Quarterly Banking Profile, June 30, 2009
On August 27, 2009, the FDIC released their Quarterly Banking Profile for the Second Quarter of 2009.
The Banking Profile depicts a banking industry that continues to struggle as shown by deteriorating loan quality, an increased number of banks on the Problem Bank List, a declining FDIC Insurance Fund, aggregate losses of $3.7 billion, increased charge-offs and non current loans and 28% of all banks reporting a net loss for the quarter.
Comments by FDIC Chairman Sheila Bair acknowledged that although the US economy is growing again, the US banking industry still has many severe challenges to overcome. (Also see Is The Banking Industry Collapsing or Improving? – Charts Provide Some Insights)
“While challenges remain, evidence is building that the U.S. economy is starting to grow again,” said FDIC Chairman Sheila Bair. “Banking industry performance is — as always — a lagging indicator. The banking industry, too, can look forward to better times ahead. But, for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line.”
“Deteriorating loan quality is having the greatest impact on industry earnings as insured institutions continue to set aside reserves to cover loan losses,” Chairman 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.”
Highlights of the FDIC report include the following:
- Increased expenses for bad loans was the primarily reason for a net loss of $3.7 billion by FDIC insured institutions. Troubled loans continued to rise as can be seen by the the $66.9 billion increase in loan-loss provisions during the quarter, a 33% increase from year ago levels. 65% of institutions reported lower quarterly earnings and 28% of all banks reported losses for the quarter. In the same period last year, the industry had reported a quarterly profit of $4.7 billion.
- Noninterest income increased by $6.5 billion or 10.6%, while extraordinary losses and noninterest expenses increased by $5 billion.
- Average net interest margins improved to 3.48% from 3.39% due to the lowered cost of bank funds.
- Net charge-offs set a quarterly record at $48.9 billion compared to $26.4 billion a year earlier. Net charge-offs increased by 165% on commercial and industrial loan, 85% on credit card loans, and 117% on real estate construction and development loans.
- Noncurrent loans and leases (past due 90 days or more) increased for the 13th consecutive quarter, rising to all time record levels at $41.4 billion. The noncurrent rate on all loans and leases rose to 4.35%, the highest level in the 26 years that insured institutions have reported this data.
- Loan loss reserves increased by 8.6% or $16.8 billion but did not keep pace with the rise in noncurrent loans. The industry’s ratio of reserves to noncurrent loans fell to 63.5% from 66.8%, the lowest level since the third quarter of 1991.
- Overall capital levels increased by 2.4% or $32.5 billion but fewer than half of all institutions reported an increase in capital ratios. Dividend payments of $6.2 billion was 66% lower than the $17.7 billion paid out last year.
- Industry assets declined overall by $238 billion or 1.8%, due primarily to a reduction in assets at the largest institutions. 57% of institutions increased their assets in the second quarter.
- Small business loans declined by $14.8 billion or 1.9% over the past year.
- Total deposits increased by $66.7 billion, due primarily to an increase of deposits at foreign offices. Domestic deposits showed only a small $15.7 billion or .2% increase.
- The Problem Bank List grew to to 416 institutions from 305 last quarter. The total assets at Problem Banks increased to $299.8 billion from $220 billion last quarter. This is the largest number of problem banks since June 30, 1994. The number of FDIC insured institutions declined to 8,195 from 8,247 last quarter.
- Insured deposits at FDIC institutions decreased by .3% during the second quarter.
- The FDIC Deposit Insurance Fund (DIF) decreased by $2.6 billion or 20% during the second quarter to $10.4 billion. FDIC assessments on FDIC insured institutions increased to $9.1 billion; a special assessment on all insured banks was imposed on June 30, 2009.
- The DIF fund reduction was due to an $11.6 increase in the loss provision for banking failures. During the second quarter 24 institutions failed with assets of $26.4 billion, the largest number of bank failures since fourth quarter 1992. For the 6 months ending June 30, 2009, 45 banking failures cost the FDIC $10.5 billion.
- The DIF ratio fell to .22% from .27% the previous quarter. This is the lowest DIF ratio since since March 1993.