Each depositor insured to at least $250,000 per insured bank

Notes to Users

Net Income Rises to $29 Billion Lower Loan-Loss Provisions Remain Key to Higher Earnings Revenues Post Year-over-Year Decline Asset Quality Indicators Continue to Exhibit Improvement Loan Balances Fall by $126.6 Billion

Profits Rise for Seventh Consecutive Quarter

Bank earnings continued to benefit from falling loan-loss provisions in first quarter 2011 as FDIC-insured commercial banks and savings institutions posted their highest quarterly net income since the onset of the financial crisis. Net income totaled $29.0 billion, an $11.6 billion (66.5 percent) increase from first quarter 2010, and the best quarterly result since second quarter 2007. This is the seventh consecutive quarter that industry earnings have registered year-over-year gains. More than half of all institutions (56.2 percent) reported improved earnings, and fewer institutions were unprofitable (15.4 percent, compared to 19.3 percent in first quarter 2010).

Loss Provisions Are Less than Half the Level of a Year Ago

Provisions for loan losses fell to $20.7 billion in the first quarter from $51.6 billion a year earlier. This marks the sixth quarter in a row that loss provisions have had a year-over-year decline. It is the smallest quarterly loss provision for the industry since third quarter 2007. The largest reductions in provisions occurred at credit card lenders that made sizable additions to their loan-loss reserves a year ago, but almost half of all institutions (48.9 percent) reported lower provisions. Fewer than a third (32.6 percent) increased their provisions from year-earlier levels.

Revenues Exhibit Weakness

The positive contribution from reduced provisions outweighed the negative effect of lower revenues at many institutions. Net operating revenue (net interest income plus total noninterest income) was $5.5 billion (3.2 percent) lower than a year ago. This is only the second time in the 27 years for which data are available that the industry has reported a year-over-year decline in quarterly net operating revenue.

Decline in Revenues Is Concentrated among Large Institutions

Net interest income declined year-over-year for the first time since fourth quarter 1989, falling by $3.2 billion (3 percent), while noninterest income was $2.2 billion (3.7 percent) lower than in first quarter 2010. The reduction in net interest income was caused by narrower net interest margins and weak growth in interest-earning assets. The decline in noninterest income reflected lower revenues from service charges on deposit accounts (down $1.7 billion, or 17.3 percent at institutions filing Call Reports) and reduced trading income (down $1 billion, or 11.7 percent). Much of the reduction in net operating revenue was concentrated at larger institutions; more than half of all institutions (59.5 percent) reported year-over-year increases in net operating revenue, with 57.6 percent reporting higher net interest income and 52.1 percent reporting increased noninterest income. However, of the ten largest institutions, which together hold more than half of all insured institution assets, six reported year-over-year declines in net operating revenue, six had declines in noninterest income and eight reported lower net interest income.

Loan Losses Improve across All Main Loan Categories

Net loan charge-offs (NCOs) declined for a third consecutive quarter. Insured institutions charged-off $33.3 billion in the first quarter, a $19.9 billion (37.5 percent) decline from first quarter 2010. Almost half of all institutions (48.9 percent) reported lower NCOs, while 41.5 percent reported increases. NCOs were lower in all major loan categories. The largest reduction occurred in credit cards, where NCOs fell by $7.3 billion (39.1 percent). Real estate construction loan NCOs were $3 billion (51.5 percent) lower than in first quarter 2010, while charge-offs of closed-end 1-4 family residential mortgages fell by $2.6 billion (29.6 percent). Commercial and industrial (C&I) loan NCOs also declined by $2.6 billion (43.1 percent).

Noncurrent Loan Balances Fall for a Fourth Consecutive Quarter

Noncurrent loan balances (loans 90 days or more past due or in nonaccrual status) fell by $17 billion (4.7 percent) during the quarter. At the end of March, insured institutions reported $341.7 billion in noncurrent loans and leases, down from $358.7 billion at the end of 2010. This is the fourth consecutive quarter that noncurrent loans have declined, and they are now $68.2 billion (16.6 percent) below the peak level reached a year ago. Half of all institutions (50.3 percent) reported reductions in their noncurrent loan balances, while 43.1 percent reported increases. Noncurrent balances declined in all major loan categories. Noncurrent C&I loans declined by $6.1 billion (21.1 percent), noncurrent construction and development loans fell by $4.3 billion (8.3 percent), and noncurrent closed-end 1-4 family residential mortgages declined by $2.8 billion (1.6 percent). The average noncurrent loan rate at the end of the quarter was 4.71 percent, the lowest level since second quarter 2009.

Most Large Banks Reduce Their Reserves

Net charge-offs exceeded loss provisions by $12.6 billion in the first quarter, contributing to a $13 billion (5.6 percent) drop in the industry’s loan-loss reserves. This is the fourth consecutive quarter that aggregate reserves have declined; they are now $44.9 billion (17.1 percent) below the peak level of a year ago. The decline in reserves was concentrated among the largest banks. Sixteen of the 19 institutions with assets greater than $100 billion reduced their reserves in the first quarter, and almost two-thirds of institutions with assets between $10 billion and $100 billion (63.2 percent) also reported reserve declines. Some of the largest reductions in reserves occurred at credit card lenders. In contrast to the trend at large banks, most institutions with less than $1 billion in assets (60.1 percent) increased their reserves during the quarter.

Capital Levels Improve

Additions to capital in the first quarter surpassed the decline in reserves. Bank equity capital increased by $25.1 billion (1.7 percent), as retained earnings contributed $13.9 billion. Total risk-based capital increased by $17.8 billion (1.3 percent). Tier 1 leverage capital increased by $25.8 billion (2.2 percent), but tier 2 capital fell by $7.9 billion (3.4 percent), reflecting lower loan-loss reserves. At the end of the quarter, 96 percent of all institutions, representing over 99 percent of total industry assets, met or exceeded the highest regulatory capital requirements as defined for Prompt Corrective Action (PCA) purposes. Industry averages for all three regulatory capital ratios rose to all-time high levels, driven by improvements at the largest institutions.

Asset Growth Occurs Outside Loan Portfolios

Total assets of insured institutions increased by $94.7 billion (0.7 percent) during the quarter. Balances with Federal Reserve banks increased by $116.3 billion (23.5 percent) at Call Report filers with $300 million or more in total assets. Mortgage-backed securities holdings rose by $34.5 billion (2.3 percent). Total loan and lease balances continued to fall, declining by $126.6 billion (1.7 percent). This is the fifth-largest quarterly percentage decline in loan balances in the 28 years for which data are available, and it marks the tenth time in the last eleven quarters that reported loan balances have fallen (the one exception was caused by the implementation of FASB 166 and 167, which resulted in the consolidation of as much as $400 billion in securitized loans onto banks’ balance sheets in first quarter 2010). The largest declines in loan balances were in 1-4 family residential mortgages, which fell by $63.8 billion (3.4 percent), credit cards (down $38.9 billion, or 5.5 percent), and in real estate construction and development loans, which declined by $25.9 billion (8.1 percent). Balances fell in most major loan categories, with the exception of C&I loans, which increased by $18.1 billion (1.5 percent) and loans to depository institutions, which rose by $10.2 billion (9.3 percent). Almost half of the growth in C&I loans (47 percent) represented loans to non-U.S. borrowers, while 86.2 percent of the increase in loans to depository institutions consisted of loans to foreign banks. At the end of March, net loans and leases represented 52.4 percent of insured institutions’ assets, the lowest share since the early 1970s.

Deposit Growth Remains Strong

Deposits at FDIC-insured institutions increased by $178.8 billion (1.9 percent), as deposits in foreign offices rose by $61.4 billion (4 percent), and domestic office deposits grew by $117.4 billion (1.5 percent). Noninterest-bearing deposits in domestic offices increased by $58.3 billion (3.5 percent), while interest-bearing deposits were up by $59.1 billion (1 percent). Nondeposit liabilities fell by $101.1 billion (4.2 percent), with Fed funds purchased declining by $44.6 billion (37.5 percent), and FHLB advances falling by $28.6 billion (7.4 percent).

The Pace of Bank Failures Slows

The number of insured commercial banks and savings institutions reporting financial results declined from 7,658 to 7,574 in the first quarter. One new reporting institution was added during the quarter, while 56 institutions were absorbed by mergers and 26 institutions failed. One report had not been received at the time these data were prepared. The number of institutions on the FDIC’s “Problem List” increased from 884 to 888 during the quarter. Assets of “problem” institutions increased from $390 billion to $397 billion. Insured institutions reported 2.09 million full-time equivalent employees in the first quarter, an increase of 65,632 (3.2 percent) from first quarter 2010.