The financial sector continues to gain strength, according to the latest FDIC data, which shows a four-year low in the number of failed banks.
In a continuing sign of improvement in the financial sector, the number of FDIC-insured banks to fail reached a four-year low of 16 in the first quarter of 2012, the smallest number of quarterly failures since the fourth quarter of 2008, according to a report released yesterday by the FDIC, or Federal Deposit Insurance Corporation.
In addition, the number of institutions deemed “problem banks” fell for the fourth consecutive quarter to 772 banks and thrifts, - the smallest number since the end of 2009, said the FDIC. Total assets in these problem banks declined to $292 billion.
In more good news for the financial sector, FDIC-insured commercial banks and savings institutions reported a year-over-year increase in aggregate profits for the 11th consecutive quarter, according to the FDIC.
“The condition of the industry continues to gradually improve,” Martin J. Gruenberg, acting chairman of the FDIC, said in a statement. “Insured institutions have made steady progress in shedding bad loans, bolstering net worth and increasing profitability.”
The positive trend, leading to an aggregate profit of $35.5 billion in the first quarter of 2012, was tempered by a 0.8 percent, or $56.3 billion, decline in loan balances after three consecutive increases in lending, said the FDIC.
More than two-thirds (67.5 percent) of the commercial banks and savings institutions insured by the FDIC reported year-over-year improvements in quarterly net income, and the share of institutions reporting net losses for the first quarter fell to 10.3 percent from 15.7 percent a year ago. The average return on assets, which the FDIC describes as a “basic yardstick of profitability,” rose to 1.02 percent from 0.86 percent a year ago.
The improvement stemmed primarily from higher noninterest income and lower provisions for loan losses, according to the FDIC. Insured banks and thrifts charged off $21.8 billion in uncollectible loans in the first quarter of 2012, a 34.8 percent decrease from the same period in 2011.
The “disappointing” decline in loan balances for the first quarter of 2012 was due to a seasonal decrease of $38.2 billion in credit card loans and a $19.2 billion decrease in real estate loans for buildings with one to four residential units. Construction and development loans declined 11.7 billion, according to the FDIC report. In positive news, loan balances increased for commercial and industrial borrowers, up $11.7 billion, and balances for auto loans rose by $4.5 billion in the first quarter of 2012, the FDIC said. According to Gruenberg, the financial sector continues to improve but the recovery process is “clearly still ongoing.” He added, “The improved financial condition of the industry has not yet translated into sustained loan growth. We will continue to watch this indicator closely."
High net worth investors surveyed by Millionaire Corner at the end of 2011 expressed little interest in investing in the financial sector in 2012. Fewer than 20 percent of the high net worth – who have investable assets of $5 million to $25 million – said they were likely to invest in the financial sector, preferring technology, health care, pharmaceutical, communication and real estate sectors.