Outside the Federal Deposit Insurance Corp. (FDIC) headquarters in Washington,… (Rich Clement / Bloomberg )
WASHINGTON — Profits at U.S. banks increased 9.4% in the July-through-September period from the previous three months, the best quarterly performance in six years, the Federal Deposit Insurance Corp. reported Tuesday.
Loan balances at the nation's 7,181 federally insured institutions also increased in the third quarter, by 0.9%, to $64.8 billion, a positive sign as lending continued to improve from the depths of the recession.
It was the fifth time in the last six quarters that loan balances increased, the FDIC said.
"This was another quarter of gradual but steady recovery for FDIC-insured institutions," said FDIC Chairman Martin J. Gruenberg. "Signs of further progress were evident in a number of indicators, such as loan growth, asset quality and profitability."
Banks posted a combined profit of $37.6 billion in the third quarter, which was up 6.6% from a year earlier. It was the highest total profit since the sector reported $38 billion in profit in the third quarter of 2006.
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Profits began dropping with the Great Recession, and then the financial crisis, bottoming out with an industry-wide loss of $37.8 billion in the fourth quarter of 2008.
The industry has been slowly recovering ever since. About 57.5% of banks reported stronger profits in the third quarter than a year earlier. And the percentage of banks with losses fell to 10.5% from 14.6% a year earlier, the FDIC said.
Improving financial strength meant that the number of banks on the FDIC's so-called problem list of institutions in danger of failing dropped to 694 in the third quarter from 732 in the previous quarter.
It marked the first time in three years there were fewer than 700 institutions on the list. Just 12 banks failed in the third quarter, the lowest amount since the fourth quarter of 2008.
The biggest percentage increase for new lending was in auto loans, which were up 2.4% from the second quarter to $7.4 billion. Business loans were up 2.2% and mortgage lending rose 0.8%. But real estate construction loans dropped by 3.2% and home-equity lines of credit fell by 2.2%.
Banks have been strongly criticized for not doing more lending to help boost the economy. Gruenberg said the increasing loan balances were positive.
"More than 55% of all banks reported loan growth," he said. "Small banks are also increasing their lending, including their loans to small businesses."