FDIC earnings lowest since 1991

WASHINGTON – Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported net income of $5 billion in the second quarter, a decline of $31.8 billion – 86.5 percent – from the $36.8 billion earned in the year-ago period.
With the exception of the fourth quarter of last year, the latest earnings were the lowest for the industry since the fourth quarter of 1991, the FDIC said.
“By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle,” said FDIC Chairman Sheila C. Bair in a statement last week.
The FDIC’s “problem list” grew to 117 institutions from 90 at the end of the first quarter. Individual banks were not identified, but that is largest number on the list since the middle of 2003.
“More banks will come on the list as credit problems worsen,” Bair said.
In releasing the latest results, the FDIC cited higher provisions for loan losses as the primary reason for the drop in industry profits.
The size of the earnings decline was mainly attributable to a few large institutions, but more than half of all insured institutions – 56.4 percent – reported lower net income in the second quarter.
In addition, the industry reported lower noninterest income than a year earlier. Expenses for goodwill impairment and other charges to intangible assets were significantly higher than a year earlier. Proceeds from sales of securities and other assets yielded a net loss in the second quarter, compared with a net gain a year ago.
Bair also announced that in early October the FDIC will consider a plan to replenish the agency’s Deposit Insurance Fund (DIF), which experienced a large drop due to added loss reserves for IndyMac Bancorp Inc. and other bank failures.
The DIF restoration plan “likely will include an increase in the premium rates that banks pay into the fund,” she said. “And we’ll be proposing changes to the current assessment system that will shift a greater share of any assessment increase onto institutions that engage in high-risk behavior to encourage and reward safer behavior.”