FDIC: U.S. Banks Show Resilience in Q1 2024 as Unrealized Securities Losses Rise to $517 Billion

The Federal Deposit Insurance Corporation said Thursday that FDIC-insured institutions showed resilience in the first quarter of 2024, with industry net income rebounding after last quarter's nonrecurring expenses.

"The banking industry continued to show resilience in the first quarter," the FDIC chair said in prepared remarks, noting that net income would have increased 14.3% from the prior quarter after excluding a special FDIC assessment and goodwill writedowns.

The agency reported several mixed signals. The industry's net interest margin fell 10 basis points to 3.17% in the quarter, below the pre-pandemic average of 3.25%. At the same time, unrealized losses on available-for-sale and held-to-maturity securities rose by $39 billion to $517 billion in Q1, a jump the agency attributed in part to higher mortgage rates.

Community banks fared better on the earnings front: the FDIC said community banks reported net income of $6.3 billion in the quarter, a 6.1% quarterly increase driven by gains on the sale of securities and lower noninterest and provision expenses.

Loan balances at the industry level fell by $35 billion (0.3%), largely because the largest banks saw seasonal declines in credit card and auto loan balances. Year-over-year loan growth slowed to 1.7%, the slowest annual growth rate since 2021; community banks reported stronger loan growth (0.9% quarter-over-quarter and 7.1% year-over-year), led by commercial real estate (CRE) and residential mortgage lending.

On asset quality, the agency reported the industry's noncurrent loan rate rose 5 basis points to 0.91%. The FDIC singled out non-owner-occupied CRE loans and office lending at the largest banks (those with assets greater than $250 billion) as concentrations driving the deterioration. The agency also noted the quarterly net charge-off rate remained at 0.65% and that the credit-card net charge-off rate was 4.7%, an increase of 55 basis points from the prior quarter and the highest since 2011.

Deposit trends were also mixed: domestic deposits rose for a second straight quarter, helped by a $191 billion increase in transaction accounts, and insured deposits increased by 1.1%. But interest-bearing deposits grew while noninterest-bearing balances fell for an eighth consecutive quarter, and estimated uninsured deposits rose by $63 billion—the first increase in uninsured deposits since 2021.

The FDIC reported there were 63 banks on its problem-bank list in Q1, up from 52 in 2023, representing roughly 1.4% of institutions; assets held by those problem banks rose $15.8 billion to $82.1 billion. The Deposit Insurance Fund balance stood at $125.3 billion on March 31, an increase of about $3.5 billion from the end of the prior quarter.

The FDIC said these patterns—funding and margin pressures, concentrated unrealized losses, elevated charge-offs in cards, and stress in certain CRE portfolios—warrant continued supervisory attention.

The agency concluded its prepared remarks by warning that macroeconomic factors such as inflation, volatile market interest rates and geopolitical uncertainty could pressure credit quality, earnings and liquidity going forward.