Federal Deposit Insurance Corporation (FDIC)-insured
commercial banks and savings institutions reported first-quarter
2013 earnings of $40.3 billion, outpacing the year-ago earnings
of $34.8 billion by 15.8%. This marks the 15th consecutive
quarter in which earnings soared on a year-over-year basis.
Overall, the banking industry is exhibiting signs of gradual
improvement as evident from the first-quarter results. The number
of troubled assets and institutions marked a decline and are
striving to improve.
Further, reduced loan loss provisions and higher non-interest
income were recorded. Lower non-interest expenses reflect prudent
expense management by the banks. However, these positives were
partially offset by reduced net interest income.
Banks with assets worth more than $10 billion contributed to the
overall earnings growth during the first quarter. Though these
constitute only 1.5% of the total U.S. banks, the banks account
for approximately 83% of the industry earnings.
Such major banks include
Wells Fargo & Company
JPMorgan Chase & Co.
Bank of America Corporation
Performance in Detail
Banks are striving hard to be profitable and are bolstering their
Around 50% of all institutions insured by the FDIC reported
improvement in their quarterly net income compared to the
prior-year quarter. Moreover, shares of institutions reporting
net losses for the quarter slumped to 8.4% from 10.6% in the
The profitability measure - average return on assets (ROA) surged
to 1.12% from 1.00% in the prior-year quarter. Notably, the
current quarterly ROA for the industry is the highest since 1.22%
recorded in the second quarter of 2007.
Net operating revenue stood at $170.6 billion, up 1.6% year over
year. The increase was due to a rise in non-interest income,
partially offset by lower net interest income.
Net interest income was recorded at $104 billion, down 2.2% year
over year, reflecting the lowest level of average net interest
margin since 2006. The average net interest margin declined to
3.27%, from 3.51% in the prior-year quarter, as average asset
yields were less than the average funding costs.
Non-interest income rose 8.3% year over year to $66.5 billion for
the banks. Moreover, trading income reflected a year-over-year
increase of 17.8%, while gains from asset sales jumped 30.1%.
Total non-interest expenses for the institutions were $102.3
billion in the quarter, down 3.9% on a year-over-year basis. The
decline was aided by lower other non-interest expenses, partially
offset by higher salaries and employee benefits expenses and
elevated premises and equipment expenses.
Overall, credit quality marked an improvement in the first
quarter of 2013. Net charge-offs plummeted to $16.0 billion from
$21.8 billion in the first quarter of 2012. The decline was
primarily due to lower charge-offs in residential mortgage loans
and home equity lines.
Loss provisions for the institutions in the reported quarter were
recorded at $11.0 billion, down 23.2% year over year, reflecting
the lowest quarterly loss provision since the first quarter of
2007. Notably, around 53.1% of all institutions reported lower
loss provisions in the quarter as compared with the prior-year
The level of non-current loans and leases (those 90 days or more
past due or in non-accrual status) declined 5.7% year over year.
Moreover, the percentage of non-current loans and leases reached
the lowest level since 2008.
The banks represented a strong capital position. Total deposits
continued to rise and were recorded at $10.8 trillion, up 4.9%
year over year. However, total loans and leases came in at $7.7
trillion, down 4.1% year over year.
As of Mar 31, 2013, the net worth of Deposit Insurance Fund (DIF)
increased to $35.7 billion, up from $33.0 billion at the end of
2012. Moreover, assessment revenues primarily impelled growth in
the fund balance.
Bank Failures and Problem Institutions
During the first quarter of 2013, 4 insured institutions failed,
marking the smallest number of failures in a quarter since the
second quarter of 2008, when it had recorded 2 failures.
Moreover, as of Mar 2013, 13 failures were recorded, as compared
with 24 failures in the comparable prior-year period.
As of Mar 31, 2013, the number of "problem" banks declined from
651 to 612, reflecting the eighth consecutive quarter of
decrease. Total assets of "problem" institutions also plummeted
to $213 billion from $233 billion.
Besides the encouraging decline in the list of problem
institutions, the 15th straight quarter of consolidated profit
from FDIC-insured banks is quite impressive. U.S. banks started
2013 with uninterrupted expense control, a sound balance sheet,
an uptick in mortgage activity and lesser credit loss provisions
in the first quarter. Moreover, a favorable equity and asset
market backdrop, falling unemployment, a progressive housing
sector and a flexible monetary policy facilitated a smoother path
Yet top-line growth remains uncertain due to continued
sluggishness in loan growth, pressure on net interest margins
from the sustained low rate environment and less flexible
business models owing to stringent risk-weighted capital
requirements (Basel III standard). However, banks have been
gradually easing their lending standards and trending toward
higher fees to dodge the pressure on the top line.
Overall, structural changes in the sector will continue to impair
business expansion and investor confidence. Several dampening
factors -- asset-quality troubles, mortgage liabilities and
tighter regulations -- will decide the fate of the U.S. banks in
the quarters ahead. However, entering the new capital regime will
ensure long-term stability and security for the industry.
Though the improving performance by the banks seems already
priced in and there remain significant concerns, the sector's
performance in the upcoming quarters is not expected to
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