By Pete Schroeder

WASHINGTON U.S. bank profits were largely flat in the second quarter of 2023 after accounting for the impact of three large failed bank acquisitions, the Federal Deposit Insurance Corporation reported Thursday.

The bank regulator said industry profits dipped 11.3% to $70.8 billion in the second quarter, but that was primarily due to the impact of the bank failures and ensuing acquisitions. Accounting for those events, bank profits were up 5.7% compared to a year prior.

"Despite the period of stress earlier this year, the banking industry continues to be resilient," said FDIC Chairman Martin Gruenberg in a statement. "However, the banking industry still faces significant challenges from the effects of inflation, rising market interest rates and geopolitical uncertainty."

The quarterly report on bank finances has become closely watched in the wake of spring turmoil in the banking sector, which saw three large firms, including Silicon Valley Bank, fail in the face of large unrealized losses that spooked depositors.

Thursday's results are the first to include the impact of the failure of First Republic Bank, which was seized by regulators in May and sold to JPMorgan Chase.

The second-quarter results suggest the spring turmoil may be fading for the industry. The FDIC said banks saw unrealized deposits on securities increase 8.3% in the second quarter, rising to $558.4 billion. However, unrealized losses are still lower than levels seen in mid-2022.

U.S. bank deposits declined for the fifth straight quarter, but only fell 0.5% in the second quarter compared to a record 2.5% decline in the first quarter. The deposit decline was due to a flight of uninsured deposits and insured deposits actually rose again in the second quarter.

The FDIC's "problem bank" list was unchanged at 43 firms in the second quarter.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)