Bank Profits Hit $40.4 Billion in Third Quarter, FDIC Says

  • Gruenberg points to growing interest-rate and credit risks
  • Lending in riskier categories warrants attention, agency says

U.S. banks earned $40.4 billion in profits for the third quarter, a 5.1 percent increase from a year earlier, the Federal Deposit Insurance Corp. said Tuesday.

Lower non-interest expenses were the main reason for the higher earnings in the three-month period that ended Sept. 30, the FDIC said in its quarterly report on industry performance. Reductions in costs tied to litigation outweighed weaknesses in operating revenue at large banks, the agency said.

Loan portfolios grew and the quality of banks’ assets improved, FDIC Chairman Martin Gruenberg said in a statement. At the same time, “there are signs of growing interest-rate risk and credit risk that warrant attention” and “lending in higher-risk loan categories has been growing,” he said.

Banks should address those issues because “history tells us -- it is during this phase of the credit cycle when lending decisions are made that could lead to future losses,” Gruenberg said.

The FDIC, Federal Reserve and Office of the Comptroller of the Currency said in a report this month that leveraged lending by U.S. banks remains too risky, and credit tied to oil-and-gas exploration is getting weaker. That report highlighted deficiencies in loan underwriting.

Of the 6,270 firms reporting third-quarter results, 59 percent had year-over-year earnings growth, the FDIC said Tuesday. The proportion of banks that were unprofitable declined to 5 percent from 6.6 percent a year ago and was the lowest since 2005, according to the agency.

The deposit insurance fund, which protects customers’ holdings against bank failures, rose $2.5 billion in the quarter to $70.1 billion, from $67.6 billion in the second quarter. The reserve ratio increased to 1.09 percent from 1.06 percent and remains on target to reach the congressionally mandated level of 1.35 percent by September 2020, Gruenberg said.

The number of banks on the FDIC’s problem list -- those deemed at greater risk of failing -- declined to 203, the smallest number in nearly seven years and a sharp decline from the peak of 888 in 2011, the agency said. Only one lender failed in the quarter, the FDIC said.

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