FDIC-insured banks and savings institutions reported net income of $36 billion in the third quarter—a 3.9 decrease from the $37.5 billion in profits reported last year and the first year-over-year decline since 2009.
The decline in profits was due to a $4 billion increase in legal expenses at one institution, though the FDIC did not name the bank. Reduced mortgage activity and smaller gains on asset sales also contributed to the profit decline.
Fifty percent of reporting banks saw year-over-year earnings growth, while the other half posted decreases. Profitability fell to 8.6 percent among banks, down from 10.7 percent last year.
Average return on assets, a basic measure of profitability, decreased to 0.99 percent from 1.06 percent last year, while average return on equity fell to 8.92 percent from 9.35 percent one year earlier.
Third quarter operating revenue fell 3.6 percent to reach $163.3 billion from $169.4 billion last year. Noninterest income declined by $4.7 billion—a 7.4 percent decrease—and net income fell by 1.3 percent.
The number of banks on the FDIC’s “Problem List” fell from 553 to reach 515, a decline of more than 40 percent from the high of 888 at the end of the first quarter in 2011. So far this year, 23 banks have failed, compared to 50 during the same period in 2012.
“Most of the positive trends we have been seeing in industry performance continued in the third quarter,” FDIC Chairman Martin J. Gruenberg said. “Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the ‘Problem List,’ and fewer banks failed.”