U.S. bank earnings continue to increase, FDIC questions for how long

WASHINGTON ― U.S. bank earnings continue to increase but the prospects for earnings growth are dimming as banks are having trouble boosting revenue.

The Federal Deposit Insurance Corp said on Tuesday that the industry earned $28.8 billion in the second quarter, a $7.9 billion increase from a year before.

That number is down slightly from the $28.9 billion in earnings recorded during the first quarter.

The agency again warned that earnings increases are mostly due to banks setting aside less to guard against losses from bad loans.

“As the levels of loss provisions approach their historic norms, the prospects of earnings improvement from further reductions in provisions diminish,” FDIC Acting Chairman Martin Gruenberg said at a news conference on the release of the agency’s quarterly banking report.

Bank revenues continue to fall.

During the second quarter net operating revenues fell $3 billion, or 1.8 percent, from the levels recorded a year ago, the agency said.

In a positive sign for the industry, bank loan balances grew during the second quarter for the first time in three years, up $64.4 billion, or 0.9 percent.

Gruenberg highlighted the increase but added a note of caution.

“A significant portion of the overall growth in loans represented intra-company lending between related banks,” he said. “Lending activity still has a long way to go before it approaches more normal levels.”

The KBW Bank Index .BKX of stocks is down about 33 percent this year as investors fear a sputtering U.S. economic recovery and contagion from the European debt crisis.

There was evidence in the report of how the industry continues to recover from the doldrums of the 2007-2009 financial crisis.

The number of banks on the agency’s “problem list” fell for the first time in 15 quarters, dropping to 865 in the second quarter from 888 in the first quarter. There have been 68 bank failures so far this year, mainly small institutions.

The deposit insurance fund that the FDIC uses to cover the cost of failed banks moved into positive territory for the first time in two years.

At the end of the second quarter the fund stood at positive $3.9 billion, improving on a negative $1 billion at the end of the first quarter.