The banking industry posted year-over-year gains in net income and unprofitable institutions fell to their lowest levels since early 2005, but regulators warned of growing risk in the industry as margin-squeezed banks increasingly reach for yield.
“While the banking industry had another positive quarter, there are signs of growing interest-rate risk and credit risk that warrant attention,” FDIC Chairman Martin J. Gruenberg said in a statement accompanying the agency’s latest quarterly banking profile. “History tells us that it is during this phase of the credit cycle when lending decisions are made that could lead to future losses. Timely attention by banks to address these growing risks will benefit banks and contribute to the sustainability of the current economic expansion.”
According to the FDIC, aggregate net income at the 6,270 insured institutions totaled $40.4 billion in the third quarter, up $1.9 billion or 5.1 percent from the same period last year. The agency largely attributed that increase to a $3.2 billion decline in noninterest expenses.
More than half (58.9 percent) of banks posted year-over-year growth in quarterly earnings, and the proportion of unprofitable banks fell to 5 percent, compared with 6.6 percent a year ago.
Community banks posted $5.2 billion in aggregate net income, representing a year-over-year increase of 7.5 percent. Net operating revenue at community banks also increased 7.5 percent over the year-ago period to $22.4 billion.
Net operating revenue across the industry as a whole remained largely flat from a year ago at $172 billion, just a 0.3 percent increase year-over-year.
Total loans and leases increased $95.3 billion, or 1.1 percent, year-over-year in the third quarter. For the 12 months ended Sept. 30, loans and leases increased $482.2 billion, or 5.9 percent, representing the largest 12-month growth rate since mid-2007 to mid-2008.
The FDIC also said that banks have continued to lengthen asset maturities, contributing to a growing mismatch between longer maturity assets and shorter maturity sources of funding, which could be an issue when interest rates rise. According to the latest quarterly banking profile, the percentage of loans and securities with maturities of three or more years rose from 34.2 percent to 34.6 percent during the third quarter, representing the highest percentage in the 18 years for which these data have been available.
Meanwhile, the number of banks on the FDIC’s “problem list” fell from 228 to 203 during the third quarter. That’s the smallest number of problem banks in almost seven years and represents a dramatic decline from its peak of 888 in early 2011.
