The Federal Deposit Insurance Corporation (FDIC) has reported that FDIC-insured commercial banks and savings institutions earned $40.3 billion in the first quarter of 2013, a $5.5 billion increase from earnings reported in the first quarter of 2012. Increased non-interest income, lower non-interest expenses, and reduced provisions for loan losses accounted for the increase in earnings, the FDIC reported in the Quarterly Banking Profile. Half of the insured institutions reporting financial results had year-over-year increases in their earnings. The average return on assets rose to 1.12 percent, and the number of banks that were unprofitable fell to 8.4 percent, down from 10.6 percent a year earlier.
“Today's report shows further progress in the recovery that has been underway in the banking industry for more than three years,” said FDIC Chairman Martin J. Gruenberg. “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. 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."
According to the FDIC, the banking industry’s first quarter earnings are record setting, ostensibly showing an industry that seems to have recovered. Even Moody’s is becoming more optimistic about the U.S. banking system as reports note the investor service changed its outlook for the U.S. banking system to stable after five years at negative. But as the American Banker reports, a closer look at the Quarterly Banking Profile will reveal that much of the profit from the first quarter appears to be influenced by actions of top-tier banks.
"We … note that large, non-recurring income and expense items at some of the industry's largest institutions exerted a significant influence on the quarterly change in net income and helped push industry net income above $40 billion for the first time," said Gruenberg. "We have seen over the last three years a process of improving credit quality for the industry as a whole, and that's allowed for a … reduction in [loss] reserves and that's helped drive the net income improvements that we've seen. Our sense is that process has largely played itself out."
The FDIC also reported the list of problem banks had declined from 651 to 612 during the first quarter and that the net worth of the Deposit Insurance Fund rose to $35.7 billion, up from $33 billion at the end of 2012.