FDIC: Insurance Fund Back in the Black as Bank Profits Rise 38%

The improved health of the nation’s banks boosted the Deposit Insurance Fund (DIF) into a positive balance ($3.9 billion) for the first time in two years, according to the FDIC’s Quarterly Banking Profile for the quarter ending June 30. The report also said profits at insured institutions rose to $28.8 billion in the quarter, a 38% improvement over the prior-year quarter and the eighth consecutive year-over-year increase in quarterly earnings.


Profits were helped by large drops in loan-loss provisions and noncurrent loans. Actual loan balances posted their first quarterly increase since the second quarter of 2008, and the number of banks on the regulator’s “Problem List” dropped for the first time in almost five years.


However, net operating revenue (net interest income plus total noninterest income) was lower than a year ago for the second quarter in a row, as net interest income declined by $1.9 billion (1.7%) and noninterest income fell by $1.1 billion (1.9%). The FDIC said the decline in net interest income was caused by lower asset yields at a number of the largest banks, reflecting growth in low-yielding balances at Federal Reserve banks.


Loan-loss provisions were $19 billion, a decline of $21.4 billion (53%) from the second quarter of 2010. This is the seventh consecutive quarter that provisions have declined from year-earlier levels. The $21.4 billion decline was the smallest year-over-year decline in the past five quarters.


At the end of June, insured institutions reported $319.8 billion in noncurrent loans (loans 90 days or more past due or in nonaccrual status), which was $22.2 billion (6.5%) less than they reported at the end of the first quarter. This is the fifth consecutive quarter in which noncurrent loan balances have fallen; they are now $90.2 billion (22%) below the peak reached at the end of the first quarter of 2010.


Total loans and leases at insured institutions rose by $64.4 billion (0.9%) during the quarter. Apart from the $221 billion increase in reported balances in first quarter 2010 that was caused by new accounting rules, this is the first actual growth in loan balances since the second quarter of 2008.


The FDIC reported the smallest number of failures in a quarter (22) since the first quarter of 2009. At the end of the second quarter, there were 865 “problem” institutions, down from 888 at the end of the first quarter—the first quarterly improvement since the third quarter of 2006. (Institutions on the problem list are those at greatest risk of failure.) Total assets of problem institutions declined from $397 billion to $372 billion. These improvements helped the DIF balance increase by $4.9 billion during the second quarter to $3.9 billion (unaudited), the sixth consecutive quarterly increase. The DIF had a negative $1.0 billion balance at the end of the prior quarter. This is the first positive quarter-end balance since June 30, 2009.


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