Bank profits up $12.5 billion year-over-year

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Third-quarter banking results showed much better news on almost all fronts than during the past few years.

Year-over-year bank profits have skyrocketed in the third quarter at the nearly 8,000 insured commercial banks and savings institutions that report to the Federal Deposit Insurance Corp.

Although net profits totaled $14.5 billion, compared to $2 billion reported a year ago, third quarter net income was below the $17.7 billion and $21.4 billion reported in the first and second quarters of this year, respectively.

The difference, though, was because of a $10.1 billion quarterly net loss at one large institution that had a $10.4 billion charge for goodwill impairment. Aside from this loss, third quarter earnings would have represented a three-year high.

Nearly two-thirds of institutions reported higher net income than a year earlier, and fewer than one in five was unprofitable – the lowest percentage of  since second quarter 2008. A year ago, more than 27 percent of all institutions reported negative net income.

Another sign of renewed strength is that quarterly loan-loss provisions are the lowest since 2007.

At $34.9 billion,  provisions for loan losses were much less than the $28 billion which was set aside a year earlier.

Other factors contributing to year-over-year improvement in earnings came from net interest income, which increased by $8.1 billion, or 8.1 percent, and realized gains on securities and other assets, which totaled $3.2 billion in the quarter, a $7.3 billion improvement over the $4.1 billion in realized losses reported a year earlier.

Not only that, but charge-offs decreased in most loan categories.

For the second quarter in a row, net charge-offs were lower than in both the previous quarter and the year-earlier quarter. Third quarter charge-offs totaled $42.9 billion, compared to $49.1 billion in the second quarter and $50.9 billion in the third quarter of 2009. Before that, quarterly charge-offs had increased year-over-year for 13 consecutive quarters.

The balances of noncurrent loans decreased for a second consecutive quarter. Noncurrent balances declined by $8.3 billion, or 2.1 percent,  in the third quarter, after an $18.9 billion, or 4.6 percent, decline in the second quarter. Prior to that, noncurrent loan balances had risen for 16 consecutive quarters.

Overall deposits Increase by 1.5 percent. Although domestic office deposits rose by only 0.9 percent, or $70.3 billion, deposits in foreign offices increased by $62.3 billion, or 4.2 percent.

Not surprisingly, the number of troubled banks continues to rise.

In the third quarter, 41institutions failed, bringing the total number of failures for the year to 127. The number of banks on the FDIC’s “Problem List” increased from 829 to 860 during the quarter – the largest number of troubled banks since March 31, 1993, when there were 928.