U.S. Banks Post Best Earnings Since Meltdown

NEW YORK (TheStreet) -- U.S. banks and thrifts earned $35.3 billion during the first quarter, for the industry's best aggregate earnings performance since the second quarter of 2007, according to a Federal Deposit Insurance Corp. statement issued Thursday.

The first-quarter results compared to earnings of $26.3 billion in the fourth quarter, and $29.0 billion during the first quarter of 2011.

As expected at this stage of the economic recovery, banks continued to see a major boost to earnings from the release of loan loss reserves, which declined by $8 billion to $183.1 billion. The FDIC said reserves had declined for an eighth consecutive quarter, and were "$80 billion (30.4 percent) below the peak level of two years ago, and their lowest level since year-end 2008."

The agency added that "more institutions added to their reserves than reduced them (58.7 percent to 33.4 percent), but the magnitude of the reductions surpassed the additions," with "almost 90 percent of the largest banks--institutions with more than $100 billion in assets--[reducing] their reserves.

The 19 commercial banks (not holding companies) with total assets of $100 billion as of March 31 saw their allowances for loan losses decline by $5.2 billion during the first quarter, according to data provided by Thomson Reuters Bank insight, directly boosting bottom-line results.

• JPMorgan Chase's (JPM) main banking subsidiary JPMorgan Chase Bank, NA, saw its allowance for loan losses decline by $1.1 billion during the first quarter. The company's smaller Chase Bank USA, NA subsidiary saw released $580.7 million in reserves.
• Bank of America (BAC) subsidiary FIA Card Services, NA released $931.7 million in loan loss reserves during the first quarter, while the company's larger subsidiary Bank of America, NA, released only $599.6 million in reserves.
• Citibank, NA -- the main banking subsidiary of Citigroup (C) -- saw its allowance for loan losses decline by $408 million during the first quarter.
• Wells Fargo Bank, NA -- the main banking subsidiary of Wells Fargo (WFC) -- released $426 million in reserves during the first quarter. On the holding company level, Wells Fargo continues to out-earn the other members of the "big four" U.S banking club, with operating returns on average assets ranging between have ranged from 1.21% to 1.30% over the past five quarters, according to data supplied by Thomson Reuters Bank Insight.

Aggregate first-quarter earnings results for U.S banks and thrift were boosted by $2.3 billion in gains on loan sales, more than doubling from a year earlier as mortgage lending volume increased amid a wave of refinancing activity.

The FDIC also said that "almost two out of every three banks--63.9 percent--reported year-over-year increases in net operating revenue."

With the strong loan sales, continued credit quality improvement and a $2 billion year-over-year increase in realized gains on securities, the industry's aggregate return on assets (ROA) "rose above the 1 percent threshold for only the second time since second quarter 2007," to 1.02%, improving from 0.76% the previous quarter, and 0.86% a year earlier. Total noninterest income was $106.6 billion during the first quarter, increasing from $54.9 billion in the fourth quarter, and from $106.2 billion a year earlier.

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