Despite market wobbles, the Federal Deposit Insurance Corporation (FDIC) released a piece of good news that some analysts count as further proof the worst is behind us.
Banks and institutions insured by the FDIC reported a profit of $18 billion in the first quarter of 2010, a $12.5 billion improvement from the $5.6 billion the industry earned in the first quarter of 2009. Although the FDIC was quick to note it was well below historical norms for quarterly profits, the results still represent the strongest returns in two years.
More than half of all institutions (52.2%) reported year-over-year improvements in their quarterly net income. Less than one in five institutions (18.7%) reported net losses for the quarter, compared to 22.3% a year earlier. The average return on assets, a basic yardstick of profitability, rose to 54%, from 16% a year ago. This is the highest quarterly ROA for the industry since the first quarter of 2008.
“There are encouraging signs in the first-quarter numbers,” said FDIC Chairman Sheila Bair in a prepared statement. “Industry earnings are up. More banks reported higher earnings, and fewer lost money.”
She added that the $18 billion in net income during the quarter “is more than three times as much as banks earned a year ago, and it is the best quarterly earnings for the industry in two years.”
The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While first-quarter provisions were still high, at $51.3 billion, they were $10.2 billion (16.6%) lower than a year earlier. Lower expenses for goodwill impairment and other intangible asset charges added $5 billion to pretax earnings.