U.S. Banks Continue Recovery

Updated with comments from American Bankers Association chief economist James Chessen

NEW YORK (TheStreet) - U.S. banks continued their recovery during the third quarter, with a combined profit of $37.6 billion, for the industry's best performance in six years, according to a Federal Deposit Insurance Corp. report issued Tuesday.

The third-quarter industry results improved from combined profits of $34.5 billion during the second quarter, and $35.3 in the third quarter of 2011. The FDIC said that "more than half of all institutions (57.5 percent) reported higher earnings than a year ago, and only 10.5 percent reported negative net income for the quarter," which was the lowest proportion of unprofitable banks and thrifts since the second quarter of 2007.

With credit quality continuing to improve, banks continued to see their bottom lines boosted by the release of loan loss reserves, which declined by $9.6 billion as of Sept. 30, as third-quarter net charge-offs (loan losses less recoveries) totaled $22.3 billion. The FDIC said that "this is the tenth consecutive quarter that the industry's reserves have declined," and that "much of the total reduction in reserves was concentrated among larger institutions."

The FDIC said that "the amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) declined by only $100 million (0.03 percent) during the third quarter," which was "the tenth consecutive quarter that noncurrent loan balances have declined, but it is the smallest decline registered during that time."

While most of the largest banks continued releasing reserves, the FDIC said that "a majority of institutions (53.5 percent) added to their reserves during the quarter." Still, with the big banks continuing to wind down reserves, the FDIC said that "the industry's 'coverage ratio' of reserves to noncurrent loans declined from 60.4 percent to 57.2 percent during the quarter."