WASHINGTON — The banking industry had its best quarter since the start of the financial crisis, earning $29 billion in the first three months of the year thanks to the continued drop in loan-loss provisions, the Federal Deposit Insurance Corp. said Tuesday.
With provisions falling by 60% from a year earlier, to $20.7 billion, the industry's net income was about 66% higher than in the first quarter of 2010. It was the best quarterly performance since the second quarter of 2007.
The FDIC, in its Quarterly Banking Profile, said lower provisions "remain key" to bank earnings.
While overall assets rose 0.7% in the quarter to $13.4 trillion, loan balances maintained their downward trend. Loans and leases dropped 1.7% from the previous quarter to $7.25 trillion. The agency said it was the fifth largest percentage decrease in loan balances in the nearly 30 years since data has been available.
The largest declines in loan balances were in residential mortgages, which fell by $63.8 billion, credit cards, which dropped by $38.9 billion, and real estate construction and development loans, which declined by $25.9 billion.
Only commercial and industrial loans and loans to depository institutions saw an increase, rising by $18.1 billion and $10.2 billion, respectively.
The FDIC cited asset growth in Federal Reserve bank balances, which rose 23% at banks with more than $300 million in assets, and a 2.3% rise in mortgage-backed securities.
Net operating revenue remained weak, however, falling 3.2% from a year earlier to $5.5 billion. This was only the second time in 27 years that there was a year-over-year decline in quarterly net operating revenue, the FDIC said.
Net interest income declined for the first time in more than 11 years, falling by $3.2 billion, while noninterest income was $2.2 billion lower than in the first quarter of 2010.
The FDIC cited narrower net interest margins and weak growth in interest-earning assets for the net interest income decline, while banks' noninterest revenue decline was due to fewer service charges on deposit accounts and reduced trading income.
Much of the decline in net operating revenue was concentrated at larger banks. Of the ten largest institutions, which hold more than half of all insured institution assets, six reported year-over-year declines in revenue. That compared with roughly 60% of banks, which said net operating revenue increased during the quarter.
Still, despite stagnancy in loan portfolios and reduced revenue, 56% of institutions had year-over-year improvement in their earnings, and only 15% had a net loss (compared with 19% a year earlier.) It was the industry's seventh straight quarter of year-over-year gains.
"The positive contribution from reduced provisions outweighed the negative effect of lower revenues at many institutions," the FDIC said.
Banks also saw a drop in troubled loans, with noncurrent loan balances falling by $17 billion during the quarter to $341.7 billion. It was the fourth consecutive quarter that noncurrent loans declined, and noncurrents are now 16.6% below their peak level reached a year ago.
Half of all institutions reported reductions in noncurrent loan balances, while 43.1% reported increases. Noncurrent balances fell in all major loan categories.
Meanwhile, the amount of troubled banks continued to decelerate. The agency's "Problem List" increased by just four institutions, to 888. Assets of those on the list rose $7 billion to $397 billion.
The Deposit Insurance Fund moved ever so close to being in the black, as the ratio of FDIC reserves to insured deposits rose by 10 basis points to negative-0.02%.
