Yesterday, the FDIC reported that U.S. insured depository institutions posted an aggregate net profit of $7.6 billion for the first quarter of 2009, the highest earnings in the past four quarters and a stark contrast to the $32.1 billion loss reported in the fourth quarter 2008, but a $11.7 billion (60.8%) decline from the $19.3 billion that the industry earned in the first quarter of 2008. The FDIC attributed the year-over-year decline in earnings primarily to higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities. FDIC Chairman Sheila C. Bair stated, "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," and that while "[b]anks are making good efforts to deal with the challenges they're facing, today's report says that we're not out of the woods yet." Evidence of earnings weaknesses was widespread, with 21.6% of banks reporting a net loss and 59.3% of banks reporting lower net income than in the first quarter of 2008.
The FDIC released the 2009 first quarter financial results in its Quarterly Banking Profile. The profile revealed the following:
- Twenty-one insured institutions with combined assets of $9.5 billion failed in the first quarter, the largest number of failed institutions in a quarter since the fourth quarter of 1992. The FDIC “Problem List” increased from 252 to 305 insured institutions, and total assets of "problem" institutions grew from $159 billion to $220 billion.
- Loss provisions totaled $60.9 billion in the first quarter, a $23.7 billion (63.6%) year-over-year increase. Almost two out of every three insured institutions increased their loss provisions.
- The net charge-off rate on total loans and leases for the quarter was 1.94% ($37.8 billion), slightly below the 1.95% rate ($38.5 billion) reported in fourth quarter of 2008, which was the highest quarterly net charge-off rate in the 25 years that insured institutions have reported such data. Well over half of all insured institutions reported year-over-year increases in quarterly charge-offs. Moreover, the high level of charge-offs did not stem the growth in noncurrent loans in the first quarter, which rose $59.2 billion (25.5%) this quarter, the largest quarterly increase in the three years that noncurrent loans have been rising.
- Tier 1 capital growth reached a record high, increasing almost $70 billion, the largest quarterly increase ever reported by the industry. However, much of the increase occurred at institutions that received capital from the U.S. Treasury Department's Troubled Asset Relief Program, and a number of institutions also reduced their dividends to support capital growth.
- The Deposit Insurance Fund (DIF) balance dropped 24.7% from $17.3 billion at the end of 2008 (amended from the originally reported unaudited balance of $19 billion) to $13.0 billion (unaudited) on March 31, 2009, the reserve ratio declined from 0.36% at December 31, 2008, to 0.27% at March 31, 2009, and insured deposits increased by 1.7% during the first quarter, down from a 4.5% increase during the fourth quarter of 2008. The reserve ratio is the lowest reserve ratio for a combined bank and thrift insurance fund since March 31, 1993 (.06%). The FDIC Board of Directors approved an amended restoration plan in February that is designed to restore the DIF reserve ratio to 1.15 % within seven years and has already set aside $28 billion in reserves to cover projected losses for the next 12 months. In addition, the FDIC will collect more than $8 billion in premiums during the second quarter, including $5.6 billion from the special assessment the FDIC Board approved on May 22.
- At the end of the first quarter, 97 financial entities (66 insured depository institutions and 31 bank and thrift holding companies and nonbank affiliates) had $336 billion in guaranteed debt outstanding under the Temporary Liquidity Guarantee Program.