It was a mixed first quarter for the banking industry, with earnings at FDIC-backed banks increasing by $6.6 billion compared to the first quarter of 2011Â while total loan balances fell by more than $56 billion, or 0.8 percent.
Earnings at FDIC-insured banks totaled $35.3 billion in the quarter ended March 31, compared to earnings of $28.8 billion for the first quarter of 2011. The drop in loan balances comes after three consecutive quarterly increases.
“The condition of the industry continues to gradually improve,” said FDIC Acting Chairman Martin Gruenberg. “Insured institutions have made steady progress in shedding bad loans, bolstering net worth, and increasing profitability. (But) the overall decline in loan balances is disappointing after we saw three quarters of growth last year.” Gruenberg cautioned against drawing conclusions from one quarter.
Two-thirds of banks reported higher earnings. Ten percent reported losses, down from 16 percent a year earlier. The average return on assets, a measure of profitability, rose. But the flow of money into deposit accounts slowed.
Lower provisions for loan losses and higher noninterest income were responsible for most of the earnings gain. Banks wrote off $22 billion in bad loans, down 35 percent from last year, but the percentage of loans and leases that were not current remained high by historical standards.
As for the decline in loan balances, credit card loans fell by $38.2 billion, residential real estate loans fell by $19.2 billion, and home equity lines of credit dropped by $13.1 billion. Balances in construction and development loans declined by $11.7 billion. However, loans to commercial and industrial borrowers increased by $27.3 billion, and auto loans were up by $4.5 billion.
Gruenberg summed it all up, saying, “The improved financial condition of the industry has not yet translated into sustained loan growth. We will continue to watch this indicator closely.”
