At $36 million, the net income of FDIC-insured banks in the third quarter is $1.5 million below earnings reported in the third quarter of last year.
The drop in earnings is “mainly attributable to a $4 billion increase in litigation expenses in one institution,” saidFDIC Chairman Martin J. Gruenberg during a press conference Tuesday.
“Had it not been for that, the upward trend in earnings would have continued for the industry,” Gruenberg continued.
Gruenberg also pointed out a secondary source of the decline: “a reduction in mortgage lending activity,” which led to a decline in net operating revenue.
Mortgage originations were declined 30 percent from the second quarter, and mortgage sales declined 24 percent.
The FDIC reported a $4 billion decline in quarterly noninterest income from the sale, securitization, and servicing of one- to four-family residential mortgage loans.
Balances of one- to four- family residential mortgages declined 0.7 percent to $13.7 billion over the quarter. Home equity lines of credit decreased 2.1 percent to $10.9 billion.
All other loan types increased over the quarter, according to the FDIC’s report.
Delinquent loans 90 or more days past due declined 7.7 percent at FDIC-insured banks in the third quarter, and a decline was evident across all loan categories.
Among one-to-four-family residential real estate loans, delinquent loans fell 7.9 percent over the quarter.
Net operating revenue and net interest income were both down over the year in the third quarter, falling $6.1 billion and $1.3 billion, respectively.
“The one significant positive contribution to third-quarter earnings came from lower loan-loss provisions,” the FDICstated in its report.
Banks contributed $5.8 billion to their loan loss provisions in the third quarter, down 60.4 percent from last year.
This is the smallest loan loss provision the FDIC has reported since the third quarter of 1999, and it is also the 14th consecutive quarter of declining loan loss provisions.
The FDIC also reported declines in failing and problem institutions in the third quarter. Six institutions failed in the third quarter, and 515 were considered “problem” banks, down from 553 in the previous quarter.
“Overall, most of the positive trends we’ve been seeing in industry performance continued in the third quarter,” Gruenberg said.