More than 28% of all institutions insured by the Federal Deposit Insurance Corp. (FDIC) reported a net loss in the second quarter, bringing the aggregate net loss for the quarter to $3.7 billion, the FDIC says.
By comparison, FDIC-insured institutions reported $4.8 billion in profits during the second quarter of 2008.
‘While challenges remain, evidence is building that the U.S. economy is starting to grow again,’ Chair Sheila Bair said in an FDIC statement. ‘Banking industry performance is, as always, a lagging indicator."
Total reserves of the agency's Deposit Insurance Fund stood at $42 billion at the end of the quarter. The contingent loss reserve, which totaled $28.5 billion on March 31, rose to $32 billion as of June 30, reflecting higher actual and anticipated losses from failed institutions. Additions to the contingent loss reserve during the second quarter caused the fund balance to decline from $13 billion to $10.4 billion – the lowest it's been since the early 1990s.
Meanwhile, the FDIC's list of "problem institutions" continued to rise in the second quarter. At the end of June, there were 416 insured institutions on the problem list – 111 institutions more than the 305 listed on March 31. The total number of problem institutions was the largest since June 30, 1994, when there were 434 institutions on the list.
Total assets of problem institutions increased during the quarter from $220 billion to $299.8 billion – the highest level since December 31, 1993.
Indicators of asset quality also continued to worsen during the second quarter. Both the quarterly net charge-off rate and the percentage of loans and leases that were noncurrent (i.e., 90 days or more past due or in nonaccrual status) reached the highest levels registered in the 26 years that insured institutions have reported these data.
Insured institutions charged off $48.9 billion in uncollectible loans during the quarter – up from $26.4 billion a year earlier – and noncurrent loans and leases increased by $40.4 billion during the second quarter. At the end of June, noncurrent loans and leases totaled $332 billion, or 4.35% of the industry's total loans and leases.
‘Deteriorating loan quality is having the greatest impact on industry earnings as insured institutions continue to set aside reserves to cover loan losses,’ Bair noted. ‘Of all the major earnings components, the amount that insured institutions added to their reserves for loan losses was, by far, the largest drag on industry earnings compared to a year ago.’