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Big Bank Profits Bolster Industry Numbers

WASHINGTON (TheStreet) -- The banks were expected to turn a corner in the first quarter and it looks like, on the whole, they delivered.

The Federal Deposit Insurance Corp. issued its quarterly report on the U.S. banking industry Thursday, saying the group earned $18 billion during the first quarter of 2010, with more than half of banks and thrifts reporting year-over-year improvements.

The performance compares to a $5.6 billion profit for the same period in 2009, and reductions in quarterly provisions for loan loss reserves and goodwill impairment charges were positive signs for both the industry and the economy. Profits remain historically weak though, as the industry is still working through problem loans which tend to peak during the later stages of economic recoveries.

For example, the industry's annualized ratio of net charge-offs (loan losses) to loans declined slightly to 2.84% from 2.89% in the fourth quarter, but up from 1.94% in the first quarter of 2009. The ratio of non-current assets and repossessed real estate to total assets was 3.43% as of March 31, up from 3.32% in December and 2.39% a year earlier.

A sign of the industry's growing recovery expectations came in that banks' capital-hoarding abated, with an industry Tier 1 leverage ratio of 8.57% and a total risk-based capital ratio of 14.74%, down slightly from 8.65% and 14.34% in the fourth quarter but still up considerably from 8.04% and 13.46% in March 2009.

New accounting rules boosted the industry's net interest margin -- the difference between the average yield on loans and investments and the average cost of funds -- to a seven-year high of 3.83% from 3.53% the previous quarter and 3.41% in March 2009. Of course, the margin had already been increasing as banks took advantage of the historically-low short-term interest rates.

The bank with the largest year-over-year increase in earnings was Huntington National Bank, the main subsidiary of Huntington Bancshares (HBAN), which reported net income of $40 million for the first quarter after posting a net loss of $2.5 billion in the same period a year earlier.

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Also showing vast improvements were FIA Card Services, a subsidiary of Bank of America (BAC), with first-quarter earnings of $507 million compared to a net loss of $1.5 billion in the first quarter of 2009; and Wells Fargo Bank, NA, the main subsidiary of Wells Fargo & Co. (WFC), which posted a first-quarter profit of $2 billion, improving from $1.2 billion a year earlier.

The largest U.S. bank by total assets as of March 31, was JPMorgan Chase Bank, NA, which is held by JPMorgan Chase (JPM), and it reported first-quarter net income of $2.7 billion, a slight rise from $2.5 billion during the first quarter of 2009.

Among the nation's largest four banks, only Bank of America, NA, the main banking subsidiary of Bank of America, reported flat year-over-year earnings, with $1.5 billion in net income during the first quarters of both 2010 and 2009.

Citigroup's (C) main subsidiary Citibank, NA, reported first-quarter net income of $2.2 billion, well above its profit of $1.5 billion for the first quarter of 2009.

Problem Banks Mount

The agency's "problem list" of troubled banks continued to increase, however, despite the accelerated pace of bank failures, with 775 institutions on the list, up from 702 in the previous quarter and 305 a year earlier. There were 41 bank closures during the first quarter, and another 31 banks have failed so far during the second quarter.

Ongoing Bank Failure Coverage

There have been 237 bank and thrift failures since the beginning of 2008. All are detailed in TheStreet's bank failure map:

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