FDIC: Bank Profits Grew But Revenue Shrank in 2011

February 28, 2012

Bank profits rose to a five-year high in 2011 while operating revenue declined for only the second time since 1938, according to the Federal Deposit Insurance Corporation. U.S. banks brought in $119.5 billion in net income last year, up $34 billion from 2010 earnings, according to an FDIC banking report released Tuesday. Banks earned $26.3 billion in the fourth quarter, up $4.9 billion from the same period in 2010.

Hot Feature: CME Group Subpoenaed in MF Global Investigation

However, FDIC acting chief Martin Gruenberg told reports that improved earnings over the past two years are the result of lower provisions for loan losses, which he said “can’t go on indefinitely.” Future earnings gains will be based on more prudent lending, said Gruenberg. “There has to be a pick up in lending,” he said. “We’re watching that closely.”

Gruenberg noted that loan balances have grown recently, indicating that growth in lending may help hike future profits and revenue. Loan balances rose by $64.4 billion in the second quarter of 2011, $21.8 billion in the third quarter, and $130.1 billion in the fourth. Loans to medium and large businesses have also increased in each of the last six quarters, which Gruenberg takes as an encouraging sign for future revenues.

Bank net operating revenue fell to $652.9 billion in 2011, form $665.7 billion in 2010, as non-interest income declined. Revenue fell to $161.9 billion int he fourth quarter, from $165.7 billion in the year-earlier period. At the same time, the number of U.S. banks in financial distress continued to decline, bringing the tally on the FDIC’s “problem list” from down to 813, from 844 in the fourth quarter. The assets of “problem” institutions fell, from $339 billion to $319 billion, both because of bank failures and bank improvements.

According to Gruenberg, the FDIC continues to “closely” monitor the two biggest risks to the U.S. economy — continued weakness in the housing market, and the European sovereign debt crisis. Despite housing being a “drag” on the economy, Gruenberg said he was optimistic about the results.

Don’t Miss: Consumers Confident in Jobs Recovery

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com