Earnings rose and the number of troubled banks declined during the first quarter, indicative of a banking sector on the mend, according to a report from the Federal Deposit Insurance Corp.
Asset quality indicators continued to show improvement with banks and thrifts charging off far fewer bad loans in the first quarter and reporting declines in noncurrent loans and leases.
Commercial banks and savings institutions insured by the FDIC reported an aggregate profit of $35.3 billion in the first quarter, a $6.6 billion improvement from the $28.8 billion in net income the industry reported in the year-ago period, according to the FDIC's quarterly banking profile.
This is the 11th consecutive quarter that earnings have registered a year-over-year increase. However, loan balances declined by $56.3 billion, or 0.8%, after three consecutive quarterly increases.
"The condition of the industry continues to gradually improve," FDIC Acting Chairman Martin Gruenberg said in a press statement. "Insured institutions have made steady progress in shedding bad loans, bolstering net worth and increasing profitability."
Still, Gruenberg said the decline in loan balances was disappointing after three quarters of growth last year.
The FDIC reported that more than two-thirds of all institutions — 67.5% — reported improvements in their quarterly net income from a year ago.
The share of institutions reporting net losses for the quarter dipped to 10.3% from 15.7% a year earlier. The average return on assets, a yardstick of profitability, rose to 1.02% from 0.86% a year ago.
Lower provisions for loan losses and higher noninterest income were responsible for most of the year-over-year improvement in earnings.
First-quarter loss provisions of $14.3 billion were nearly one-third less than the $20.9 billion that insured institutions set aside in the year-ago period.
Banks and thrifts charged off $21.8 billion in uncollectible loans during the quarter, down $11.7 billion, or 34.8%, from a year earlier. The amount of noncurrent loans and leases that were 90 days or more past due or in nonaccrual status fell for an eighth consecutive quarter, but the numbers remain high by historical standards.
The number of "problem" institutions dropped for the fourth quarter in a row, declining to 772 from 813, according to Thursday's report. This is the smallest number of problem banks since year-end 2009.
Total assets of problem institutions declined from $319 billion to $292 billion. Sixteen insured institutions failed during the first quarter — the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12.
The Deposit Insurance Fund balance continued to increase. The DIF balance — the net worth of the fund — rose to $15.3 billion at March 31 from $11.8 billion at the end of 2011. Assessment revenue and fewer bank failures continued to drive growth in the fund balance.
The complete Quarterly Banking Profile is available on the FDIC website.