Community bank net income increased 7 percent to $6.9 billion in the third quarter of the year amid a 2.7 percent rise in net interest income and 1 percent increase in noninterest income, according to the FDIC Quarterly Banking Profile.
Increases in net interest and noninterest income more than offset a 14 percent jump in provision expenses and less than 1 percent increase in noninterest expenses. Community bank pretax return on assets increased eight basis points in the third quarter to 1.21 percent.
Community bank loan and lease balances increased 1.1 percent from the previous quarter and 5.5 percent increase from the third quarter of 2023 amid growth in nonfarm, nonresidential CRE loans and 1-4 family residential mortgage loans. Loan growth was broad based across community banks, with nearly 70 percent reporting higher loan balances from the prior quarter. Community banks’ NIM increased five basis points on a quarterly basis to 3.35 percent, which was still under its pre-pandemic average of 3.63 percent.
The 4,517 FDIC-insured commercial banks and savings institutions made $65.4 billion in net income, down $6.2 billion or 8.6 percent from the second quarter. The drop was caused by the absence of $10 billion in one-time gains on equity security transactions during the second quarter, according to the FDIC.
Overall domestic bank deposits increased 1.1 percent to $194.6 billion from the second quarter as savings and transaction deposits increased from the previous quarter, with a drop in small time deposits partially offsetting the increases. Brokered deposits fell for the third straight quarter, this time down 3.6 percent or $47.2 billion.
Loans in nonaccrual status increased six basis points from the second quarter to 1.54 percent of total loans, which is still well under the pre-pandemic average of 1.94 percent. The industry’s net charge-off ratio fell one basis point to 0.67 percent, 16 basis points higher than the year-ago mark and its second-highest quarterly ratio in 11 years. The credit card net charge-off ratio fell 34 basis points from the second quarter to 4.48 percent, which was still 100 basis points higher than its pre-pandemic average.
“The banking industry continued to show resilience in the third quarter,” said FDIC Chair Martin Gruenberg. “Net interest income and the net interest margin increased substantially this quarter. Asset quality metrics remained generally favorable despite continued weakness in several loan portfolios, which we are monitoring closely.
“The banking industry still faces significant downside risks from the continued effects of inflation, volatility in market interest rates and geopolitical uncertainty.”
Other report findings included:
- The deposit insurance fund reserve ratio increased four basis points to 1.25 percent.
- The number of FDIC-insured institutions fell by 21 to 4,517 as 18 banks merged with other banks; three were sold to credit unions; and one closed.