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U.S. banks post stronger profits

August 31, 2010 | 12:32 pm

The nation's banks last quarter recorded their strongest overall profits since 2007 as projected loan losses shrank for the first time in more than four years, the Federal Deposit Insurance Corp. said in a report Tuesday.

But banks in the West collectively still lost money – and won’t be back in the black until next year, according a separate report from the Federal Reserve Bank of San Francisco.

The better loss picture nationwide helped improve the health of the FDIC's deposit insurance fund for the second quarter in a row, though the fund still remains in the red.

The FDIC said commercial banks and savings institutions earned $21.6 billion in the second quarter of 2010. That reversed a $4.4-billion loss the industry posted a year earlier.

It was the highest quarterly earnings total since the third quarter of 2007, although below historical norms, the FDIC said.

FDIC Chairwoman Sheila Bair said nearly two of every three banks are reporting better year-over-year earnings: "As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend."

The improvement was slower in California and the West, where banks were strengthening but still lagging the national recovery. Of the 10 states nationally with the worst results from banks, seven were in the Federal Reserve’s San Francisco-based 12th District, including badly battered Arizona and Nevada.

The 12th District, a nine-state region stretching from Utah to Alaska and Hawaii, includes areas with some of the sharpest home-price declines in the country. And many of the banks based in the West specialized in construction lending and commercial mortgages -- sectors in which losses have run high

Noting that small banks are struggling more than larger institutions, the Fed report said that "we anticipate further losses through the end of 2010, but we’re hopeful that profitability will be the norm in 2011."

-- E. Scott Reckard