Bank Earnings Strong, Improved Buyback Picture Cited

Banks and thrifts posted their best earnings in two years during the first quarter due to an improvement in mortgage buybacks and lower loan losses, according to new figures compiled by the Federal Deposit Insurance Corp. A key contributor to the bottom line was a steep, 50% drop in mortgage buybacks from the first to the fourth quarter. Overall, banks and thrifts repurchased $9.3 billion of home mortgages, after being slapped with claims from secondary market investors including Fannie Mae and Freddie Mac. Net charge-offs on residential and construction loans both declined in the first quarter, a sign that charge-offs may be peaking. Overall, the industry earned $18 billion. FDIC-insured institutions charged off $13.5 billion of one-to-four family loans, down 13% from fourth quarter. However, the serious delinquency rate rose to 7.98%, up 57 basis points from the previous quarter. Part of the rise may be due to banks shrinking their holdings of residential mortgage loans and loan modification efforts. On construction loans, the percentage of loans 90 days or more past due fell to 22.8% in the first quarter, down nearly 300 bps. But net charge-offs totaled $1.7 billion down from $2.5 billion in the previous quarter.