by Calculated Risk on 11/29/2016 02:13:00 PM

The FDIC released the Quarterly Banking Profile for Q3 today:

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $45.6 billion in the third quarter of 2016, up $5.2 billion (12.9 percent) from a year earlier. The increase in earnings was mainly attributable to a $10 billion (9.2 percent) increase in net interest income and a $1.2 billion (1.9 percent) rise in noninterest income. One-time accounting and expense items at three institutions had an impact on the growth in income. Banks increased their loan-loss provisions by $2.9 billion (34 percent) from a year earlier. Financial results for the third quarter of 2016 are included in the FDIC’s latest Quarterly Banking Profile released today.
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“Revenue and net income rose from a year ago, loan balances increased, asset quality improved, and the number of unprofitable banks and ‘problem banks’ continued to fall,” Gruenberg said. “Community banks also reported solid results for the quarter with strong income, revenue, and loan growth.

“Nevertheless, the banking industry continues to operate in a challenging environment,” he said. “Low interest rates for an extended period have led some institutions to reach for yield, which has increased their exposure to interest-rate risk, liquidity risk, and credit risk. Current oil and gas prices continue to affect borrowers that depend on the energy sector and have had an adverse effect on asset quality. These challenges will only intensify as interest rates normalize.”
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Deposit Insurance Fund’s Reserve Ratio Rises to 1.18 Percent: The DIF increased $2.8 billion during the third quarter, from $77.9 billion at the end of June to $80.7 billion at the end of September, largely driven by $2.6 billion in assessment income. The DIF reserve ratio rose from 1.17 percent to 1.18 percent during the quarter. Because the reserve ratio surpassed 1.15 percent on June 30, lower regular FDIC assessment rates on all insured institutions went into effect in the third quarter. On average, regular quarterly assessments were about one-third lower than in the previous quarter, although temporary assessment surcharges on banks with assets greater than $10 billion led to an increase in total assessments at most large banks.
emphasis added

Click on graph for larger image.

The FDIC reported the number of problem banks declined (Note: graph shows problem banks for Q1, Q2 and Q3 2016, and year end prior to 2016):

“Problem List” Shows Further Improvement: The number of banks on the FDIC’s Problem List fell from 147 to 132 during the third quarter. This is the smallest number of problem banks in more than seven years and is down significantly from the peak of 888 in the first quarter of 2011. Total assets of problem banks fell from $29.0 billion to $24.9 billion during the third quarter.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $4.12 billion in Q2 2016 to $3.98 billion in Q3. This is the lowest level of REOs since Q1 2007.

This graph shows the nominal dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Since REOs are reported in dollars, and house prices have increased, it is unlikely FDIC institution REOs will get back to the $2.0 to $2.5 billion range back that happened in 2003 to 2005.    FDIC REOs will probably bottom closer to $3 billion.