U.S. Commercial Banks Report Higher Earnings

WASHINGTON—The nation's commercial banks and savings institutions reported a 1.4% rise in net income in the second quarter compared with a year earlier, as fewer large banks set aside money for litigation expenses.

Net income at the 6,058 banks insured by the Federal Deposit Insurance Corp. rose $584 million to $43.6 billion in the second quarter from $43 billion a year earlier, according to data released Tuesday by the FDIC.

"Income and revenue both increased from a year ago, loan growth remained strong, the number of unprofitable banks was at an 18-year low, and there were fewer banks on the problem list," said FDIC Chairman Martin Gruenberg, noting continued improvement by community banks.

The rise in net income was due in part to a $5.2 billion increase in net interest income and a $981 million decline in expenses for litigation put aside at a few large banks. Banks also increased their loan-loss provisions by 44% to $3.6 billion from a year earlier, driven in part by rising levels of troubled loans to commercial and industrial borrowers in the energy sector.

Similar to the previous quarter, Mr. Gruenberg said the full impact of low energy prices remains to be seen.

In the quarter, the number of loan payments by commercial and industrial borrowers that were past due rose 8.9%, to $2.1 billion, as low energy prices continued to challenge oil and gas producers.

"Banks are still operating in a challenging environment," said Mr. Gruenberg. "Net interest margins and return on assets remained low by historical standards, noncurrent commercial and industrial loans increased, and loan charge-offs rose for a third consecutive quarter."

Community banks, which account for 5,602 of the insured institutions, fared better than the industry overall, reporting $22.8 billion in net operating income in the quarter, up 7.1% from the second quarter of 2015.

The number of financial institutions on the FDIC's "problem list" shrank to 147, the lowest in more than seven years. Two banks failed during the second quarter.

Separately, the FDIC disclosed that its insurance fund reserve ratio—the fund balance as a percent of estimated insured deposits—rose to 1.17%, the highest ratio in more than eight years.

Write to Donna Borak at [e-mail]

(END) Dow Jones Newswires

August 30, 2016 10:55 ET (14:55 GMT)

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