WASHINGTON — Banks and thrifts earned $38.7 billion in the third quarter, a 7.3% increase from a year earlier but slightly down from the $40.1 billion earned in the second quarter, the Federal Deposit Insurance Corp. said Tuesday.

The agency reported in its Quarterly Banking Profile that a sharp jump in net operating revenue propelled the industry overall. Revenues totaled $171.3 billion, which was a 4.8% increase from a year earlier. That was the largest year-over-year growth in revenue since the fourth quarter of 2009. Total loans grew 0.6% from the previous quarter to $8.1 trillion, though that was down from the 2.3% growth registered in the second quarter.

"Almost all loan categories registered increased balances, and nearly three-quarters of all institutions reported higher total balances," FDIC Chairman Martin Gruenberg said in a statement.

The industry's reliance on revenue — and not reductions in loan loss provisions — to boost earnings was seen as an encouraging sign. The FDIC said banks set aside $7.2 billion for loan-loss reserves, which was $1.4 billion more than the third quarter of last year. It marked the first time banks had increased loss provisions on a year-over-year basis in five years.

"Most importantly, third quarter income growth was based on revenue growth instead of lower loan-loss provisions," Gruenberg said. "This can be a more sustainable foundation for continued earnings going forward."

Community banks performed particularly well, earning net income of $4.9 billion, which was 11% higher than a year earlier. The FDIC said community bank income rose on higher loan balances — which outpaced the industry overall — and lower loan loss reserves.

The FDIC said almost 63% of institutions reported year-over-year income improvement, which is up from 50% last year. Meanwhile, the number of institutions on the "Problem List" fell by 25 to a total of 329. The agency's ratio of deposit insurance reserves to insured deposits rose 5 basis points to 0.89%.

 

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