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FDIC-Backed Financial Institutions Show Signs of Health

In welcome news for market watchers everywhere, ""FDIC"":http://www.fdic.gov/-insured banks and savings institutions opened their books to reveal a $28.8-billion in aggregate profits over the second quarter, according to the federal agency. Meanwhile, the FDIC's own books showed a balance for the first time in two years, while ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô marking another first ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the number of ""problem"" institutions closely watched by the agency fell for the first time in nearly five years.

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According to the FDIC, which released a ""statement"":http://www.fdic.gov/news/news/press/2011/pr11141.html to mark the occasions, financial institutions issuing loans backed by the agency saw their net earnings jump from a lowly $20.9 billion over the second quarter last year to the figure above, reflecting a $7.9-billion upshot. Attributing the upswing to fewer bad loan provisions, the agency said that these net income reports marked an eighth consecutive quarter in the year-over-year upswing.

""Banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009,"" Martin J. Gruenberg, FDIC acting chairman, said in the statement, adding that ""this trend has expanded to include a growing proportion of insured institutions.""

The FDIC found that 60 percent of financial institutions with its loan guarantees entered the $28.8-billion updraft, with the typical return on assets making the leap from 0.63 percent last year to 0.85 percent this year.

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Loss provisions over the second quarter fell to $19 billion, beneath half the $40.4 billion that insured banks and savings institutions retained for losses. Gains on securities dropped by 61.1 percent, hitting $1.3 billion, as net operating revenue dipped 1.8 percent, cresting at $3 billion.

With earnings emerging as the silver lining for a dark economic cloud, loans and leases 90 days past due fell lower, continuing a trend from last year. At the same time, insured banks and thrifts lobbed off $28.8 billion in uncollectable loans, reflecting a $20.9-billion, or 42.1-percent, loss from the previous year.

Also on the good-news reel, fewer banks showed signs of ill financial health for the first time in 19 quarters, with the overall number falling from 888 to 865. Assets with which the FDIC found issue plummeted from $397 billion to $372 billion. Over the stretch of the past few quarters, only 22 FDIC-insured banks and savings associations collapsed during the second quarter ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the fewest since the financial crisis reached a tipping point in 2009.

According to the FDIC, only 48 banks and savings associations backed by the federal agency shuttered their windows, a better number in light of the 86 collapsed institutions over 2010.

The statement also found a spat of health in loan portfolios, with loan balances hitting a quarterly stride for the second time in three years. Loans and leases went up on the whole by $64.4 billion, with borrowers taking out $34.3 billion in commercial and industrial loans, among others.

Despite the sunny show by healthier loan portfolios, more even balances, and less risky financial institutions, Gruenberg obviated the good news by making a case for cautious optimism.

""Recent events have reminded us that the U.S. economy and U.S. banks still face serious challenges ahead,"" he said. ""The FDIC will remain alert to these challenges going forward.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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