Banks Are Back in Black With $7.6B Profit

U.S. banks and thrifts made a $7.6 billion first-quarter profit, a 60% drop from a year ago but a reversal of a fourth-quarter loss, according the Federal Deposit Insurance Corp.'s quarterly banking profile released Wednesday.

The slight profit was quite an improvement from the $32.1 billion loss reported in the fourth quarter, when so many institutions wrote down goodwill and made extraordinarily large provisions for loan loss reserves. Loan loss provisions were down in the first quarter, but were still higher than a year earlier. Despite the improved first-quarter performance, the FDIC's "problem" institution list grew to 305 from 252 in the period.

For a year-over-year comparison, combined industry earnings were $19.3 billion in the first quarter of 2008. At that time, the FDIC actually said "only $19.3 billion" in describing the first quarter 2008 earnings, an indication that even then, the agency had no idea how bad things would get.

The FDIC said that 22% of institutions reported losses and 59% reported lower net income year-over-year.

The continued decline of interest rates also helped banks in the first quarter, with the combined industry's net interest margin (the difference between interest earned and interest paid, divided by average assets) increasing to 3.39%, its highest level since the second quarter of 2006.

In a sign that loan losses would continue to increase despite the recent recovery in bank stocks, noncurrent loans increased by 26% or $59.2 billion during the quarter. The loan category with the largest percentage increase in noncurrent loans was nonfarm, nonresidential real estate loans, or commercial real estate loans, which were up 40% from the previous quarter.