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Improved loan quality lifts bank earnings to new high: FDIC

Commercial banks and saving institutions earned more from January through March than during any quarter on record due to fewer losses from bad loans and greater income from fees, a government report said.

The Federal Deposit Insurance Corporation earned $40.3 billion in the first quarter of 2013, a $5.5 billion, or 15.8%, increase from the first quarter of 2012.

This is the 15th consecutive quarter that earnings have registered a year-over-year increase, indicating further progress in the recovery that has been underway in the banking industry for more than three years. 

"We saw improvement in asset quality indicators over the quarter, a continued increase in the number of profitable institutions, and further declines in the number of problem banks and bank failures," said Martin Gruenberg, chairman of the FDIC.

He added, "However, tighter net interest margins and slow loan growth create an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention." 

Furthermore, half of the 7,019 insured institutions reporting financial results had year-over-year increases in their earnings.

The proportion of banks that were unprofitable fell to 8.4%, down from 10.6% a year earlier.

The average return on assets — a basic yardstick of profitability — rose to 1.12% from 1% a year ago, FDIC explained.

"This is the highest quarter ROA for the industry since the 1.22% posted in the second quarter of 2007," according to the report.

Meanwhile, first-quarter net operating revenue — net interest income plus total noninterest income — totaled $170.6 billion, an increase of $2.7 billion, or 1.6%, from a year earlier.

Asset quality indicators continued to improve as insured banks and thrifts charged off $16 billion in uncollectable loans during the quarter, down $5.8 billion, or 26.7%, from a year earlier.

Total loan balances posted a seasonal decline, falling by $36.8 billion, or 0.5% in the first quarter, as home equity lines declined by $16 billion, or 2.9% from the previous year, the FDIC stated.

Additionally, family residential real estate loans dropped $18.3 billion, or 1%, from a year earlier.

The number of problems banks also fell, declining from 651 to 612 during the quarter, the FDIC noted.

Thus far in 2013, there have been 13 bank failures, compared to 24 during the same time period in 2012. 

cmlynski@housingwire.com

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