FDIC-insured institutions achieved a net income of $40.4 billion in the third quarter, an increase of 5.1% or $1.9 billion from $38.4 billion in the same period last year.
According to FDIC, the expenses for litigation reserves outweighed the weakness in net operating revenue for large banks during the third quarter. The percentage of banks that reported higher quality earnings were 58.9% while the 5% were unprofitable. The average return on assets was unchanged at 1.02%.
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FDIC says the largest banks posted a decline in net operating revenue
The FDIC reported that insured banks posted a 1.7% increase in net interest income to $1.8 billion and a 2% decline in noninterest income to $1.3 billion. The net operating revenue (sum of net interest income and total noninterest income) was $3.1 billion, an increase of $488 million from the same period a year ago.
The decline in quarterly noninterest income reflected lower income from asset servicing, reduced gain from loan sales, and weak trading income. The largest banks demonstrated such weaknesses. Three of the four largest banks posted a decline in net operating revenue totaling $3.3 billion, according to the FDIC. However, 68.8% of the total industry reported increased net operating revenue.
Expenses improve at large banks
The FDIC notice an improvement at large banks when it comes to expenses. Large banks posted a 2.9% in total noninterest expense to $3.2 billion. The itemized litigation expenses reported by some large banks were $2.7 billion lower than a year ago. The charges for goodwill impairment dropped $578 million and the expenses for salaries, and employee benefits fell $199 million.
When it comes to net interest margin, the financial industry reported an average net interest margin (NIM) of 3.08%, lower than the 3.15% average in the same period last year.
The FDIC said it was the second consecutive quarter the industry reported a NIM that was above the 30-year low of 3.02%.
FDIC-insured banks posted further decline in loan losses
According to the FDIC, insured banks reported a further decline in loan losses. The total net charge-offs (NCOs) were $8.7 billion in the third quarter, down by $569 million.
The quarterly NCO rate dropped from 0.45% to 0.4%—the lowest quarterly NCO rate since the third quarter of 2006. The FDIC noted that the NCOs were lower in most major loan categories.