U.S. Banking Industry Profits Rise Amid Concerns

By Pete Schroeder
WASHINGTON (Reuters) – The U.S. banking industry recorded higher profits in the second quarter of 2024, but the Federal Deposit Insurance Corporation (FDIC) identified several lingering areas of concern, including commercial real estate and credit cards.

Profits for the sector rose 11.4% to $71.5 billion in the second quarter, attributed to shrinking expenses and higher non-interest income, according to the regulator. However, the FDIC also noted an increase in strain within commercial real estate and credit card borrowing, reaching levels not seen in a decade.

FDIC Chairman Martin Gruenberg stated, “What we’re seeing this quarter is a continuation of the trend we’ve seen in the last few quarters. Stability by the industry, continued resilience, but underlying vulnerabilities.”

The FDIC specifically pointed out that the non-current rate for non-owner occupied commercial real estate loans, mainly driven by office portfolios at major banks, rose to 1.77%, the highest level since 2013. Bank supervisors are closely monitoring the commercial real estate sector for any signs of weakness, particularly as banks and borrowers deal with vacancies intensified by the rise of remote work during the pandemic.

A positive note is that while the largest banks face the highest levels of noncurrent CRE loans, these loans represent a smaller concentration within their overall portfolios.

On the consumer side, the net charge-off rate for credit cards, which signifies the amount of credit card balances banks do not expect to collect, increased to 4.82%, the highest since 2011.

The FDIC announced the addition of three new banks to its “Problem Bank” list, which includes firms identified as having weak private ratings. The list now includes 66 total banks, with assets amounting to $83 billion, representing 1.5% of all banks in the sector. The FDIC indicated that it’s common for problem banks to make up 1-2% of total banks during non-crisis periods.

Bank profits were enhanced by reduced expenses, including a $4 billion reduction related to the special assessment banks must pay to help the FDIC recoup costs from the bank failures of 2023.

Additionally, profits grew due to $10 billion in one-time gains from equity security transactions by banks. Non-interest expenses decreased by 2.4% in the quarter, although provision expenses for potential losses increased, particularly at larger banks, where they rose by $3.3 billion, or 30.3% from the previous quarter.