FDIC: PR-82-2022 12/1/2022

for publication

• Net income increased quarter over quarter and year over year
• Expanded net interest margin
• Unrealized losses on securities increased
• Loan growth was broad-based
• Asset quality metrics remained favorable despite growth in early-stage delinquencies
• Community Banks Also Reported Higher Net Income

“The banking industry reported generally positive results in the third quarter as loan balances strengthened, net interest income grew and asset quality metrics remained favourable. Looking ahead, the effects of inflation, rising market interest rates, and continued geopolitical uncertainty will continue to challenge bank profitability, credit quality, and loan growth.”

— Acting FDIC Chairman Martin J. Gruenberg

WASHINGTON—Reports from 4,746 FDIC-insured commercial banks and thrifts show total net income of $71.7 billion in the third quarter of 2022, an increase of $7.3 billion (11.3%). compared to the second quarter. An increase in net interest income drove the increase in net income. These and other financial results for the third quarter of 2022 are included in the latest FDIC report. Quarterly Bank Profile released today.

Highlights of the third quarter of 2022 Quarterly Bank Profile

Net revenue increased quarter over quarter and year over year: Quarterly net revenues totaled $71.7 billion in the third quarter of 2022, an increase of $7.3 billion (11.3%) over the second quarter. An increase in net interest income more than offset an increase in loan loss provisions, driving the quarter-over-quarter increase in net income. Nearly three quarters of all banks (73.3 percent) reported an increase in net income from the previous quarter. Net income also increased $2.2 billion (3.2%) from the third quarter of 2021, as growth in net interest income outpaced growth in provision expense.

The banking industry reported an aggregate return on average assets (ROAA) ratio of 1.21 percent, 13 basis points higher than the ROAA ratio reported in the second quarter, but unchanged from the same quarter last year.

Expanded net interest margin: The net interest margin (MIN) increased 35 basis points from the previous quarter and 58 basis points from the prior-year quarter to 3.14 percent. Quarter-over-quarter and year-over-year growth were the largest increases reported in the QBP’s history. This is the first time the NIM has exceeded 3.00 percent since the first quarter of 2020. Despite this improvement, the NIM remains below the pre-pandemic average of 3.25 percent.^one

The average return on earning assets rose 73 basis points from the second quarter of 2022 to 3.78 percent due to strong loan growth and rising market interest rates. Average financing costs increased 38 basis points from the second quarter of 2022 to 0.64 percent.

Unrealized losses in securities increased: Unrealized losses on securities totaled $689.9 billion in the third quarter, compared with $469.7 billion in the second quarter. Unrealized losses on held-to-maturity securities totaled $368.5 billion in the third quarter, compared to $241.8 billion in the second quarter. Unrealized losses on available-for-sale securities totaled $321.5 billion in the third quarter, compared to $227.9 billion in the second quarter.

Community Bank net income increased from a quarter ago and a year ago: Community bank quarterly net income for the 4,308 community banks increased $1.0 billion (13.5%) from the prior quarter to $8.5 billion in the third quarter of 2022. Higher net interest income more than offset lower non-profit income. interest-related and higher non-interest expenses. Seventy-four percent of community banks reported higher net income in the last quarter. Net income also increased $317.5 million (3.9 percent) from a year ago due to higher net interest income. Sixty-three percent of community banks reported higher net income than a year ago. The pre-tax ROAA ratio for community banks rose 17 basis points from a quarter ago to 1.51 percent.

Village banks’ average quarterly NIM increased 30 basis points from the prior quarter and 32 basis points from the prior year quarter to 3.63 percent. Due to the improvement, the NIM has returned to the pre-pandemic average of 3.63 percent. Average return on earning assets increased 48 basis points quarter-over-quarter and 49 basis points year-over-year, while average financing costs increased 18 basis points quarter-over-quarter and 17 basis points year-over-year. Quarter-on-quarter growth in net interest income of 9.4 percent outpaced growth in earning assets of 1.0 percent.

Loan balances increased from the prior quarter and a year ago: Total loan and lease balances increased $229.7 billion (2.0 percent) from the prior quarter. The banking industry reported growth in several loan portfolios during the quarter, including residential loans for families of one to four (up $68.1 billion, or 2.9 percent) and consumer loans (up $39.4 billion). million, or 2.0 percent).

On a yearly basis, total loan and lease balances increased $1.1 trillion (9.9 percent), driven by growth in commercial and industrial (C&I) loans (up $259.8 billion, or 11.6 percent), single-use residential mortgages to four families (up to $213.9 billion, or 9.6 percent) and consumer loans (up to $204.1 billion, or 11.4 percent). The annual increase in loan balances was the largest in the history of the QBP.

Community banks reported a 4.1 percent increase in loan balances over the prior quarter and a 12.2 percent increase over the prior year. Growth in commercial real estate loans and one- to four-family residential mortgage loans drove the quarterly increase in loan balances for community banks, while growth in commercial real estate loans drove the year-over-year increase.

Asset quality metrics were generally favorable despite the growth in early delinquencies: Loans that were 90 days or more past due or in non-accrual status (ie, non-current loans) continued to decline, and the non-current rate declined 3 basis points to 0.72 percent since the second quarter of 2022. The non-current rate for total loans is the lowest level since the second quarter of 2006. Total net charge-offs increased 6 basis points from a year earlier to 0.26 percent, driven by higher net charge-offs on credit cards and auto loans. Early delinquencies (ie loans past due between 30 and 89 days) increased 3 basis points from last quarter and 7 basis points from the prior-year quarter to 0.51 percent. Both the quarterly and yearly increases were driven by an increase in overdue credit cards, C&I and auto loans.

The reserve ratio for the Deposit Guarantee Fund was unchanged at 1.26 percent: The balance of the Deposit Insurance Fund (DIF) was $125.5 billion as of September 30, $1.0 billion more than at the end of the second quarter. The reserve ratio was unchanged at 1.26 percent, while insured deposits rose 0.1 percent.

Merger activity continued in the third quarter: Twenty-six institutions merged, three new banks opened, and no banks failed in the third quarter of 2022.

FDIC: PR-82-2022