Profits at the nation's banks rose 7.3% in the third quarter as revenues posted their biggest year-over-year increase since 2009, the Federal Deposit Insurance Corp. said Tuesday.
The $38.7 billion in profits at 6,589 federally insured banks was up $2.6 billion from the third quarter of last year.
But profits were down from $40.2 billion in the second quarter of this year.
"The banking industry had another positive quarter," FDIC Chairman
"Community banks, in particular, performed better than a year ago," he said.
The industry's $171.3 billion in revenues in the third quarter was up 4.8% from the same period last year, the FDIC said. It was the best revenue growth since the fourth quarter of 2009.
Gruenberg noted that the increase in profits in the third quarter of this year was based on that revenue growth, rather than a result of banks reducing the money they set aside for losses on mortgages and other loans.
"This can be a more sustainable foundation for continued earnings growth going forward," he said.
So-called loan-loss provisions rose to $7.2 billion in the third quarter, up 24% from a year earlier, the FDIC said. It was the first year-over-year increase since 2009.
Gruenberg said he wasn't worried that banks were setting aside more money to cover loan losses. Those provisions had been dropping and needed to increase as banks made more loans, he said.
Bank loan and lease balances rose 4.6% to $8.2 trillion in the third quarter compared with a year earlier, the FDIC said. Auto, commercial and industrial loans were up, offsetting a slight drop in mortgages.
"We continue to see a broad-based growth in lending to both consumers and businesses," said James Chessen, chief economist at the American Bankers Assn.
"The expansion in lending reflects a rising confidence among households and businesses that an improving economy will better enable them to meet their financial obligations," he said.
Despite what he called "largely good news" for the industry, Gruenberg said low interest rates were putting pressure on bank profit margins.
One way banks have responded is by increasing higher-risk commercial loans, and regulators are watching the development, he said.
The number of so-called problem banks -- those at risk of failure -- fell in the third quarter as the industry continued to gain strength after the shocks of the Great Recession and financial crisis.
The figure was down to 329 from 354 in the second quarter. The number of problem banks peaked at 888 in early 2011.
Banks were coming off the problem list mostly because they were improving, not failing, Gruenberg said
Only two banks failed in the third quarter, down from six a year earlier, the FDIC said.