US Bank Profits Dip in Third Quarter, But Interest Income Up - FDIC

The banking industry experienced a mixed quarter in the third quarter of 2024, with profits dipping slightly despite an increase in interest income, according to the Federal Deposit Insurance Corporation (FDIC). This article explores the key trends and factors driving these developments, offering insights for investors.



The FDIC reported that net income for FDIC-insured commercial banks and savings institutions decreased by $1.2 billion (1.7%) from the prior quarter to $70.3 billion. However, this dip was partially offset by a $1.5 billion (1.5%) increase in noninterest income and a $1.2 billion (1.5%) increase in gains on the sale of securities. Higher provision expenses, up $1.1 billion (1.4%), contributed to the decline in net income.



Interest income, however, remained strong, with net interest income on a taxable-equivalent basis increasing 2.8% on a linked quarter basis for U.S. Bancorp, a major US bank. This increase was driven by loan mix, continued repricing of fixed rate earning assets, and disciplined liability management. Despite the dip in overall profits, the rise in interest income indicates a positive trend for banks, as it contributes to their bottom line.



The banking industry's aggregate return-on-assets ratio (ROA) increased to 1.20% from 1.08% in the prior quarter, but remained below the 1.21% recorded in the same period last year. Despite the dip in profits, the banking industry showed resilience, with net income increasing by 11.4% quarter-over-quarter. This growth was driven by a decline in noninterest expense and higher noninterest income, including gains on the sale of securities. However, higher provision expenses offset some of the increase in net income.



In conclusion, while bank profits dipped in the third quarter, interest income remained strong, indicating a positive trend for the banking industry. Investors should monitor the banking sector's performance closely, as the current economic environment and geopolitical events may present both opportunities and challenges. A balanced portfolio, combining growth and value stocks, can help investors navigate the market and capitalize on long-term trends.