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From Banking and Finance Law Daily, September 3, 2015

Bank earnings up 7 percent in quarter, FDIC reports

By J. Preston Carter, J.D., LL.M.

The Federal Deposit Insurance Corporation reports that earnings at its insured institutions rose 7.3 percent in the second quarter over last year. The institutions reported aggregate net income of $43 billion in the second quarter of 2015, up $2.9 billion (7.3 percent) from a year earlier and the highest quarterly income on record. However, interest rates remain “challenging.”

FDIC Chairman Martin Gruenberg said, “The industry had another positive quarter.” He stated that “revenues and earnings were up, loan portfolios grew, asset quality improved, the number of problem banks declined, and only one insured institution failed.” Gruenberg noted, however, that “the interest-rate environment remains challenging for banks.” Community banks had another strong quarter, the Chairman added, with revenue and income growth outpacing the rest of the industry, and loan balances rising at a faster rate than at larger banks.

The FDIC’s press release of second quarter earnings states that, of the 6,348 insured institutions in the second quarter of 2015, 58.7 percent reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the second quarter fell from 6.8 percent a year earlier to 5.6 percent, the lowest since the first quarter of 2005.

The agency’s “Quarterly Banking Profile” notes that more than two-thirds of the banks reported higher net operating income. Noninterest expenses declined $1.1 billion (1.1 percent) from 2014 levels, as itemized litigation expenses at a few large banks were $1.3 billion less than in second quarter 2014, and charges for goodwill impairment were $191 million lower. Net charge-offs declined for a 20th consecutive quarter, with the rate falling to 0.42 percent, the lowest since 2006.

Among other results, insured institutions reduced their loan-loss reserves for a 21st consecutive quarter, total assets declined by $24.7 billion (0.2 percent) in the three months ended June 30, and total deposit balances fell by $25.8 billion (0.2 percent).

ABA statement. Responding to the second quarter bank earnings report, James Chessen, American Bankers Association chief economist, said, “Strong loan growth, diversified revenue streams and a continued improvement in asset quality were the hallmarks of a very strong second quarter for America’s banking industry.” He added, “The real revenue driver is a renewed demand for the industry’s bread and butter product—loans—as consumers and businesses grow more confident in a better economic environment.”

According to Chessen, “Steadily improving asset quality and consistently higher capital paint a picture of a fundamentally strong banking sector that’s meeting the diverse needs of both consumers and businesses.” He expects borrowing to “remain elevated in the third quarter amid low interest rates, improving confidence and a stable economy.”

Companies: American Bankers Association

MainStory: TopStory BankingOperations FinancialStability

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