Bank earnings rise to 5-year high

The U.S. banking industry posted a $35.3-billion profit in the first quarter of the year, its best performance since 2007, the Federal Deposit Insurance Corp. said Thursday.

The industry continued to recover from the financial crisis and deep recession, with just 16 FDIC-insured banks failing in the first three months of the year, according to the agency’s quarterly banking profile.

It was the fewest failures since the fourth quarter of 2008. Overall, 438 banks have failed since the end of 2007, when the recession hit. There are about 7,300 banks and savings and loans covered by FDIC insurance.

The number of so-called problem banks — those at risk of failure — also declined to 772 in the first quarter, from 813 in the previous quarter, the lowest level since the end of 2009, the FDIC said.

“The condition of the industry continues to gradually improve,” said Martin J. Gruenberg, the FDIC’s acting chairman. “Insured institutions have made steady progress in shedding bad loans, bolstering net worth and increasing profitability.”

But the news was not all good. Banks lent slightly less money in the first quarter, $56.3 billion, down 0.8% from the previous quarter, the FDIC said. But Gruenberg said it was not cause for alarm yet.

“The overall decline in loan balances is disappointing after we saw three quarters of growth last year,” he said. “But we should be cautious in drawing conclusions from just one quarter.”

The first-quarter profit for FDIC-insured banks was up $6.6 billion, or 23%, from a year earlier and marked the 11th straight quarter that profits have shown a year-over-year increase, the FDIC said.

The profits were driven in large part by banks setting aside less money to cover bad loans. Banks set aside $14.3 billion in so-called loan-loss provisions, nearly one-third less than a year ago.