.7 billion and $1.3 billion decline in non-interest income and interest income respectively.

During the quarter, the average net interest margin was 3.26%, almost close to the lowest level of interest margin at 3.20% in the fourth quarter of 2006.  The average net interest margin in the third quarter a year earlier was 3.42%.

The total non-interest expenses increased 1.9% to $2 billion due to the $4 billion litigation expenses at one large bank. According to the FDIC, the banks allocated $5.8 billion for loan losses. The figure is 60.4% lower than the amount set aside for such purposes last year, and the lowest quarterly loss provision reported by the banking industry since the third quarter of 1999.

“Problem banks” list continues to shorten

The FDIC noted that the amount of loan balances rose by $69.7 billion during the period. According to the firm, all major loan categories excluding 1-4 family residential real estate loans grew. On the other hand, car loan balances climbed by $10.6 billion, multi-family residential estate loans went up by $8.1 billion, while loans to states and municipalities rose by $7.5 billion. Credit card balances were higher by $7.5 billion. Meanwhile, the home equity lines of credit dropped by $10.9 billion.

The total loan and lease balances were $224 billion over that past 12 months that ended September 30. According to FDIC, the number of banks under the “Problem List” continued to decline from 553 to 515 during the period.