Community bank net income declines in Q3

Community banks reported a 4.8% third-quarter decline in net income from the previous quarter and a 15% decrease from the same period a year ago, according to the FDIC’s latest Quarterly Banking Profile.

Key Drivers: The FDIC said higher noninterest expense, lower net interest income, increased provision expenses, and greater losses on the sale of securities more than exceeded an increase in noninterest income.

Additional Data: For the third quarter, community banks also reported:

• The community bank pretax return on assets declined 6 basis points from one quarter ago to 1.21% and was 13 basis points below its pre-pandemic average.

• The community bank net interest margin declined for the third consecutive quarter, down 4 basis points from the prior quarter and 28 basis points from a year ago to 3.35%.

• The yield on earning assets rose 21 basis points quarter-over-quarter and 110 basis points year-over-year.

• The cost of funds increased 25 basis points from the previous quarter and 138 basis points from a year ago.

• Net operating revenue increased 0.7% from the previous quarter as higher noninterest income offset lower net interest income.

• Total assets increased 0.8% from the second quarter and 4.4% from the previous year.

• Total loans and leases rose 1.7% from the previous quarter and 9.8% from a year ago, with loan growth positive across all major loan categories.

• Deposits increased 1.0% from the previous quarter and were up 1.2% from a year ago.

• The share of noncurrent loans and leases increased 4 basis points from the previous quarter, while the net charge-off rate rose 2 basis points but remained low compared to the average rate of the past decade.

Overall Industry: The overall banking industry reported a 3.4% decrease in net income from the previous quarter on lower noninterest income and higher realized losses on securities.

Deposit Insurance Fund: The DIF balance increased $2.4 billion from the second quarter to $119.3 billion, largely reflecting increased assessment revenue. The reserve ratio increased 2 basis points in the third quarter to 1.13%.

Mergers and Closings: During the quarter, two banks opened, 28 institutions merged, and two banks voluntarily liquidated.