Bank earnings up on revenue, growth increase

, Bloomberg

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U.S. banks had net income of $37.6 billion in the third quarter, a 6.6 percent increase over the year-earlier period as operating revenue grew the most in three years, the Federal Deposit Insurance Corp. said.

Industry profits beat the prior year for a 13th straight quarter, with 57.5 percent of banks reporting gains on earnings that increased from $34.4 billion in the previous quarter, the FDIC said today in its Quarterly Banking Profile. Lenders set aside $14.8 billion for bad loans, and the $22.3 billion in charge-offs showed declines in all categories except residential real estate.

"In previous quarters, we have noted that revenue growth has been very sluggish, and most of the improvement in earnings could be traced to lower provisions for loan losses," FDIC Chairman Martin Gruenberg said in remarks prepared for a briefing on the report. "Higher revenue contributed more to the increase in earnings than reduced provisions."

Residential lending was up $14.5 billion in the quarter, trailing the industry's $64.8 billion gain from commercial and industrial loans, the FDIC said. New York-based JPMorgan Chase & Co., the biggest bank by assets, said its third-quarter profit grew 34 percent from a year earlier to $5.71 billion, largely on mortgage revenue. Charlotte, North Carolina-based Bank of America Corp., the second-biggest bank, said its income fell 95 percent in the period to $340 million because of litigation expenses and an accounting charge.

Deposit Growth

Deposit growth increased by $181.7 billion in the third quarter, rising from $61.5 billion increase in the preceding three-month period. The report attributed much of the growth to non-interest-bearing transaction accounts, whose Dodd-Frank Act protections are set to expire at the end of the month.

The number of lenders on FDIC's confidential list of "problem" banks — those deemed to be at greater risk of collapse — fell to 694 from 732, the smallest number since the third quarter of 2009. So far this year, 50 banks have failed — trailing the 90 failures reached by the same point in 2011.

The deposit insurance fund, which protects customer accounts of as much as $250,000 against bank failures, rose to $25.2 billion from $22.7 billion in the preceding quarter, the FDIC said. The agency previously increased bank assessments to replenish the fund, which fell into deficit as the agency resolved hundreds of bank failures stemming from the subprime mortgage crisis.

Investors have pushed the 24-company KBW Bank Index up by more than 22 percent so far this year.

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