U.S. Bank Earnings Rose 23% on Lower Reserves, FDIC Says

Photographer: Andrew Harrer/Bloomberg

Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. Close

Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp.

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Photographer: Andrew Harrer/Bloomberg

Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp.

U.S. banks had net income of $35.3 billion in the first quarter, increasing earnings by 23 percent over the same period in 2011 on lower loan-loss provisions, the Federal Deposit Insurance Corp. said.

Industry profits rose for an 11th consecutive quarter, reaching the highest level since the second quarter of 2007, the FDIC said today in its Quarterly Banking Profile. Lenders set aside $14.3 billion for bad loans, and their $21.8 billion in charge-offs was the lowest quarterly total in four years.

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), the two most profitable U.S. banks last year, topped estimates for first-quarter earnings as they benefited from the lowest net charge-offs since the 2008 credit crisis. In today’s FDIC report, Acting Chairman Martin Gruenberg said industywide results were clouded by a $56.3 billion decline in loan balances.

“Insured institutions have made steady progress in shedding bad loans, bolstering net worth and increasing profitability,” Gruenberg said in a statement. “The overall decline in loan balances is disappointing after we saw three quarters of growth last year. But we should be cautious in drawing conclusions from just one quarter.”

The loan-balance decline was led by a seasonal $38.2 billion drop in the credit-card category that Gruenberg attributed to holiday spending. Residential real estate fell by $19.2 billion, according to the agency’s report.

More than two-thirds of FDIC-insured lenders reported improvement in their quarterly net income from a year ago, and the share reporting net losses for the three-month period fell to 10.3 percent from 15.7 percent a year earlier.

‘Gradually Improving’

“Mortgage refinancing and capital markets, along with a gradually improving economy, have led to a steady growth in bank earnings,” James Chessen, chief economist at the American Bankers Association, said in a statement. “The pace of the economy will determine how quickly banks’ core lending business will return.”

The number of lenders on FDIC’s confidential list of “problem” banks -- those deemed to be at greater risk of collapse -- fell for a fourth straight quarter from 813 to 772. There were 16 bank failures in the first quarter, the lowest three-month total since the end of 2008.

The deposit insurance fund, which protects customer accounts up to $250,000 against bank failures, rose to $15.3 billion from $11.8 billion in the preceding quarter, the FDIC said. The FDIC increased bank assessments to replenish the fund, which fell into deficit as the agency resolved hundreds of bank failures stemming from the subprime mortgage crisis.

Investors have pushed the 24-company KBW Bank Index (BKX) up by 11 percent so far this year.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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