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US bank earnings decline 7.7 percent in 1Q

By WTOP Staff

MARCY GORDON
AP Business Writer

WASHINGTON (AP) — U.S. banks’ earnings declined 7.7 percent in the January-March quarter from a year earlier, as higher interest rates dampened demand for mortgage refinancing and reduced banks’ revenue from the mortgage business.

The data issued Wednesday by the Federal Deposit Insurance Corp. highlighted the impact of the increase in interest rates that occurred in the spring of 2013.

It was only the second time in the last 19 quarters that the banking industry, which has been recovering from the financial crisis, posted a decline in net income from the year-earlier quarter.

The FDIC reported that the banking industry earned $37.2 billion in the first quarter of this year, down from $40.3 billion in the same period in 2013.

It was the first time since the third quarter of 2013 that banks marked a year-over-year profit decline — and that was the first decline since the spring of 2009, when the country was still mired in the Great Recession.

The latest report also showed the number of banks on the FDIC’s problem list fell to 411 in the first quarter from 467 in the fourth quarter of last year.

Despite recent declines, long-term mortgage rates still are nearly a full percentage point above record lows reached about a year ago. The increase over the year was driven in part by speculation that the Federal Reserve would reduce its bond purchases, which have helped keep long-term interest rates low. Indeed, the Fed has announced four declines in its monthly bond purchases since December because the economy appears to be healing. But the Fed has no plans to raise its benchmark short-term rate from record lows.

Reduced income from trading also contributed to the first-quarter decline in banks’ profit, the FDIC said. But the comparison was being drawn with banks’ highest-earning quarter on record in January-March of last year, which the FDIC said was pumped up by some unusual profit gains.

The health of the banking industry continued to improve in the first quarter, with sour loans on the books declining, lending getting more robust and fewer banks unprofitable, FDIC officials said.

“The first-quarter results show a continuation of the recovery in the banking industry,” FDIC Chairman Martin Gruenberg said in a statement.

The pace of banks’ lending picked up in the first quarter. Total loan balances rose by $37.8 billion, or 0.5 percent, from the final quarter of 2013 even as mortgage lending declined and credit card loans marked a seasonal decrease.

Some experts have predicted strong growth in lending this year, with demand for loans growing as new jobs are created, incomes rise and business confidence strengthens.

Community banks earned $4.4 billion in the first quarter, the FDIC said, adding a new data category to its quarterly report.

Banks with assets exceeding $10 billion continued to drive the bulk of the earnings growth in the January-March period. While they make up just 1.6 percent of U.S. banks, they accounted for about 82 percent of industry earnings.

Those banks include Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Most of them have recovered with help from federal bailout money during the financial crisis and record-low borrowing rates.

Last year, the number of bank failures slowed to 24. That is still more than normal. In a strong economy, an average of four or five banks close annually. But failures were down sharply from 51 in 2012, 92 in 2011 and 157 in 2010 — the most in one year since the height of the savings and loan crisis in 1992.

So far this year, eight banks have failed. Thirteen had been shuttered by this time last year.

The decline in bank failures has allowed the deposit insurance fund to strengthen. The fund, which turned from deficit to positive in the second quarter of 2011, had a $48.9 billion balance at the end of March, according to the FDIC. That compares with $47.2 billion as of Dec. 31.

The FDIC, created during the Great Depression to ensure bank deposits, monitors and examines the financial condition of U.S. banks.

The agency guarantees bank deposits up to $250,000 per account. Apart from its deposit insurance fund, the FDIC also has tens of billions of dollars in reserves.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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