Highs and lows in FDIC's 3Q report on industry's health

WASHINGTON — The banking industry earned just over $57 billion in the third quarter, as 62% of institutions had higher net income than a year earlier and operating revenue rose 2.2%.

The Federal Deposit Insurance Corp.’s Quarterly Banking Profile portrayed a healthy sector, with a growing loan book and a declining rate of noncurrent loans.

Yet net income was down from the previous quarter for the time since late 2018, and was also slightly down from a year earlier. Total industry profits were held back by what the FDIC called “nonrecurring events” at three large banks, leading to securities losses and litigation costs and helping to boost noninterest expenses.

Meanwhile, the credit-quality picture is hazy as the net charge-off rate increased slightly and the dollar increase in net charge-offs was the highest since 2010.

Here are takeaways from the FDIC’s third-quarter report.

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Earnings hit wasn't that bad
The industry's net income was down 7.3% from a year earlier and 8.3% from the previous quarter. But the FDIC blamed the earnings slide on one-time events at just three large banks. Overall, the sector's profit was strong, exceeding $50 billion for the seventh straight quarter. Net interest income rose 1.2% from a year earlier to $138.8 billion.
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Net income was skewed by 'nonrecurring events'
The drop in net income was attributed to one-time expenses at three big banks: Bank of America, Wells Fargo and MUFG Union Bank.
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Charge-offs are on the rise
Despite healthy indicators for banks in general, the FDIC reported an uptick in the number of net charge-offs, or loans that banks have declared "uncollectable."

Meanwhile, what had been steady declines in the rates of noncurrent loans and net charge-offs continued to bottom out in the third quarter.

Charge-offs were up 17% from the same period last year, totaling $13 billion. The dollar increase of $1.9 billion was the largest since 2010, the FDIC said. But FDIC officials said the increase isn't cause for concern yet. The charge-off rate remains historically low, and the increase in charge-offs were not concentrated in any particular area.
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Industry's charge-offs driven by commercial and industrial loans
After noncurrent C&I loans and C&I charge-offs declined in prior years, they have been elevated in 2019. Of the $1.9 billion increase in net charge-offs last quarter, more than half of that jump — $1 billion — came from C&I lending, the FDIC said.
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