Banks Had $38.7 Billion in Third-Quarter Profits, FDIC Says

U.S. banks posted profits of $38.7 billion in the third quarter as loan sales and trading income drove their biggest year-over-year revenue growth in five years, according to the Federal Deposit Insurance Corp.

Banks’ net income for the three-month period that ended Sept. 30 increased from $36.1 billion a year ago, down from the $40.1 billion reported in the second quarter, the FDIC said in the Quarterly Banking Profile released today.

“Net income was up, revenue growth was relatively strong and broad-based, asset quality improved and loan balances grew,” FDIC Chairman Martin Gruenberg said in a statement.

Industrywide earnings were boosted as banks spent less on legal costs and employed 31,731 fewer people than a year ago, the FDIC said. Reserves for bad loans increased year-over-year for the first time in five years, according to the report.

Loan sales rose by 46 percent in the quarter, outpacing mortgage originations and leaving residential-loan portfolios down $6.7 billion. Other loan categories were up broadly, including a 2.4 percent increase in auto loans.

James Chessen, chief economist at the American Bankers Association, said it’s “terrific” that banks are relying more on revenue than cutting loan-loss reserves. He said he was happy with the report’s picture of modest growth.

“Slow and steady is great,” he said in an interview. “I wish we had slow and steady every single quarter.”

Trading Income

Trading income increased 25 percent, according to the FDIC. That growth was reflected in financial results released last month by lenders. Some big banks benefited from higher fixed-income including Goldman Sachs Group Inc., which almost doubled its year-earlier profit to $2.24 billion, and Citigroup Inc., where profit was up 6.6 percent.

The FDIC report highlighted banks’ narrowing margins and continuing vulnerability to interest-rate risk because of their increase in longer-term assets. Banks increased holdings of U.S. Treasury securities in the quarter, adding 26 percent -- or $72 billion -- more than a year earlier.

The number of problem institutions -- those viewed as being at heightened risk of failure -- continued to drop, to 329 from 354 three months earlier, the FDIC said. Two banks failed in the third quarter, Gruenberg said.

The agency’s deposit insurance fund, which protects customer accounts of as much as $250,000 against bank failures, rose $3.3 billion to a record $54.3 billion in the third quarter, exceeding a previous high at the start of 2008, the FDIC said. Bank assessments were increased in 2011 to replenish the fund, which fell into deficit as the agency resolved hundreds of failures stemming from the subprime mortgage crisis.

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