Banks report better earnings
Commercial banks and savings institutions reported a total profit of $21.6 billion in the second quarter of this year, according to the Federal Deposit Insurance Corp.
The amount is the highest quarterly earnings total since the third quarter of 2007. The $21.6 billion is a $26 billion improvement from the $4.4 billion net loss the industry posted in the second quarter of 2009.
Although the earnings remain below historical standards, the FDIC was optimistic, noting that one in five institutions reported a net loss for the quarter, compared with 29 percent a year earlier. The average return on assets ”“ a basic yardstick of profitability ”“ rose to 0.65 percent, from negative 0.13 percent a year ago.
“This is the best quarterly profit for the banking sector in almost three years,” FDIC Chairman Sheila C. Bair said. “Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend.”
Bair added a caveat.
“Without question, the industry still faces challenges. Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks and failures remain high. But the banking sector is gaining strength. Earnings have grown and most asset quality indicators are moving in the right direction.”
The FDIC attributed a reduction in provisions for loan losses as the primary factor contributing to the year-over-year improvement in quarterly earnings. The quarterly provisions were reported at $40.3 billion, $27.1 billion lower than a year earlier. Net interest income was $8.5 billion higher than a year ago, and noninterest expenses were $1.5 billion lower, according to the FDIC.
The amount of loans and leases that were 90 days or more past due fell for the first time since the first quarter of 2006. Insured banks and thrifts charged off $49 billion in uncollectible loans during the quarter, down $214 million from a year earlier, according to the FDIC. It was the first time since the fourth quarter of 2006 that net charge-offs posted a year-over-year decline.
The FDIC also reported:
Ӣ Loan-loss reserves declined for the first time since the fourth quarter of 2006. Although 62.1 percent of banks insured by the FDIC increased their loan-loss reserves in the quarter, the industryӪs total reserves declined by $11.8 billion as a number of large banks reduced their loan-loss provisions.
“Particularly given economic uncertainties, we believe all banks should continue to exercise caution and maintain strong reserves,” Bair said.
”¢ The number of institutions on the FDIC”™s so-called problem list rose from 775 to 829. However, the total assets of “problem” institutions declined from $431 billion to $403 billion. While the number of problem institutions is the highest since March 31, 1993, when there were 928, it is the smallest net increase since the first quarter of 2009.
Forty-five insured institutions failed during the second quarter.
”¢ The Deposit Insurance Fund balance improved for the second quarter in a row. The DIF balance ”“ the net worth of the fund ”“ improved from negative $20.7 billion to negative $15.2 billion during the second quarter. The improvement was attributed to a reduction in the contingent loss reserve, which covers the costs of expected failures. The reserve declined from $40.7 billion to $27.5 billion during the quarter.
Ӣ The FDICӪs cash and marketable securities, referred to as liquid resources, remained strong. The liquid resources amounted to $44 billion at the end of the second quarter, a decline from $63 billion at the end of the first quarter. The decline in cash balances reflects previously anticipated outlays, according to the FDIC, primarily related to three bank failures in Puerto Rico on April 30.
“As we expected, demands on cash have increased this year,” Bair said. “But our projections indicate that our current resources are more than enough to resolve anticipated failures.”