A positive reliance on revenue growth and a decreased emphasis on loan loss provisions led to banks and savings and loan institutions to report higher third quarter earnings of $38.7 billion, according to data released by the Federal Deposit Insurance Corporation on Tuesday.
FDIC insures loans
In the third quarter of 2014 the FDIC insured 5,705 commercial banks, with over $14.2 trillion in assets and $7.5 trillion in loans, as well as 884 savings institutions, with $1 trillion in assets and $660 billion in loans. Loans in both categories were up on a year over year basis, as in 2013 banks had $13.5 trillion in assets and $7.1 trillion in loans while savings institutions had nearly the same assets, $1 trillion, but slightly fewer loans, at $640 billion.
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The FDIC reported positive news all around, including that nearly 63 percent of financial institutions reported year-over-year income improvement, a marked improvement, up 50 percent from the previous year. This occurred while the number of banks and thrifts on the “Problem List” fell by 25 to a total of 329.
Revenues increased by 4.8 percent over the year, totaling $171.3 billion, which was the largest year-over-year growth in revenue since the fourth quarter of 2009. Relative to the previous quarter, loans grew a smaller 0.6 percent from the previous quarter to total $8.1 trillion, falling well short of last quarter’s 2.3 percent second quarter growth rate.
FDIC: banks had increased loan loss provisions for the first time in five years
The industry’s reliance on revenue, as opposed to accounting maturations such as relying on loan loss provisions, was seen as an encouraging sign, according to an American Banker report. In fact, banks had increased loan loss provisions for the first time in five years during the quarter, setting aside $7.2 billion in potential bad loans, up $1.4 billion than the third quarter of last year. This marked the first time banks bolstered their loss provisions on a year-over-year basis in five years, the report noted.
A standout in the report were the community banks, which performed particularly well, earning net income of $4.9 billion, which was 11% higher than a year earlier. The FDIC said community bank income outpaced the industry overall, rising on higher loan balances and less loan loss reserves.
“Almost all loan categories registered increased balances, and nearly three-quarters of all institutions reported higher total balances,” FDIC Chairman Martin Gruenberg said in a statement. “Most importantly, third quarter income growth was based on revenue growth instead of lower loan-loss provisions,” Gruenberg said. “This can be a more sustainable foundation for continued earnings going forward.”