The Federal Deposit Insurance Corporation (FDIC) reported bank profits rose to $35.3 billion in the third quarter, the highest level since mid-2007, before the financial crisis began, and despite the “Occupy Wall Street” movement. The profit rise was an $11.5 billion improvement from the $23.8 billion in net income the industry reported in the third quarter of 2010. This is the ninth consecutive quarter that earnings registered a year-over-year increase.
“We continue to see income growth that reflects improving asset quality and lower loss provisions,” said FDIC Acting Chairman Martin J. Gruenberg. “U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.
“Ongoing distress in real estate markets and slow growth in jobs and incomes continue to pose risks to credit quality,” Acting Chairman Gruenberg added. “The U.S. economic outlook is also clouded by uncertainties in the global economy and by volatility in financial markets. So even as the banking industry recovers, the FDIC remains vigilant for new economic challenges that could lie ahead.”
At least 63% of banking institutions reported improvements in quarterly net income from a year ago. The share of institutions reporting net losses for the quarter fell to 14.3%, down from 19.5% a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.03%, from 0.72% a year ago.
Deposits in domestic offices increased by $279.5 billion or 3.4% during the quarter. Almost two-thirds of this increase $183.8 billion or 65.8% consisted of balances in large non interest-bearing transaction accounts that have temporary unlimited deposit coverage. The 10 largest insured banks accounted for 75.7% or $139.1 billion of the growth in these balances.
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 7,437 banks and savings associations, and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars. Insured financial institutions fund the FDIC operations.
Banking stocks to watch are: Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), and Goldman Sachs Group (NYSE:GS).