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FDIC: 2023 industry earnings remain high but special assessment, CRE stress weigh on quarterly results
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Summary
The FDIC reported $257 billion in full‑year net income and record industry revenue but said a special assessment tied to two bank failures and rising noninterest expenses drove a steep quarter‑over‑quarter earnings decline and raised the estimated cost to the Deposit Insurance Fund to $20.4 billion.
The Federal Deposit Insurance Corporation on Thursday said FDIC‑insured institutions posted strong full‑year earnings in 2023 even as costs tied to recent bank failures and weakening asset quality trimmed quarterly profits.
FDIC Chairman Groverick said full‑year net income for the industry was $257 billion and that net operating revenue surpassed $1 trillion for the first time, while the industry’s full‑year net interest margin reached 3.3%, the highest level since 2019. “The banking industry has shown resilience after a period of liquidity stress in early 2023,” he said.
But the FDIC cautioned that fourth‑quarter net income fell sharply from the prior quarter, driven largely by several nonrecurring noninterest expenses at large banks. The largest single factor, the agency said, was an expense tied to a special assessment intended to recover estimated losses to the Deposit Insurance Fund (DIF) attributable to protection of uninsured depositors after two bank failures last spring.
Chairman Groverick confirmed the FDIC revised its industry cost estimate for that special assessment upward from an initial $16.3 billion to $20.4 billion and said the number could change further as failed‑bank assets are sold and asset valuations are refined. “We revised that estimate upward, recently, to 20,400,000,000.0,” he said.
The FDIC reported other headwinds in the quarter, including higher provision expense and lower noninterest income. Community banks saw a quarterly net income decline of about 9.9% as rising noninterest and provision expenses offset higher net interest income.
Asset quality remained broadly favorable, the agency said, but showed deterioration in specific portfolios. Noncurrent loan balances rose most notably in commercial real estate (CRE) and credit‑card portfolios. The FDIC said weak office demand and higher interest rates have softened property values and strained refinancing options, driving CRE noncurrent rates at the largest banks to levels not seen since early 2014. The quarterly net charge‑off rate rose to 0.65%.
On deposits, domestic deposits increased for the first time in seven quarters. Insured deposits rose by $47 billion (about 0.5%) in the fourth quarter. The FDIC noted an accounting effect at one large bank masked broader uninsured deposit growth; excluding that bank, uninsured deposits grew by $92 billion (1.4%).
The deposit insurance fund balance stood at $122 billion at year end, and the reserve ratio increased two basis points to 1.15%. The FDIC said the reserve ratio remains on track to reach the statutory minimum of 1.35% by the statutory deadline of Sept. 30, 2028.
Chairman Groverick emphasized that while 2023 results exceeded expectations overall, risks remain from inflation, market interest‑rate volatility and deterioration in CRE and other loan portfolios — issues the agency will continue to monitor through its supervisory work.
The FDIC made the agency’s senior staff available to press for follow‑up questions after the livestream ended.
