June 11, 2012
FDIC-insured institutions reported USD 35.3 bn in earnings for Q1 2012; an improvement of 22.9% yoy and the highest quarterly net income reported by the industry since Q2 2007. 67.5% of institutions reported yoy earnings improvements, and only 10.3% were unprofitable – the lowest level since Q2 2007. LLPs fell for a tenth consecutive quarter, declining by USD 6.6 bn or 31.6% yoy. Provisions set aside (USD 14.3 bn) were the smallest quarterly total since Q2 2007.
At first sight, the US banking system seems to have turned the corner decisively, not least because the improvement in operating income is no longer mainly driven by lower LLPs. Noninterest income increased by 8% yoy; gains on loan sales were 132.4% higher; income resulting from changes in fair values of financial instruments was 38.2% higher; income from fiduciary activities was up by 6.2%; and service charges on deposit accounts were 2.4% above the level of a year ago. Still, it needs to be recalled that the environment is not yet normal. Extremely low official interest rates may help to improve the credit environment: i) loan losses declined from year-ago levels for a seventh consecutive quarter; ii) NCOs totalled USD 21.8 bn, i.e. down 34.8% yoy; iii) charge-offs were lower in all major loan categories; and iv) the amount of noncurrent loans and leases fell for the eighth quarter in a row. But they take a toll: net interest income, still the most important source of income, was only 0.4% higher.
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