Although the banking industry had its best quarter since the start of the financial crisis, the number of depositories at risk of failing in 1Q accounted for nearly 12% of the sector – the highest reading in 18 years.
The number increases the likelihood that more problem real estate loans – both residential and commercial – could hit the secondary market during the next two years, slowing any recovery in those sectors.
Overall, the Federal Deposit Insurance Corp. added four banks to its problem list in the January-March quarter. That brought the total to 888 from 884. Banks on the list are deemed by examiners to have low capital cushions against risk.
Commercial banks under the FDIC’s purview earned $29 billion in the first three months of the year thanks to the continued drop in loan-loss provisions.
With provisions falling by 60% from a year earlier, to $20.7 billion, the industry's net income was about 66% higher than in the first quarter of 2010.
It was the best quarterly performance since the second quarter of 2007.
The FDIC, in its Quarterly Banking Profile, said lower provisions "remain key" to bank earnings.
The largest declines in loan balances were in residential mortgages, which fell by $63.8 billion. By comparison, credit cards dropped by $38.9 billion, and real estate construction and development loans declined by $25.9 billion.
