Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
Rising loan-loss provisions continued to dominate industry results, but growth in operating revenues, combined with appreciation in securities values, helped the industry post an aggregate net profit. Insured institutions earned $2.8 billion in net income in the third quarter of 2009, more than three times the $879 million they earned a year earlier and an improvement over the $4.3 billion net loss posted in the second quarter of 2009. Growth in net interest income, lower realized losses on securities and other assets, higher noninterest income, and lower noninterest expenses, all contributed to the year-over-year increase in net income. Only 43 percent of all institutions reported higher quarterly earnings compared to a year ago, but this is the highest proportion reporting improved earnings in the past six quarters. More than one in four institutions (26.5 percent) was unprofitable in the third quarter, up slightly from 24.6 percent a year ago.
Net interest income was $4.6 billion (4.8 percent) higher than in the third quarter of 2008. The average net interest margin (NIM) in the third quarter was 3.51 percent, the highest quarterly average since the third quarter of 2005. Almost two-thirds of all institutions (62.1 percent) reported higher NIMs than in the second quarter, but only 42.2 percent registered year-over-year NIM improvement. Realized losses on securities and other assets totaled $4.1 billion, which was $3.8 billion less than the $7.9 billion in losses the industry experienced a year earlier. Noninterest income was $4.0 billion (6.8 percent) higher, as net gains on loan sales were up by $2.7 billion and servicing fees rose by $1.9 billion (45.8 percent). Total noninterest expense was $1.6 billion (1.7 percent) below the level of a year earlier, the first time since the fourth quarter of 2006 that the industry has experienced a year-over-year decline in quarterly noninterest expense. Lower expenses for goodwill impairment and other intangible asset charges (down $1.2 billion, or 23.7 percent) were chiefly responsible for the decline in total noninterest expenses, but expenses for premises and fixed assets were lower as well, falling by $230 million (2.0 percent).
Provisions for loan and lease losses totaled $62.5 billion, marking the fourth consecutive quarter that industry provisions have exceeded $60 billion. The third quarter total was $11.3 billion (22.2 percent) higher than a year earlier, but it was $4.8 billion (7.1 percent) less than the amount that insured institutions set aside in the second quarter. It was also the smallest year-over-year increase in quarterly loss provisions in the past eight quarters. Almost two out of three institutions (62.6 percent) increased their loss provisions over year-earlier levels.
Loan Losses Remain High
Net charge-offs continued to rise, registering a year-over-year increase for an 11th consecutive quarter. Insured institutions charged off $50.8 billion (net) in the quarter, an increase of $22.6 billion (80.5 percent) compared to the third quarter of 2008. Net charge-offs were higher, year-over-year, at 60 percent of insured institutions. The annualized net charge-off rate rose to 2.71 percent, from 1.43 percent a year earlier and 2.56 percent in the second quarter. This is the highest annualized net charge-off rate in any quarter since insured institutions began reporting quarterly income and expenses in 1984, and it marks the third time in the past four quarters that the net charge-off rate has reached a new high. The year-over-year increase in charge-offs was led by loans to commercial and industrial (C&I) borrowers, but all major loan categories had sizable increases in charge-offs. Net charge-offs of C&I loans were $4.6 billion (117.5 percent) higher than a year ago. Charge-offs of credit card loans were $4.4 billion (78.2 percent) higher, residential mortgage charge-offs were up by $3.7 billion (63.4 percent), charge-offs of real estate construction and development (C&D) loans rose by $3.1 billion (68.1 percent), and charge-offs of home equity lines of credit were $2.2 billion (78.4 percent) higher.
Growth in Noncurrent Loans Slows
The amount of loans that were noncurrent (90 days or more past due or in nonaccrual status) also continued to rise. Noncurrent loans and leases increased by $34.7 billion (10.5 percent) in the third quarter, to $366.6 billion, or 4.94 percent of all loans and leases, the highest noncurrent rate registered in the 26 years that insured institutions have reported noncurrent loan data. Noncurrent residential mortgage loans increased by $19.0 billion (13.9 percent), noncurrent C&I loans rose by $7.3 billion (19.2 percent), and noncurrent real estate loans secured by nonfarm nonresidential real estate properties increased by $5.7 billion (18.2 percent). The increase in noncurrent loans was the smallest in the past four quarters, as the rate of growth in noncurrent loans slowed for the second quarter in a row.
Reserve Coverage Continues to Erode
In the face of the persistent rise in troubled loans, insured institutions continued to build their loan-loss reserves. The industry set aside $11.7 billion more in loan-loss provisions than it charged off in the third quarter, contributing to a $9.2 billion (4.4 percent) increase in total reserves. This was the smallest quarterly increase in reserves in the past eight quarters, but it lifted the industry’s ratio of reserves to total loans and leases from 2.77 percent to 2.97 percent. However, growth in reserves continued to lag the rise in noncurrent loans, and the industry’s ratio of reserves to noncurrent loans declined for a 14th consecutive quarter, from 63.6 percent to 60.1 percent.
Rising Securities Values Boost Equity Capital
The industry’s total bank equity capital (excluding minority interests in consolidated subsidiaries) increased by $40.2 billion (2.9 percent) in the third quarter. Most of the increase was a result of appreciation in the values of securities and other investments. Accumulated other comprehensive income, which includes unrealized gains and losses on securities held for sale, increased by $30.5 billion during the quarter. Tier 1 leverage capital, which does not include other comprehensive income, increased by $15.6 billion (1.4 percent). The industry’s equity to assets ratio increased from 10.55 percent to 10.90 percent during the quarter. The average regulatory capital ratios for the industry (tier 1 leverage ratio, tier 1 risk-based capital ratio, and total risk-based capital ratio) all improved during the quarter as well, and are now at their highest levels in the 19 years since current risk-based capital standards were enacted.
Total assets of insured institutions fell for a third consecutive quarter. The $54.3 billion (0.4 percent) decline followed a $237.9 billion decrease in industry assets in the second quarter and a $303.2 billion drop in the first quarter. The decline in assets was led by falling loan balances. Total loan and lease balances declined by $210.4 billion (2.8 percent) during the quarter. This is the largest percentage decline in loan balances in any quarter since insured institutions began reporting quarterly results in 1984. C&I loans fell by $89.1 billion (6.5 percent), residential mortgage loan balances declined by $83.7 billion (4.2 percent), and real estate C&D loans dropped by $43.6 billion (8.1 percent). The reduction in loan balances was partially offset by increased balances at Federal Reserve banks (up by $142.4 billion, or 36.7 percent) and by a $59.7 billion (2.6 percent) increase in securities. Banks increased their holdings of U.S. Treasury securities by $28.6 billion (49.3 percent) during the quarter. Much of the increase in other securities balances reflected higher market values for available-for-sale securities.
Reliance on Deposit Funding Increases
Total deposits increased by $79.8 billion (0.9 percent), as insured institutions continued to reduce their reliance on nondeposit funding sources. Deposits in domestic offices fell by $2.0 billion, with non-interest-bearing deposits registering a $17.7 billion (1.2 percent) decline. Deposits in foreign offices increased by $81.9 billion (5.6 percent), following a $51.0 billion increase in the second quarter. Nondeposit liabilities declined by $176.1 billion (6.2 percent), including a $59 billion (9.3 percent) decline in Federal Home Loan Bank borrowings and an $86.6 billion (23.8 percent) decline in other short-term borrowings by Call reporters. At the end of September, deposits funded 68.7 percent of total industry assets, the highest proportion since June 30, 1997.
Only Three New Charters Were Added in the Third Quarter
The number of insured institutions reporting financial results fell to 8,099 in the third quarter, from 8,195 in the second quarter. Forty-seven institutions were absorbed by mergers during the quarter, while 50 institutions failed. This is the largest number of failures in a quarter since the fourth quarter of 1992, when 55 insured institutions failed. Only three insured institutions were chartered in the quarter, the smallest quarterly total since World War II. The number of insured institutions on the FDIC’s “Problem List” rose from 416 to 552 during the quarter, and total assets of “problem” institutions increased from $299.8 billion to $345.9 billion. Both the number and assets of “problem” institutions are now at the highest level since the end of 1993.
Chart 1. Quarterly Net Income
Chart 2. Major Factors Affecting Earnings
Chart 5. Capital Ratios
Chart 6. Twelve-Month Loan Growth Rates
TABLE I-A. Selected Indicators, All FDIC-Insured Institutions
TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions
TABLE III-A. Third Quarter 2009, All FDIC-Insured Institutions
TABLE IV-A. First Three Quarters 2009, All FDIC-Insured Institutions
TABLE V-A. Loan Performance, All FDIC-Insured Institutions
TABLE VI-A. Derivatives, All FDIC-Insured Commercial Banks and State-Chartered Savings Banks
TABLE VII-A. Servicing, Securitization, and Asset Sales Activities
|Last Updated 11/24/2009||Questions, Suggestions & Requests|