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Higher net interest income has helped drive earnings at Massachusetts banks through the first three quarters of 2022, according to FDIC data.

The FDIC’s latest state banking performance summary showed that Massachusetts’ 102 FDIC-insured institutions together had $3.11 billion in net income in the first nine months of 2022, a 9.6 percent decline compared to the same period in 2021, when banks had $3.45 billion in net income. But the past two years have seen the highest totals of net income through nine months since the FDIC began reporting state performance.

FDIC Acting Chairman Martin Gruenberg said in a statement announcing the latest FDIC Quarterly Banking Profile that the banking industry nationwide had generally positive results in the third quarter amid continued economic uncertainty.

“Loan growth strengthened, net interest income grew, and most asset quality measures improved,” Gruenberg said. “Further, the industry remains well-capitalized and highly liquid.”

He added that at community banks, higher net interest income in the third quarter more than offset increased noninterest expenses and declines in noninterest income from lower net gains on loan sales.

Massachusetts banks have seen nearly $6.2 billion in net interest income through the first nine months of 2022 compared to $5.37 billion in the same period last year.

The net interest margin at Massachusetts institutions was 1.91 percent at the end of the third quarter compared to 1.65 percent at the same time last year.

Massachusetts institutions have seen an increase in the yield on earning assets. The collective yield on earning assets was 2.15 percent at the end of the third quarter compared to 1.75 percent in the first nine months of 2021.

Fewer Massachusetts banks reported earnings gains in the first nine months of the year compared to the first nine months of 2021. About 48 percent of banks reported net income compared to 86 percent in the nine months of 2021.

While most banks are still considered profitable, unprofitable ones increased from less than 1 percent of all institutions at the end of the third quarter of 2021 to 8.8 percent on Sept. 30, 2022.

Total loans and leases in the third quarter were $180.34 billion compared to $162.33 billion in the third quarter of 2021.

For the fifth straight quarter, Massachusetts’ banks collectively saw deposits decline. The state’s banks had $409.84 billion in deposits at the end of the third quarter compared to $414.01 billion at the end of the second quarter, a 1 percent decline. Nationwide deposits decreased 1.1 percent from the second quarter. A year ago, Massachusetts-based banks had $428.17 billion in deposits.

Total assets at the state’s institutions were $497.78 billion in the third quarter compared to $511.86 billion in the third quarter of 2021.

The number of full-time-equivalent employees in these institutions continues to increase. Massachusetts institutions in the third quarter had 59,677 full-time equivalent employees compared to 58,901 at the end of June and 49,809 a year ago.

Gruenberg in his statement did say that the banking industry continued to face risks.

“Despite several favorable performance metrics in the third quarter, the banking industry continues to face significant downside risks,” Gruenberg said. “These risks include the effects of inflation, rising market interest rates, and continued geopolitical uncertainty. Taken together, these risks may reduce profitability, weaken credit quality and capital, and limit loan growth in coming quarters. Furthermore, higher market interest rates have led to continued growth in unrealized losses in the banking industry’s securities portfolios. Higher market interest rates may also erode real estate and other asset values as well as hamper borrowers’ loan repayment ability.”

Gruenberg added that these matters would receive ongoing FDIC supervisory attention.

Net Interest Income Drives Earnings at Mass. Banks

by Diane McLaughlin time to read: 2 min