Bank Earnings At Highest Level Since 2007; Loan Balances Slip

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.

Federal Deposit Insurance Corporation-insured banks earned $35.3 billion in net income for the first quarter of 2012, the highest level seen since the second quarter of 2007, and the eleventh consecutive year-over-year quarterly improvement. Loan balances, however, fell for the first time in four quarters.

First quarter net income rose 22.9 percent from the year-earlier period, as the average return on assets rose above the one percent level for only the second time since the second quarter of 2007. Over two thirds of all banks reported an improvement in their quarterly earnings, with only 10.3 percent unprofitable in the first quarter.

The FDIC attributed most of the improvement in income to lower loan loss provisions, which totaled $14.3 billion, compared with $20.9 billion a year before. Net operating revenue rose $5 billion in the first quarter to $169.6 billion, the FDIC said.

FDIC Acting Chairman Martin Gruenberg noted that the industry continues to improve, reflecting a shedding of bad loans which has bolstered net worth. He added that the overall decline in loan balances is “disappointing after we saw three quarters of growth last year. But we should be cautious in drawing conclusions from just one quarter.”

Bank equity increased 1.2 percent in the first quarter, with tier 1 leverage capital up by 1.2 percent as well. Retained earnings added $14.3 billion to the capital increase, while banks paid $21 billion in dividends, up 38.9 percent from a year ago.

The American Bankers Association said the first quarter results show that the industry “continues to steadily march forward…at the same time, uncertainty surrounding the pace of economic growth is keeping risk higher than normal and may make businesses less inclined to borrow going forward.”