US banks reported US$141.3 billion in aggregate net income last year, the second-best on record after the US$145.2 billion posted in 2006, on non-interest income and lower loss provisions, the US Federal Deposit Insurance Corp (FDIC) said on Tuesday.
Fourth-quarter net income was US$34.7 billion, a 37 percent increase from the same period a year earlier, the FDIC said in its Quarterly Banking Profile. However, on a quarterly basis, it was down from US$37.6 billion in the third quarter, it added.
Industry profits were widespread, with 60 percent of banks reporting increases from the previous year even as interest-income margins tightened, the agency’s report said. Lenders set aside US$15.1 billion for bad loans — a 24.6 percent reduction from the year earlier — and the US$18.6 billion in charge-offs marked the 10th consecutive quarter of declines.
“When you look back to where we were just a few years ago, the progress made to date is meaningful,” FDIC chairman Martin Gruenberg said in a briefing on the report. “But troubled loans, problem banks and bank failures remain at elevated levels, while growth in lending and revenue remains sluggish.”
Banks bolstered profits by using reductions in money set aside for bad loans, as the US Federal Reserve’s low interest rate policy squeezed margins. Fourth-quarter loan-loss provisions were the smallest since 2006, the report said.
“Going forward, we think the industry earnings are really going to depend on increased credit,” Gruenberg said.
Total loan balances rose US$118.2 billion, or 1.6 percent, in the quarter, led by 3.7 percent growth in commercial loans, the FDIC said.
“There’s not a lot of great opportunities out there at these rates,” American Bankers Association chief economist James Chessen said on Tuesday, referring to the interest rate environment.
Business lending demand is recovering and “you’ll start to see more consumer lending,” he said.
Deposit growth increased by a record US$313.1 billion in the fourth quarter, even as the FDIC wound down unlimited backing for so-called transaction accounts, the report said.
Deposits in such accounts, used for payrolls and other business and government expenses, rose by 3.3 percent, the FDIC said.
“It appears that the transition from temporary full insurance to the basic US$250,000 coverage proceeded in an orderly manner,” Gruenberg said.
The FDIC’s confidential list of “problem” banks — those among the more than 7,000 insured institutions deemed to be at greater risk of collapse — fell to 651 from 694 in the fourth quarter, the smallest since before the 2008 credit crisis. Last year, 51 banks failed, compared with 92 in 2011.
The agency’s deposit insurance fund, which protects customer accounts of as much as US$250,000 against bank failures, rose to US$33 billion from US$25.2 billion in the third quarter, the FDIC said.
Bank assessments were increased to replenish the fund, which fell into deficit as the agency resolved hundreds of bank failures during the mortgage crisis.
Investors have pushed the 24-company KBW Bank Index up by more than 3 percent this year.