Banks post record earnings in the first quarter

“At the same time, topline revenue growth continues to be a struggle as businesses delay borrowing due to concern about rising healthcare costs, tax increases and the pace of our economic recovery. Until the fog of uncertainty dissipates, rapid loan growth is unrealistic.”

While the industry is putting some distance between themselves and the 2008 financial crisis that brought the economy to the brink of collapse, only about half of banks reported improved earnings from a year earlier, the lowest proportion since late 2009. 

Still, more than 90 percent of banks were profitable in the first quarter, and the proportion of banks that were unprofitable fell to 8.4 percent, from 10.6 percent a year ago.

“Today’s report shows further progress in the recovery that has been under way in the banking industry for more than three years,” said FDIC Chairman Martin Gruenberg. 

“We saw improvement in asset quality indicators over the quarter, a continued increase in the number of profitable institutions, and further declines in the number of problem banks and bank failures,” he said. 

“However, tighter net interest margins and slow loan growth create an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention.”

Amid record-low interest rates, banks have adopted stricter policies for potential borrowers such as higher credit scores and larger down payments on homes, the main reason behind nearly record-low interest income for banks. 

“A continued focus on expense control and a dramatic improvement in asset quality has helped earnings remain solid even as businesses delay borrowing,” Chessen said. “Low interest rates continue to squeeze margins and put significant pressure on traditional banking.”

Meanwhile, loan losses declined from year-earlier levels for the 11th consecutive quarter. 

The $16 billion in loan losses reported was the smallest quarterly total since third quarter 2007. 

“Banks are working aggressively to make loans, but businesses are hesitant to expand amid the specter of higher taxes, uncertain healthcare costs and new regulations,” Chessen said. 

“In addition, companies feel no urgency to borrow as interest rates are expected to stay abnormally low for several years to come.”

The industry also is seeing fewer bank failures, with the FDIC’s problem list shrinking to 612 from 651 during the quarter.

Two years ago, problem banks hit the recent high of 888 institutions. 

Four FDIC-insured institutions failed in the first quarter, the smallest number since the second quarter of 2008 when two institutions were closed. 

So far this year, there have been 13 failures, compared with 24 during the same period in 2012.