Increased Bank Profits Partially Due to Reduced Loan Losses

The Federal Deposit Insurance Corporation said today that itsrninsured depository institutions reported aggregate net income ofrn$40.3 billion in the first quarter of 2013. This was an increase ofrn$5.5 billion from net income a year earlier and the 15^{th</supconsecutive} quarter than earnings have increased compared to thernprevious year. Half of the 7,019 insured commercial banks andrnsavings institutions reporting had year-over-year improvement inrntheir earnings and the proportion of unprofitable banks fell to 8.4rnpercent from 10.6 percent in the first quarter of 2012.</p

FDIC said the improved earnings were the result of increasedrnnon-interest income, lower non-interest expenses and reduced loanrnloss provisions. Banks set aside $11 billion in provisions for loanrnlosses, a reduction of $3.3 billion (23.2 percent) compared to a yearrnearlier. The average return on assets (ROA) rose to 1.12 percent fromrn1.0 percent the prior year and was the highest quarterly ROA sincernthe second quarter of 2007. </p

Asset quality continued to improve. Banks and thrifts charged offrn$16.0 billion in uncollectible loans compared to $21.8 billion a yearrnearlier, a 26.7 percent reduction. The amount of loans and leases 90rnor more days past due or in non accrual status fell by $15.7 billionrnduring the quarter to the lowest level since 2008.</p

Loan balances fell by $36.8 billion or 0.5 percent in the firstrnquarter, mostly from what the FDIC called a seasonal decline inrncredit card balances which were down $35.9 billion. Home equity linernbalances fell by $16.0 billion or 2.9 percent and 1-4 familyrnresidential loans lost $18.3 billion or 1 percent. </p

FDIC Chairman Martin J. Gruenberg said: “Today’s report showsrnfurther progress in the recovery that has been underway in thernbanking industry for more than three years. We saw improvement inrnasset quality indicators over the quarter, a continued increase inrnthe number of profitable institutions, and further declines in thernnumber of problem banks and bank failures. However, tighter netrninterest margins and slow loan growth create an incentive forrninstitutions to reach for yield, which is a matter of ongoingrnsupervisory attention.”</p

The number of banks on the FDIC’s “Problem List” declined fromrn651 to 612 during the quarter and the four FDIC-insured banks thatrnfailed in the first quarter were the fewest to do so since the secondrnquarter of 2008.

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