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Bank Profits Are Highest Since Early 2007
May 25, 2011


Dr. Mark J. Perry

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From the FDIC's Quarterly Banking Profile:

"Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $29 billion in the first quarter of 2011, an $11.6 billion improvement (66.5 percent) from the $17.4 billion in net income the industry reported in the first quarter of 2010. This is the seventh consecutive quarter that earnings registered a year-over-year increase. For the sixth consecutive quarter, reduced provisions for loan losses drove the improvement in earnings.  Net income was the best for the industry since the $36.8 billion earned in the second quarter of 2007 (see chart above).

"The industry shows continuing signs of improvement," said FDIC Chairman Sheila C. Bair. She added, "though there is a limit to how far reductions in loan-loss provisions can boost industry earnings."
More than half of all institutions (56 percent) reported better quarterly net income from a year ago, and only 15 percent had a net loss for the quarter. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.87 percent from 0.53 percent a year ago.
The number of institutions on the "Problem List" flattened. The net increase of four, to 888, is the smallest in three-and-a-half years. The number of "problem" institutions is the highest since March 31, 1993, when there were 928. Total assets of "problem" institutions increased from $390 billion to $397 billion. Twenty-six insured institutions failed during the first quarter, the smallest number in the last seven quarters."
MP: Despite the strong rebound in bank profits to pre-recession levels, there was a 3.2% annual decline in bank revenues in the first quarter and an accompanying decline in loan balances, suggesting that bank credit availability is still lagging (see Washington Post story here).  But the fact that bank profits have fully recovered to early 2007 levels is another sign that the worst of the financial crisis is far behind us, and the U.S. banking system is once again healthy and profitable.

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