Higher provisions for loan losses placed additional stress on banks insured by the Federal Deposit Insurance Corporation (FDIC) during the first quarter of this year, according to a new report from the FDIC.
Based on all data pulled from commercial banks and savings institutions insured by the FDIC, the banks reported $19.3 billion in income during the first quarter of 2008—a significant drop when compared to the $35.6 billion the institutions earned in the first quarter of 2007.
While the FDIC says losses at a few major institutions contributed to the drastic income level drop, approximately 50.4-percent of all banks surveyed faced a drop in net income levels for the first part of 2008.

Sheila Bair, FDIC Chairman, blamed declining income levels at FDIC-insured banks on the volatile financial markets and the need for institutions to prepare for potential losses related to their home lending sectors.
“We’re urging all institutions to make sure their reserves are large enough to cover expected losses,” said Bair. “We also want them to beef up their capital cushions beyond regulatory minimums given uncertainties about the housing markets and the economy.”
The FDIC says another dire development—the restatement of fourth-quarter 2007 profits—raised a few eyebrows mostly because of additional charges related to goodwill impairment. By the time those write-downs were made, the FDIC says earnings for the fourth quarter fell from $5.8 billion to $646 million—the lowest quarterly net income level for the industry since the last quarter of 1990.
Delinquent mortgage loans also remain a significant concern for the industry. The FDIC added in its report that “noncurrent loans are still rising sharply.”
When measuring loans that are 90 days or more past due, the FDIC found that loans with a combined worth of $136 billion were classified as delinquent during the first quarter. The agency added, “Almost 90-percent of the increase in noncurrent loans in the first quarter consisted of real estate loans, but noncurrent levels increased in all major loan categories.”
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