Banking Industry Strong but CRE a Significant Concern: FDIC
Originally published on November 29, 2023, by the FDIC.
I am pleased to report on the release of third quarter 2023 performance results for FDIC–insured institutions.
The banking industry continued to show resilience in the third quarter. Net income remained high, overall asset quality metrics remained favorable, and the industry remained well capitalized. Despite a modest improvement in the industry’s net interest margin, funding pressures continued to challenge the industry.
In the third quarter, the banking industry’s net income was $68.4 billion, a decrease of $2.4 billion from last quarter. But after adjusting for non–recurring accounting gains, the industry’s profitability has been remarkably stable for the past year. In the first two quarters of this year, the industry’s noninterest income was boosted by the accounting treatment of the acquisition of the three large failed banks. Without these non–recurring gains, net income would have been right around $68 billion—a high level by historical standards—for the past four quarters.
For community banks, third-quarter net income declined from the prior quarter as higher losses on the sale of securities and higher noninterest expenses more than offset higher noninterest income. Community banks also reported lower net income compared to a year ago.
After declining in the prior two quarters, the industry’s net interest margin increased modestly in the third quarter. Although this is an improvement, it largely reflects stabilization in the cost of non–deposit liabilities this quarter as the cost of deposits increased more than the yield on loans. The net interest margin for community banks declined for the third consecutive quarter, driven by lagging earning asset yields.