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FDIC: Bank profits at record levels due to lower loss reserves

Quarterly or Semiannual Financial StatementsFederal Deposit Insurance CorporationMortgagesMartin J. Gruenberg

U.S. banking industry earnings increased nearly 10% last year to a record $154.7 billion, according to the Federal Deposit Insurance Corp., due mainly to banks setting aside less money to cover potential loan losses and litigation costs.

The FDIC said Wednesday that fourth-quarter profits at the nation’s commercial banks and thrifts rose 17% to a total of $40.3 billion from $34.4 billion in the final quarter of 2012.

It was the 17th time in the last 18 quarters that earnings have registered a year-over-year gain as the industry continues a slow but steady recovery from the financial crisis and housing debacle.

“Banks continue to put bad loans behind them and overall asset quality is remarkably strong,” American Bankers Assn. chief economist James Chessen said in a statement. “Going forward, problems loans will continue to fall, but at a slower rate.”

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"Problem banks," those at risk of failure, fell for the 11th straight quarter to 467, down from 515 in the third quarter and 47% below a recent high of 888 as of March 2011. That's less than 7% of the 6,798 banks and thrifts the FDIC said were operating as of Wednesday

Still, growth overall was elusive, the FDIC said. Reduced income from mortgage lending and trading contributed to a decline in fourth-quarter revenue to $166.1 billion, down $2.8 billion, or 1.7%, from a year earlier.

Loan balances rose 1.2% during the quarter, with all lending categories higher except for residential mortgages. But the biggest contributor to the improved earnings was an $8.1 billion decline in loan-loss provisions, the FDIC said.

"Asset quality improved, loan balances were up, and there were fewer troubled institutions,” FDIC Chairman Martin J. Gruenberg said in a statement. But "challenges remain," he added.

“Narrow [profit] margins, modest loan growth, and a decline in mortgage refinancing activity have made it difficult for banks to increase revenue and profitability,” Gruenberg said.

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Quarterly or Semiannual Financial StatementsFederal Deposit Insurance CorporationMortgagesMartin J. Gruenberg
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