WASHINGTON — Bank profits fell more than 40% from the third quarter to the fourth quarter, the Federal Deposit Insurance Corp. reported Thursday as agency Chairman Martin Gruenberg reiterated his concerns about credit risks in commercial real estate and credit card lending.
That said, the industry's full-year net income of $257 billion exceeded pre-pandemic averages and decreased only 2.3% from 2022 amid fears of a recession that didn't materialize.
"The U.S. economy sustained growth in 2023 that exceeded expectations, and the banking industry remained resilient after a period of liquidity stress earlier last year," FDIC Chairman Martin Gruenberg said at a news conference to unveil the agency's latest quarterly banking profile. Yet "deterioration on certain loan portfolios, particularly office space and other types of CRE loans, warrants monitoring."
Community banks sustained a slightly higher year-over-year decline than the overall industry. They reported net income of $26.6 billion in 2023 — a 7.1% decrease from 2022.
The FDIC provided these and other industrywide metrics as part of its fourth-quarter report that aggregated data from more than 4,000 banks and savings firms insured by the agency.
Banks reported $38.4 billion of net income for the fourth quarter, a 44% drop from the third quarter that the agency partly attributed to higher provisions for loan losses and lower fee income.
However, the FDIC noted that roughly 70% of the linked-quarter decline was driven by nonrecurring, noninterest expenses at big firms such as goodwill impairment charges and the FDIC's
The industry's net interest margin — the spread between the rates banks pay depositors in interest and the rates they collect on loans — fell 2 basis points to 3.28% in the fourth quarter compared with three months earlier. The agency said liability costs — including those on deposits and nondeposits alike — more than surpassed asset-yield growth. Notwithstanding the dip, the industry's NIM remained 3 basis points above the pre-pandemic average of 3.25%. Conversely, community banks' NIM — 3.35% in the fourth quarter — remained 28 basis points below pre-COVID levels but held steady since Sept. 30.
Gruenberg warned that despite banks' continued high earnings, credit card and commercial real estate portfolios pose a risk. During the final three months of 2023, those two credit segments drove a 4-basis point increase in the industrywide noncurrent loans ratio to 0.86%.
"The increase in noncurrent loan balances was greatest among CRE loans and credit cards," said Gruenberg. "Weak demand for office space is softening property values, and higher interest rates are affecting the credit quality and refinancing ability of office and other types of CRE loans."
As a result, the noncurrent rate for non-owner-occupied CRE loans is now at its highest level since the first quarter of 2014, and the noncurrent rate for credit card loans is at its highest level since the third quarter of 2011.
Owing to write-downs on these two types of loans, the industry's quarterly net charge-off rate increased 14 basis points to 0.65%, or 17 basis points higher than the pre-pandemic average.
Insured deposit levels rose by 0.5% — or $47 billion — from Sept. 30 to Dec. 31.
At the close of the fourth quarter of 2023, the Deposit Insurance Fund held $122 billion, a $2.4 billion increase from the
The American Bankers Association said banks remain well positioned to keep helping their customers.
"While the FDIC's special assessment drove a decline in net income in the fourth quarter, the industry maintained positive year-over-year revenue growth," ABA Chief Economist Sayee Srinivasan said. "Even as delinquencies continued to normalize to historical levels, asset quality for the industry remained sound [and] banks took prudent steps to increase loan-loss provisioning to ensure preparedness if the economy were to slow."
