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 an FDIC report released Wednesday.
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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.

Another significant macro number provided in the agency's report was a 2.2% or $302 billion decline in total industry assets, the largest decline in 25 years.

There were 21 bank and thrift failures during the quarter, the largest number since the fourth quarter of 1992. All 61 bank and thrift failures since the start of 2008 are detailed on

TheStreet.com's

Bank Failure Map

:

Many of the institutions on the FDIC's problem list are likely to have capital levels below

regulatory guidelines

to be considered well-capitalized.

TheStreet.com

recently published a preliminary list of

undercapitalized banks as of March 31.

Ten of the nation's 19 largest banks, including

Bank of America

(BAC) - Get Report

,

Citigroup

(C) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

PNC Financial Services

(PNC) - Get Report

, were ordered by federal regulators to raise more capital to withstand continued deterioration in the economy after government stress tests completed earlier this month.

The tests determined nine of the institutions, including

JPMorgan Chase

(JPM) - Get Report

,

Goldman Sachs

(GS) - Get Report

and

BB&T

(BBT) - Get Report

, had sufficient capital.

The following list includes the ten banks reporting the highest net income for the first quarter of 2009. Keep in mind that these numbers are for the banks themselves, not the holding companies.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.