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Third Quarter 2009 FDIC Banking Profile

Posted by Wendell Brock on Wed, Nov 25, 2009

FDIC member institutions' earnings improved this quarter to a modest $2.8 billion, which is significant over last quarter's net loss of $4.3 billion and third quarter of 2008 of $879 million. Loan loss provision continued to affect the profitability of the industry as banks continued to cover their bad assets. Growth in securities and operating income helped the industry realize the profit, with 43 percent of the institutions reporting higher profits this quarter over the same quarter last year.  Just over one in four banks reported losses this quarter of 26.4 percent, which is slightly up from 24.6 percent a year ago.

Net Interest Margin, ALLL

Net interest was higher this quarter, rising to a four-year high of 4.6 billion. The average net interest margin (NIM) was 3.51 percent, slightly higher than last quarter. Most banks, 62.1 percent, reported higher NIM than last quarter; however only 42.2 percent had an NIM increase year over year. Provisions for loan and lease losses increased and total set aside, remained over $60 billion for the fourth straight quarter, rising to $62.5 billion. While the quarterly amount banks set aside was only 11.3 billion, $4.2 billion less than the second quarter, it was 22.2 percent higher than last year. Almost two out of three institutions, 62.6 percent, increased their loan loss provisions.

Net Charge Offs Remain High

Loan losses continued to mount, as banks suffered year over year increases for 11 straight quarters. Insured institutions charged off a net of $50.2 billion this quarter, a $22.6 billion increase or an 80.5 percent increase compared to third quarter of 2008. This is the highest annual charge off rate since banks began reporting this information in 1984. All major categories of loans saw significant increases in charge offs this quarter, but losses were largest amongst commercial and industrial (C&I) borrowers. While noncurrent loans continued to increase, the rate of increase slowed; noncurrent loans and leases increased $34.7 billion or 10.5 percent to $366.6 billion, which is 4.94 percent of all loans and leases. This is the highest level of noncurrent loans and leases in 26 years. The increase of noncurrent loans was the smallest in the past four quarters.

Eroding reserves

The reserve ratio increased as noncurrent loans increased, however the spread continued to widen. While the industry set aside 9.2 billion, 4.4 percent in reserves, which increased the reserve level from 2.77 percent to 2.97 percent. This increase was not enough to slow the slide - it was the smallest quarterly increase in the past four quarters and the growth in reserves lagged the growth of noncurrent loans, which caused the 14th consecutive quarterly decline in this ratio from 63.6 percent to 60.1 percent.

Loan Balances Decline Deposits Are Up

Loan and lease balances saw the largest quarterly decline since the industry started keeping track of these numbers in 1984; they fell by $210.4 billion or 2.8 percent. Total assets fell for the third straight quarter; assets at insured institutions fell by $54.3 billion, which follows a decline of $237.9 billion in the second quarter and a $303.2 billion decline in the first quarter. Deposits increased $79.8 billion or 0.4 percent during the third quarter, allowing banks to fund more loans with deposits rather than other liabilities. At the end of the quarter deposits funded bank assets was 68.7 percent, the highest level since second quarter 1997.

Troubled Banks Increase

The number of reporting insured institutions at the end of the quarter was down to 8,099  from 8,195; there were fifty bank failures and forty-seven bank mergers. This is the largest number of banks to fail since fourth quarter of 1992, when 55 banks failed. The number of banks on the FDIC's problem list increased from 416 to 552 at the end of the second quarter.

During the quarter, the number of new banks chartered was three.  This is the lowest level since World War II. This begs the question on what is the best way to get new capital into the banking industry. Should we recapitalize the existing banks including those in trouble? Or, should we start fresh with a new bank that can build a new, clean loan portfolio?

Another Item

CREED - a 501(c)3 nonprofit has started a Crowdfunding project/contest to help a small business - Look at the opportunity to be a part of something truly great! We will follow this closely as we are strong supporters of CREED.


Topics: Interest Rates, FDIC, banks, Community Bank, FDIC’s, Loans, Bank Capital, CREED, capital, equity capital, De Novo Banks, Noncurrent loans, community banks, Crowfunding

Quarterly Banking Profile Shows Industry Loss

Posted by Wendell Brock on Mon, Aug 31, 2009

After a small profit rebound in the first quarter of 2009, insured banking institutions recorded another aggregate net loss in the second quarter. The $3.7 billion loss was primarily related to sharply increased loan-loss provisions, write-downs of asset-backed commercial paper, and increased deposit insurance assessments. The commercial paper write-downs contributed to a $3.3 billion increase in extraordinary losses. And, higher deposit insurance comprised a good part of the industry’s $1.7 billion increase in non-interest expenses.

More than 28 percent of insured institutions recorded a second quarter loss; in the year-ago period, 18 percent were unprofitable.

Bright spots: noninterest income, NIM

Some banks partially offset the rash of higher expenses with improved net interest margins (NIM) and higher noninterest income. The average NIM rose 9 basis points to 3.48 percent, and larger banks were the primary recipients of this improvement. Noninterest income increased by 10.6 percent or $6.5 billion. Other positives included reduced realized losses on securities, higher gains on assets sales, higher servicing fees and improved trading revenues.

Records set: net charge-offs, noncurrent loan rate

Net charge-offs spiked to $48.9 billion in the second quarter, sending the net charge-off rate to a record 2.55 percent. In dollars, charge-offs rose more than 85 percent from the second quarter of last year. Commercial and industrial loans (C&I) and credit card loans were the categories with the largest charged-off amounts in the second quarter.

Noncurrent loans and leases rose 14.3 percent, marking a thirteenth consecutive quarterly increase. The increase was driven by 1-4 family residential mortgages, real estate construction and development loans, and loans backed by nonfarm, nonresidential real estate. The noncurrent loan rate rose to 4.35 percent, the highest level on record, despite a record decrease in loans 30-89 days past due. All major loan categories contributed to this decrease, with real estate loans accounting for 83.5 percent of the improvement.

Capital improves, assets decline

Equity capital grew to 10.56 percent, its highest level since the spring of 2007. On average, capital ratios improved, although this improvement was concentrated in fewer than half of the insured institutions.

While 57 percent of insured institution increased their assets in the quarter, the industry average showed an asset decline of 1.8 percent. More than half of the decline was related to loans and leases. C&I loan balances were down, as were 1-4 family residential mortgages, and real estate construction and development loans. Small business loan balances also declined industry-wide.

Problem list

The FDIC’s problem list now includes 416 institutions, making it the largest problem list since 1994. Twenty-four institutions failed in the second quarter and thirty-nine were merged into other banks. Only twelve new charters were approved.

Insurance fund

At quarter-end, the FDIC imposed a special assessment on insured banks totaling 5 basis points of each institution’s assets less Tier 1 capital. Some 89 institutions with assets of $4 trillion were assessed 10 basis points of their second quarter assessment base.

During the second quarter, total deposits at insured institutions increased by 0.7 percent. Over the prior twelve months, total domestic deposits grew 7.5 percent.  

Brokered deposits exceeding 10 percent of a bank’s domestic deposits are now included in the FDIC’s assessment calculation. At quarter-end, 1488 banks had brokered deposits exceeding 10 percent of their domestic deposits. Aggregate brokered deposits decreased by 5.8 percent in the quarter.

The Deposit Insurance Fund (DIF) declined 20.3 percent during the second quarter to $10.4 billion. Factors that reduced the fund balance included:

•    Increased loss provisions of $11.6 billion
•    Unrealized losses on available-for-sale securities of $1.3 billion

Factors that increased the fund balance included:

•    Accrued assessment income, including the special assessment, of $9.1 billion
•    Interest earned, realized gains on securities, debt guarantee surcharges from TLGP of $1.1 billion

The DIF reserve ratio was 0.22 percent at quarter-end, vs. 1.01 percent at the end of last year’s second quarter.

Topics: Quarterly Banking Report, Deposit Insurance Fund, Quarterly Banking Profile, equity capital

Quarterly Banking Profile Shows Profit Rebound amid Continuing Problems with Troubled Loans; DIF Shrinks

Posted by Wendell Brock on Thu, May 28, 2009

In the first quarter of 2009, the banking industry rebounded from a net loss in the prior quarter-an improvement that masked mixed performance. The first quarter cumulative net profit of $7.6 billion, the highpoint of the previous four quarters, was more than 60 percent below 2008's first quarter performance. Further, this year's profitability was largely fueled by strong trading revenues and realized gains on securities at large banks. Nearly one-quarter (21.6 percent) of banks reported a net loss, and a majority of banks reported quarter-over-quarter net income declines.  

A $7.6 billion increase in trading revenues boosted noninterest income, with additional contribution coming from increased servicing fees and gains on loan sales. The industry also benefited from an improved net interest margin (NIM), driven primarily by a lower cost of funds. The average NIM of 3.39 percent was slightly higher on a sequential and quarter-over-quarter basis.

Bad loans still a factor

First quarter charge-offs notched a slight sequential decline, but are still outpacing last year's level by almost 100 percent.

C&I loans accounted for most of the year-over-year increase in charge-offs, but credit cards, real estate construction loans and closed end 1-4 family residential real estate loans were also problematic. Net charge-offs in all major categories were higher than a year ago. The total annualized charge-off rate was 1 basis point below the fourth quarter's record-high level.

Noncurrent loans are still on the rise. The percentage of noncurrent loans and leases to total loans and leases rose 81 basis points during the first quarter to 3.76 percent, with the increase being led by real estate loans. Nearly three-fifths (58 percent) of banks indicated that their noncurrent loan balances increased during the first quarter.

Banks added to their reserves again this quarter, pushing the ratio of reserves to total loans up to the record level of 2.5 percent. This reserve building was outpaced by the rise in noncurrent loans, however, such that the ratio of reserves to noncurrent loans declined to 66.5 percent, a 17-year low.

Balance sheets shift

The industry's equity capital rose substantially, partially driven by reduced dividend payments and TARP infusions. The paring down of loan portfolios and trading accounts led to an industry-wide decline in total assets of $302 billion. As a result, the ratio of total deposits to industry assets rose to 66.1 percent, despite a slight decline in total deposits.

Failure rate high, DIF decreasing  

At quarter-end, there were 8,246 FDIC-insured commercial banks and savings institutions, down from 8,305 at year-end. Twenty-one banks failed in the first quarter. The problem list grew in number from 252 to 305, while the assets managed by problem banks increased 38 percent to $220 billion.

Loss provisions (for actual and anticipated failures) drove a 24.7 percent in the DIF during the quarter, bringing the balance to about $13 billion. The 21 failures during the first quarter are estimated to have cost the DIF $2.2 billion. At quarter-end, the reserve ratio was 0.27 percent, its lowest level in 16 years.

New charters approved during the first quarter of 2009 numbered 13, the lowest level since the first quarter of 1994.  There were 50 bank mergers during the quarter.

Topics: FDIC, Bank Failure, FDIC Insurance Fund, Quarterly Banking Profile, equity capital, De Novo Banks

FDIC Reports Aggregate Quarterly Loss for Banking Industry

Posted by Wendell Brock on Mon, Mar 02, 2009

The FDIC’s most recent Quarterly Banking Profile (QBP) confirms the continuation of problems for the banking industry, as several key metrics showed further deterioration in the fourth quarter. These are some highlights:

•    Quarterly earnings declined, swinging industry profitability to a net loss.
•    Loan loss provisions, net charge-offs, defaults and noncurrent loan balances increased.
•    Aggregate outstanding loans and leases decreased.
•    Total deposits increased.
•    Average net interest margin generally improved for larger institutions, but declined for community banks that fund most of their assets with interest-bearing deposits.

Degradation of earnings performance

For the first time since the fourth quarter of 1990, insured commercial banks and savings institutions reported a net quarterly loss. The aggregate loss, which exceeded $26 million, was fueled by a combination of loan loss provisions, trading losses and asset write-downs. Roughly half of the aggregate loss was driven by results at only four banks. But, 32 percent of all insured institutions reported a net loss. The industry’s quarterly return on assets (ROA) was a negative 0.77 percent, the worst quarterly ROA performance since 1987.  

Full-year 2008 net income was slightly more than $16 billion, vs. $100 billion in the year earlier. The full-year ROA was a meager 0.12 percent. These figures were somewhat inflated due to the accounting entries related to failures and mergers; excluding those impacts, the industry would’ve reported a loss for the year.

Loan loss provisions, charge-offs and defaults

Credit quality continued to be problematic. The industry’s loan loss provisions for the quarter were in excess of $69 billion, or more than half of aggregate net operating revenue. Net loan and lease charge-offs were nearly $38 billion, which is more than double the amount recorded in the year-earlier period. Charge-offs for real estate loans, both construction and development loans and residential mortgages, increased more than $10 billion on a combined basis.

At year-end, the industry was strapped with $230.7 billion in noncurrent loans. This compares to $186.6 billion at the end of the third quarter. The sharp increase does not bode well for a near-term lending or housing recovery, particularly since nearly 70 percent of that increase was related to mortgage loans—residential mortgages, C&I loans, home equity loans and other loans secured by real estate.

Trading losses, asset write-downs, declining equity capital

Trading losses in the fourth quarter were large at $9.2 billion, but down from last year’s level of $11.2 billion. Charges associated with goodwill impairments and factors jumped more than $4 billion from last year, to $15.8 billion.

The disappearance of $39.4 billion in goodwill, along with a reduction in other comprehensive income, led to another consecutive reduction in total equity capital.

Total regulatory capital, however, notched an increase of 2.2 percent. At year-end, 97.6 percent of insured banks matched or beat the highest regulator capital standards.

Restructuring reduces loans outstanding

Net loans and leases outstanding slipped by 1.7 percent. The decline was largely attributable to portfolio restructuring by several large institutions.

Mergers and failures shrink the industry

During the fourth quarter, the number of insured institutions shrank by 79. There were 12 failures in the quarter and 15 new charters. The rest of the decline was related to merger activity and FDIC assistance transactions. For the year, 25 banks failed and 98 institutions were chartered.  

As of December 31, the FDIC’s bad bank list contained 252 insured institutions, representing total assets of $159 billion. 

Topics: FDIC, Banking industry, Bank Mergers, Quarterly Banking Profile, equity capital, charge-offs, Loss, earning performance, mergers

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