Bank profits rise, but so do bad loans

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By Wendell Cochran

Investigative Reporting Workshop, American University
updated 6:55 p.m. CT, Mon., June 14, 2010

The nation's banks keep looking for signs that they've turned the proverbial corner toward prosperity, and there may have been a few faint indicators in the first quarter that the worst days are behind them.

But after more than two years of stress, it's probably still too early for many to relax, according to quarterly financial reports compiled by the Federal Deposit Insurance Corp. and analyzed by the Investigative Reporting Workshop at American University in Washington.

Even though profits increased sharply, troubled assets continued to grow. According to the Workshop's analysis, 411 banks have a "troubled asset ratio" of more than 100, up from 389 banks at the end of December. In other words, they had more problem loans and foreclosed properties on their books than capital and loan loss reserves.

While not an official FDIC statistic, the troubled asset ratio has proven to be a strong indicator of bank stress. Of the 81 banks that have failed so far this year, nearly all had trouble asset ratios above 100, according to their latest FDIC reports.


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