Banks Loan Portfolios Finally Increasing Except For Commercial Real Estate

The number of banks on the FDIC’s “Problem List” fell for the first time in 19 quarters, declining from 888 to 865. This is the first time since the third quarter of 2006 that the number of problem banks declined, according to the Federal Deposit Insurance Corp. Quarterly Banking Profile released this week.

Total assets of so-called “problem” institutions declined from $397 billion to $372 billion. Twenty-two insured institutions failed during the second quarter, four fewer than in the previous quarter, and the fewest since the first quarter of 2009. This is the fourth quarter in a row that the number of failures has declined. Through the first six months of 2011, there have been 48 insured institution failures, compared to 86 failures in the same period of 2010.

The decrease in problem banks is coming as commercial banks and savings institutions have now reported eight consecutive quarters of earnings that registered year-over-year increases.

Banks insured by the FDIC reported an aggregate profit of $28.8 billion in the second quarter of 2011, a $7.9 billion improvement from the $20.9 billion in net income the industry reported in the second quarter of 2010.

A majority of all institutions (60%) reported improvements in their quarterly net income from a year ago. Also, the share of institutions reporting net losses for the quarter fell to 15.2%, down from 20.8% a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.85%, from 0.63% a year ago.

“Banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009,” said FDIC Acting Chairman Martin J. Gruenberg. He added, “This trend has expanded to include a growing proportion of insured institutions.”

As has been the case in each of the last seven quarters, lower provisions for loan losses were responsible for most of the year-over-year improvement in earnings.

Second-quarter loss provisions totaled $19 billion, less than half the $40.4 billion that insured institutions set aside for losses in the second quarter of 2010. However, net operating revenue (net interest income plus total noninterest income) was $3 billion (1.8%) lower than a year earlier, and realized gains on securities declined by $1.3 billion (61.1%).

Asset quality showed further improvement as noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a fifth consecutive quarter. Insured banks and thrifts charged off $28.8 billion in uncollectible loans during the quarter, down $20.9 billion (42.1%) from a year earlier.

Loan portfolios grew for the first time in three years. Loan balances posted a quarterly increase for only the second time in the last 12 quarters. However, the increases came in business, credit card and auto loans. Loans secured by real estate continued to decline in the second quarter. (credit to, m,heschmeyer,co-star)

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