FDIC: Bank Profits Surge, Less Put Aside for Credit Losses

U.S. banks earned a profit of $35.3 billion in the third quarter, an $11.5 billion increase from the $23.8 billion in net income reported a year ago, said the Federal Deposit Insurance Corp.
The FDIC-insured banks posted their best quarter since the financial crisis of three years ago, and the ninth consecutive quarter that earnings registered a year-over-year increase.
A big improvement in credit quality helped propel the bottom line of the bigger institutions. Lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings – as has been the case in each of the last eight quarters.
Third-quarter loss provisions totaled $18.6 billion, almost 50 percent less than the $35.1 billion that insured banks set aside for losses in the third quarter of 2010.
While the quality of lending has improved, there is still flat growth in the amount of lending. Loan portfolios grew slowly for a second consecutive quarter, as the post-crisis credit crunch has yet to full unwind.
Loan balances posted a quarterly increase for the second quarter in a row, and for only the third time in the last 12 quarters.
“We continue to see income growth that reflects improving asset quality and lower loss provisions,” said FDIC Acting Chairman Martin J. Gruenberg. “U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.”
Gruenberg said ongoing distress in real estate markets, persistent unemployment and slow growth in incomes “continue to pose risks to credit quality.”
A majority of all institutions (63 percent) reported improvements in quarterly net income from a year ago.  The share of banks reporting net losses for the quarter fell to 14.3 percent, down from 19.5 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.03 percent, from 0.72 percent a year ago.
The number of institutions on the FDIC’s “Problem List” fell for the second quarter in a row, declining from 865 to 844. This is the second time since the third quarter of 2006 that the number of “problem” banks has fallen.
The number of failing banks is also on the decline. Twenty-six insured institutions failed during the third quarter, four more than in the previous quarter, but 15 fewer than in the third quarter of 2010. Through the first nine months of 2011, there were 74 insured institution failures, compared to 127 failures in the same period of 2010.

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