U.S. Banks’ Earnings Drop 7.3% to $57B in Q3

It was the first quarterly decline in net income since late 2018 but the industry generated nearly $100 billion in new loans.
Matthew HellerNovember 29, 2019

U.S. banks’ profits fell slightly in the third quarter but the industry also reported strong loan growth and the number of problem banks remained low.

FDIC-insured banks and savings institutions earned $57.4 billion, a 7.3% decrease from a year before, the FDIC said in its Quarterly Banking Profile. It was the first quarterly decline in net income since late 2018.

But community banks’ net income increased 7.2% and total loan and lease balances increased by $99.5 billion (1%) from the previous quarter and by 4.6% year over year. The number of problem banks fell from 56 to 55, the lowest number since the first quarter of 2007.

The FDIC attributed the overall decline in profit to nonrecurring events at three large institutions, which resulted in higher noninterest expense and loan-loss provisions and realized securities losses.

“The FDIC’s report shows that our nation’s banks remain key drivers of the U.S. economy with nearly $100 billion in new loans generated in the third quarter,” ABA Chief Economist James Chessen told ABA Banking Journal.

He noted that the Federal Reserve’s recent interest rate cuts “have helped sustain the pace of commercial real estate and multi-family lending, and have stimulated an increase in mortgage refinances, which boosted noninterest income.”

More than 60% of all banks reported year-over-year increases in net income, and only 4.1% of institutions were unprofitable. The industry’s return-on-assets ratio was 1.25% in the third quarter, down from 1.41% a year ago.

Banks’ noninterest income increased by 4.3% from the previous year, with community banks’ noninterest income up 16.4%. Noninterest expense rose 5.7%, reflecting higher salaries and benefits, goodwill impairment charges, and other noninterest expenses.

Net income rose at community banks primarily because of higher net operating revenue. Additionally, the annual rate of loan growth at community banks outpaced the overall industry.

“The competition to attract and maintain loan customers and depositors remains strong; consequently, banks need to maintain rigorous underwriting standards and prudent risk management,” FDIC Chair Jenna McWilliams said in a news release.