Financial institutions report best quarterly earnings in two years

Net income grew three times over last year's first-quarter results for commercial banks and financial institutions, the best quarterly earnings report in two years for an industry that has taken a hit during the nation's recession. 

Financial institutions reported a total $18 billion profit in the first three months of the year, $12.5 billion more than the $5.6 billion reported a year ago, bolstered by a reduction in provisions for loan losses, according to figures released Thursday by the Federal Deposit Insurance Corporation.

"There are encouraging signs in the first-quarter numbers," said FDIC Chairman Sheila Bair in a release. "Industry earnings are up. More banks reported higher earnings, and fewer lost money." 

Although the figures are below historical quarterly profits, more than half of all institutions reported year-over-year improvements in their quarterly net income. Fewer than one in five institutions reported net losses for the quarter, compared with 22.3 percent in 2009.

The average return on assets, a yardstick of profitability, rose to 0.54 percent, up from 0.16 percent a year ago and the highest figure since the first quarter of 2008, when the economy began sinking into the recession. 

While the industry showed steady signs of improvement, Bair cautioned that the system is still working through its issues. 

"There will be more failures, to be sure," she said. "The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility. But the positive signs I've outlined today suggest that the trends continue to move in the right direction."