Banking Industry’s Net Interest Margin Rises After 3 Quarterly Declines

The banking industry’s net interest margin increased in the third quarter as the increase in loan yields exceeded the increase in the cost of deposits for the first time since the second quarter of 2023.

“As a result, the industry’s net interest margin increased 7 basis points to 3.23%, reversing a three-quarter trend in which the industry’s margin fell by 14 basis points,” Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg said in a Thursday (Dec. 12) press statement.

Speaking upon the release of the FDIC’s Quarterly Banking Profile, Gruenberg added that groups of all sizes saw a rise in net interest margin and that community banks’ net interest margin rose 5 basis points in the third quarter after increasing 7 basis points in the second quarter.

This marks a reversal from what was seen in the spring. It was reported in April that for America’s biggest banks, deposit costs were exceeding interest income for the first time since the Federal Reserve began increasing rates two years earlier.

The banking industry saw this gain in net interest margin during a quarter in which their aggregate net income decreased by $6.2 billion, or 8.6%, to $65.4 billion, the FDIC said in a Thursday press release.

The FDIC said the decrease in net income was driven by one-time items, as there was an absence of one-time gains on equity security transactions that occurred in the previous quarter.

The Quarterly Banking Profile is based on reports from 4,517 commercial banks and savings institutions insured by the FDIC.

Highlighting other findings from the report, the FDIC said in the release that asset quality metrics remained generally favorable, although there was weakness in commercial real estate; loan balances increased 0.6%; and domestic deposits increased 1.1%.

“The banking industry continued to show resilience in the third quarter,” Gruenberg said in the release. “Net interest income and the net interest margin increased substantially this quarter. Asset quality metrics remained generally favorable despite continued weakness in several loan portfolios, which we are monitoring closely. The banking industry still faces significant downside risks from the continued effects of inflation, volatility in market interest rates and geopolitical uncertainty.”

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