The mostly positive first-quarter earnings released Thursday illustrate how far the banking industry has come since the 2008 financial crisis. Still, the report noted that many banks remain cautious about lending, a necessary driver of economic growth.
The report is “broadly in line with what we’ve seen in the economy as a whole,” said Bert Ely, an independent banking analyst based in Alexandria, Va. “Sluggish improvement, but nonetheless improvement.”
The Federal Deposit Insurance Corp. said the banking industry earned $35.3 billion in the January-March period. That’s up from $28.7 billion in the first quarter of 2011 and the highest level since the second quarter of 2007.
About 67 percent of U.S. banks reported improved earnings. Overall revenue increased from the first quarter of 2011, bolstered by higher profits from loans and fees on customers’ bank accounts.
The news wasn’t all good. Bank loans to consumers fell in most categories. Credit card loans and home mortgages were among those showing lower balances.
Acting FDIC Chairman Martin Gruenberg called the decrease in lending “disappointing, after we saw three quarters of growth last year.”
Weakness in the housing market has weighed on broader lending, said James Chessen, chief economist of the American Bankers Association, the industry’s biggest trade group.
“The overall lending volume for banks will continue to grow at a gradual pace until the housing market improves,” Chessen said in a statement.
An exception is loans to commercial and industrial borrowers. Those rose about 14 percent from a year earlier and suggest businesses are expanding.
Banks with assets exceeding $10 billion accounted for most of the earnings growth in the January-March period. While they make up just 1.4 percent of U.S. banks, they accounted for about 81 percent of the earnings.
Those banks include Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Most of them have recovered with help from federal bailout money and record-low borrowing rates.
The number of banks on the FDIC’s confidential “problem” list fell in the first quarter to 772, or around 9.5 percent of all federally insured banks. That compares with 813 troubled banks in the fourth quarter.
The surge in first-quarter earnings follows the industry’s most profitable year since 2006, a sign that many banks have put the 2008 financial crisis behind them. Still, last year’s increase came largely because banks suffered fewer losses — not because they took in more money.
The slow recovery, record-low interest rates and weak demand for loans left bank revenue mostly flat for the year.
Banks are starting to take in more money this year. The industry posted a 3 percent increase in revenue from a year earlier. It was only the second time in the last five quarters that revenue rose, the FDIC said.
And bank losses on loans declined in the January-March period to $21.8 billion — the lowest level in four years.
Gruenberg said the overall financial health of the banking industry continues to show gradual improvement.
So far this year, 24 banks have failed. That’s far below the 92 banks that shuttered last year and the 157 that closed in 2010 — the most for one year since the height of the savings and loan crisis in 1992.
In the first quarter, fewer bank failures allowed the insurance fund to strengthen. The fund, which turned from deficit to positive in the second quarter of 2011, had a $15.3 billion balance as of March 31, according to the FDIC. That compares with $11.8 billion at the end of last year.
The FDIC is backed by the government, and its deposits are guaranteed up to $250,000 per account. Apart from its deposit insurance fund, the agency also has tens of billions in loss reserves.