US bank earnings up 5.2pc in second quarter

September 01, 2014 - 12:00:00 am

WASHINGTON: US banks’ earnings rose 5.2 percent in the April-June quarter from a year earlier, as banks reduced their expenses and lending marked its fastest pace since 2007.

The data issued on Thursday by the Federal Deposit Insurance Corp showed a robust picture as the banking industry continues to recover from the financial crisis that struck six years ago. The improving economy has brought greater demand for loans and stepped-up lending.

The FDIC reported that US banks earned $40.2bn in the second quarter of this year, up from $38.2bn in the same period in 2013.

The number of banks on the FDIC’s problem list fell to 354 in the second quarter, the lowest number in more than five years and down from 411 in the January-March period.

The FDIC said 57.5 percent of banks reported an increase in profit in the second quarter from a year earlier, and only 6.8 percent of banks were unprofitable — down from 8.4 percent a year earlier.

Banks reduced expenses by setting aside less in reserves to cover bad loans and making smaller payrolls, the report said.

FDIC Chairman Martin Gruenberg said the industry continued to improve in the latest quarter. However, he said, “challenges remain” for banks as their revenue is chipped away by lower income from mortgage business.

Total loan balances rose by $178.5bn, or 2.3 percent, from the first quarter, led by increases in commercial and industrial loans, home mortgages, credit card lending and auto loans. The 2.3 percent increase was the biggest quarterly rise since the fourth quarter of 2007, about a year before the financial crisis struck.

Demand for loans has grown as the economy has improved, new jobs have been added over the past six months and business confidence has rebounded. Improved prospects for repayment of loans have prompted bankers to extend more credit.

“The improvement in loan balances has now been sustained over time,” Gruenberg said, adding that the key will be for the trend to continue.

Community banks earned $4.9bn in the second quarter, up 3.5 percent from a year earlier.

Banks with assets exceeding $10bn continued to drive the bulk of the earnings growth in the May-June period. While they make up just 1.6 percent of US banks, they accounted for about 82 percent of industry earnings.

Those banks include Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co. Most of them have recovered with help from federal bailout money during the financial crisis and record-low borrowing rates.

Last year, the number of bank failures fell to 24. That is still more than normal. In a strong economy, an average of four or five banks close annually. But failures were down sharply from 51 in 2012, 92 in 2011 and 157 in 2010 — the most in one year since the height of the savings and loan crisis in 1992.

So far this year, 14 banks have failed. Twenty had been shuttered by this time last year.

AP

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