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.
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.
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.