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US bank earnings rise 17%

Loan losses fall to 7-year low, but challenges still ahead

– U.S. banks’ earnings rose 17 percent in the October-December quarter from a year earlier, in part because losses on loans fell to a seven-year low, and banks set aside less to cover losses as well as legal costs.

The data provide fresh evidence of the banking industry’s sustained recovery more than five years after the financial crisis struck. Still, the government says banks continue to have difficulty increasing revenues and are relying on setting aside less for loan losses to boost earnings.

The Federal Deposit Insurance Corp. reported Wednesday that the banking industry earned $40.3 billion in the final quarter of 2013, up from $34.4 billion in the same period in 2012.

For all of 2013, bank earnings increased 9.6 percent to what the agency calls a record annual level of $154.7 billion. It exceeded the previous record earnings of $145.2 billion in 2006.

The number of banks on the FDIC’s “problem” list fell to 467 in the final quarter of 2013 from 515 in the third quarter.

Banks’ losses on loans dropped 36.7 percent to $11.7 billion, the lowest level for a fourth quarter since 2006, the FDIC said. The largest decline came in home mortgages, which posted a 57.7 percent drop in losses.

FDIC Chairman Martin Gruenberg said the latest results showed “a continuation of the recovery in the banking industry.” At the same time, he said, the industry still faces challenges including only modest growth in lending, narrow profit margins and a decline in mortgage refinancing business as long-term interest rates have risen.

Bank’s lending increased modestly in the fourth quarter, as it has in recent periods. Total loan balances increased by $90.9 billion, or 1.2 percent, from the third quarter of 2013, with credit card loans marking a seasonal increase of 2.1 percent.

Community banks continued to post significant lending to small businesses, accounting for 46 percent of the industry’s loans to small farms and businesses, the FDIC said.

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