WASHINGTON — U.S. bank earnings increased 5% in the third quarter from a year earlier to $40.4 billion as a "few large banks" recorded lower litigation expenses, the Federal Deposit Insurance Corp. said Tuesday.
The agency's Quarterly Banking Profile said noninterest expenses fell 2.9%, or $3.2 billion, from a year earlier to $105.6 billion. Litigation expenses contributed to most of the decline, falling $2.7 billion, or 67.3%. Costs associated with employee benefits and salaries fell 0.4%, or $199 million. Goodwill impairments declined 45.4% or $578 million.
While noninterest expenses were down, revenues were nearly unchanged. Although banks increased their risk profile, revenue grew by just 0.3% – or $488 million – from a year earlier to $172 billion.
Despite the higher risk, "banks have not seen corresponding growth in overall revenue," FDIC Chairman Martin Gruenberg said in prepared remarks.
Gruenberg also said there are "signs of growing interest rate risk and credit risk that warrant attention," with banks increasing their share of "higher-risk loan categories." He also said banks that have a significant exposure to the oil and gas industry "are increasingly at risk due to the significant decline in energy prices."
Loans increased 1.1%, or $95.3 billion, from the second quarter and were 5.9% higher than a year earlier.
However, the low interest rate environment continued to put pressure on earnings. The average net interest margin was 3.08% in the third quarter, which was below the 3.15% in the third quarter of 2014.
Community banks also continued to outperform the industry as a whole, with their earnings increasing 7.5% in the third quarter. Community banks' net operating revenue rose $1.6 billion form a year earlier to $22.4 billion.
The number of institutions on the agency's "Problem List" fell by 25 to a total of 203, marking the 18th consecutive quarterly decline.
The report also showed that the Deposit Insurance Fund continues to improve. The fund's balance increased by $2.2 billion to $70.1 billion, bringing the ratio of reserves to insured deposit to 1.09% – 3 basis points higher than in the second quarter.
When the fund reaches a reserve ratio of 1.15%, lower assessments will kick in for the industry overall, but banks with more than $10 billion will soon likely see an additional assessment charge to raise the fund to a new mandatory minimum reserve ratio of 1.35%.