FDIC: Loan-Loss Provisions Continue To Depress Net Income

cial banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported a net income of $7.6 billion in the first quarter of 2009 – a decline of $11.7 billion (60.8%) from the $19.3 billion that the industry earned in the first quarter of 2008. Higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities all contributed to the year-over-year earnings decline, the agency says. Three out of five insured institutions reported lower net income in the first quarter, and one in five was unprofitable. ‘The first-quarter results are telling us that the banking industry still faces tremendous challenges and that going forward, asset quality remains a major concern,’ says FDIC Chair Sheila Bair. ‘Banks are making good efforts to deal with the challenges they're facing, but today's report says that we're not out of the woods yet.’ Bair says the banking industry is in a "cleanup phase," adding that its turnaround will take time. Insured institutions set aside $60.9 billion in provisions for loan losses in the first quarter, which is an increase of $23.7 billion over the first quarter of 2008. Expenses for goodwill impairment and other intangible asset expenses totaled $7.2 billion, up from $2.8 billion a year earlier. These negative factors outweighed the positive effects of increased non-interest income (up $7.8 billion), higher net interest income (up $4.4 billion), and higher realized gains on securities and other assets (up $1.9 billion), the FDIC says. The first quarter also saw 21 FDIC-insured institutions fail – the largest number since the fourth quarter of 1992. The FDIC's ‘Problem List’ grew during the quarter, from 252 to 305 institutions, and total assets of problem institutions increased from $159 billion to $220 billion. The FDIC also notes that asset-quality indicators continue to decline. Insured institutions charged off $37.8 billion in bad loans in the first quarter – almost twice the $19.6 billion of a year earlier. The amount of loans and leases that were noncurrent rose by $59.2 billion during the quarter, and are $154.3 billion higher than a year ago. ‘Troubled loans continue to accumulate, and the costs associated with impaired assets are weighing heavily on the industry's performance,’ Bair comments. ‘Nevertheless, compared to a year ago, we see some positives. Net interest income is higher, and non-interest revenue is up at larger banks, particularly trading revenues. Realized gains on securities and other assets improved, too." SOURC


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