JPMorgan’s litigation expenses dragged down aggregate net income at FDIC-insured for the first net decline since 2009, but the agency’s most recent quarterly banking profile painted an otherwise optimistic picture of the industry as a whole, with lending and credit quality on the upswing and more banks coming off the "Problem List."
According to the FDIC’s most recent quarterly banking profile, the $1.5 billion decline to $36 billion – a 3.9 percent drop – was attributable mainly to a $4 billion increase in JPMorgan’s litigation expenses.
"Had it not been for that, the upward trend in earnings would have continued," Chairman Martin Gruenberg said during a briefing.
Reduced mortgage activity across the industry also hurt profits, however, as higher interest rates caused a sharp drop in that category. Originations of 1-4 family residential real estate loans fell $136.8 billion, or 30.1 percent, from the second quarter this year. Noninterest income from the sale, securitization and servicing of mortgages fell $4 billion, or 45.2 percent, from the same period last year.
Realized gains on available-for-sale securities also declined over the past year, as higher medium- and long-term interest rates reduced the market values of fixed-rate securities. Banks reported $540 million in pretax income from realized gains, a decline of $2.2 billion, or 80.1 percent, from a year ago.
The average net interest margin was 3.26 percent, unchanged from second quarter, but down from 3.42 percent a year ago. The average margin is at its lowest level since the 3.2 percent reported in the fourth quarter of 2006.
But total loan balances increased $69.7 billion, or a little less than 1 percent, during the third quarter in all other categories. Auto loan balances increased $10.6 billion, or 3.2 percent; multifamily residential real estate loans increased $8.1 billion, or 3.3 percent; loans to states and municipalities increased $7.5 billion, or 7.3 percent and credit card balances increased $6.8 billion, or 1 percent.
Home equity lines of credit declined $10.9 billion, or 2.1 percent, and other 1-4 family residential real estate loans declines $13.7 billion, or 0.7 percent, during the quarter.
For the 12 months through September 30, total loan and lease balances were up by $224 billion, or 3 percent.
Insured banks and thrifts charged off $11.7 billion in uncollectible loans during the third quarter, a decrease of $10.5 billion or 47.4 percent from the previous year. Noncurrent loans and leases also declined $18.3 billion, or 7.7 percent, and the percentage of noncurrent loans and leases fell to its lowest level in five years at 2.83 percent.
The proportion of banks that were unprofitable fell to 8.6 percent, from 10.7 percent a year earlier, and the number of banks on the FDIC’s "Problem List" declined from 553 to 515 during the quarter. That’s a decrease of more than 40 percent from its recent high of 888 during the first quarter of 2011. Just six FDIC-insured institutions failed during the third quarter, compared with 12 for the same period last year. So far, 23 banks have failed this year, compared with 50 for the same period last year.
The Deposit Insurance Fund balance increased to $40.8 billion on Sept. 30 from $37.9 billion on June 30.
Assessment income and a reduction in estimated losses from anticipated failures primarily drove the growth in the fund balance. Estimated insured deposits increased just a tenth of one percent from the previous quarter, and the DIF reserve ratio increased from 0.64 percent at the end of the second quarter to 0.68 percent at the end of the third. By law, the DIF must achieve a minimum reserve ratio of 1.35 percent by 2020.
