FDIC-Insured Institutions Q3 2023: Unrealized losses on securities totaled $683.9 billion in the third quarter, up $125.5 billion (22.5 percent) from the Q2 2023. Unrealized losses on held-to-maturity securities totaled $390.5 billion
Highlights:
- Net Income Decreased From the Prior Quarter, Driven By Lower Noninterest Income and Higher Realized Losses on Securities
- The Net Interest Margin Increased From the Prior Quarter to 3.30 Percent
- Unrealized Losses on Securities Increased From the Prior Quarter
- Community Banks Reported Lower Net Income From the Prior Quarter
- Loan Balances Increased From Last Quarter and One Year Ago
- Total Deposits Declined For a Sixth Consecutive Quarter
- Asset Quality Metrics Remained Favorable Despite Modest Deterioration
- The Deposit Insurance Fund Reserve Ratio Rose to 1.13 Percent
- First and second quarter income benefitted from non-recurring gains from the accounting treatment for the acquisition of the three large bank failures this spring.
- Excluding these one-time gains, net income would have been roughly flat for the past four quarters.
Net Income Decreased From the Prior Quarter, Driven By Lower Noninterest Income and Higher Realized Losses on Securities:
- Third quarter net income for the 4,614 FDIC-insured commercial banks and savings institutions declined by $2.4 billion (3.4 percent) from the prior quarter to $68.4 billion.
- Lower noninterest income (down $4.1 billion, or 5.2 percent) and higher realized losses on securities (up $3.0 billion) drove the decline in net income from the previous quarter.
- First and second quarter income benefitted from non-recurring gains from the accounting treatment for the acquisition of the three large bank failures this spring.
- Excluding these one-time gains, net income would have been roughly flat for the past four quarters at approximately $68 billion.
- The banking industry reported an average return on assets (ROA) of 1.17 percent in the third quarter, down from 1.21 percent in both second quarter 2023 and third quarter 2022.
The Net Interest Margin Rose From the Prior Quarter to 3.30 Percent:
- The net interest margin (NIM) increased three basis points to 3.30 percent in the third quarter.
- Though deposit costs increased faster than loan yields over the quarter, the cost of non-deposit liabilities was stable, resulting in the increased NIM.
- The industryโs NIM remains 16 basis points higher than the year-ago quarter and is above the pre-pandemic average of 3.25 percent.
Unrealized Losses on Securities Increased From the Prior Quarter:
- Unrealized losses on securities totaled $683.9 billion in the third quarter, up $125.5 billion (22.5 percent) from the prior quarter.
- Unrealized losses on held-to-maturity securities totaled $390.5 billion in the third quarter, while unrealized losses on available-for-sale securities totaled $293.5 billion.
Community Bank Net Income Declined From Last Quarter and One Year Ago:
- Quarterly net income for the 4,166 community banks insured by the FDIC declined by $335.5 million (4.8 percent) from second quarter 2023 to $6.7 billion in third quarter 2023.
- Higher losses on the sale of securities and higher noninterest expense more than offset higher noninterest income.
- Third quarter net income declined by $1.2 billion (15.0 percent) from the year-ago quarter, driven primarily by higher noninterest expense and lower net interest income.
- The community bank pretax ROA declined six basis points from one quarter ago to 1.21 percent and was 13 basis points below its pre-pandemic average.
- The community bank NIM declined for the third consecutive quarter, down four basis points from the prior quarter and 28 basis points from the year-ago quarter to 3.35 percent.
- The yield on earning assets rose 21 basis points quarter over quarter and 110 basis points year over year, while the cost of funds increased 25 basis points quarter over quarter and 138 basis points year over year.
Loan Balances Increased From Last Quarter and From One Year Ago:
- Total loan and lease balances increased by $45.9 billion (0.4 percent) from the previous quarter.
- An increase in credit card loans (up $25.9 billion, or 2.5 percent) and one-to-four family residential mortgages (up $23.1 billion, or 0.9 percent) drove loan growth.
- Year over year, total loan and lease balances increased by $343.0 billion (2.9 percent).
- This increase was led by credit card loans (up $118.4 billion, or 12.7 percent), one-to-four family residential loans (up $113.5 billion, or 4.7 percent), and nonfarm nonresidential commercial real estate loans (up $58.4 billion, or 3.3 percent).
- Community banks reported a 1.7 percent increase in loan balances from the previous quarter and a 9.8 percent increase from the prior year.
- Growth in one-to-four family residential mortgages and nonfarm, nonresidential commercial real estate loans drove both the quarterly and annual increase in loan balances.
Total Deposits Declined for a Sixth Consecutive Quarter:
- Total deposits declined by $90.4 billion (0.5 percent) between second and third quarter 2023.
- This was the sixth consecutive quarter that the industry reported a lower level of total deposits.
- Deposits declined in both domestic offices (down $39.6 billion, or 0.2 percent) and in foreign offices (down $50.8 billion, or 3.5 percent).
- Interest-bearing deposits increased, while noninterest-bearing deposits fell.
- Estimated insured deposits (up $6.9 billion, or 0.1 percent) increased modestly during the quarter.
Asset Quality Metrics Remained Favorable Despite Modest Deterioration:
- Loans that were 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) increased to 0.82 percent of total loans, up seven basis point from the prior quarter.
- This level is well below the industryโs 1.28 percent pre-pandemic average noncurrent rate.
- Nonfarm, nonresidential commercial real estate loan balances drove the increase in the noncurrent rate.
- Net charge-offs as a ratio of total loans increased two basis points from the prior quarter and 25 basis points from a year prior to 0.51 percent.
- The industryโs net charge-off rate is three basis points above its pre-pandemic average.
The Deposit Insurance Fund Reserve Ratio Increased to 1.13 Percent:
- The Deposit Insurance Fund (DIF) balance was $119.3 billion on September 30, 2023, up approximately $2.4 billion from the second quarter, largely reflecting increased assessment revenue.
- The reserve ratio increased two basis points in the third quarter to 1.13 percent.
Merger Activity Continued in the Third Quarter:
- In the third quarter, two banks opened, 28 institutions merged, and two banks voluntarily liquidated.
CRE looking troublesome:
TLDRS:
- FDIC-Insured Institutions Q3 2023: Unrealized losses on securities totaled $683.9 billion in the third quarter, up $125.5 billion (22.5 percent) from the Q2 2023.
- Unrealized losses on held-to-maturity securities totaled $390.5 billion.
- Net Income Decreased From the Prior Quarter, Driven By Lower Noninterest Income and Higher Realized Losses on Securities
- The Net Interest Margin Increased From the Prior Quarter to 3.30 Percent
- Community Banks Reported Lower Net Income From the Prior Quarter
- Loan Balances Increased From Last Quarter and One Year Ago
- Total Deposits Declined For a Sixth Consecutive Quarter
- First and second quarter income benefitted from non-recurring gains from the accounting treatment for the acquisition of the three large bank failures this spring.
- Excluding these one-time gains, net income would have been roughly flat for the past four quarters.
