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Quarterly Banking Profile

ALL INSTITUTIONS PERFORMANCE
FIRST QUARTER 2012

Notes to Users

  • Net Income of $35.3 Billion Is Highest Since Second Quarter 2007
  • Reduced Loss Provisions and Higher Noninterest Income Contribute to Earnings Improvement
  • Loan Balances Decline for First Time in Four Quarters
  • Failures Decline to Lowest Level in Over Three Years



  • Earnings Rise to Post-Crisis High

    FDIC-insured commercial banks and savings institutions reported $35.3 billion in net income for first quarter 2012. This represents a $6.6 billion (22.9 percent) improvement over first quarter 2011 results, and is the highest quarterly net income reported by the industry since second quarter 2007. The average return on assets (ROA) rose above the 1 percent threshold for only the second time since second quarter 2007 (third quarter 2011 ROA was 1.03 percent). Quarterly net income has now improved year over year for 11 consecutive quarters. More than two-thirds of all institutions (67.5 percent) reported year-over-year improvement in their quarterly earnings, and only 10.3 percent were unprofitable, the lowest level since second quarter 2007.

    Revenues Receive a Boost from Loan Sales

    Net operating revenue (the sum of net interest income and total noninterest income) increased year over year for only the second time in the last five quarters, rising by $5 billion (3.1 percent). Noninterest income totaled $63 billion, an increase of $4.6 billion (8 percent) from first quarter 2011. Gains on loan sales were $2.3 billion (132.4 percent) higher than a year earlier, income resulting from changes in fair values of financial instruments was $881 million (38.2 percent) higher, income from fiduciary activities was up by $413 million (6.2 percent), and service charges on deposit accounts were $194 million (2.4 percent) above the level of a year ago. Net interest income was $378 million (0.4 percent) higher, even though the quarterly average net interest margin declined year over year from 3.66 percent to 3.52 percent. Almost two out of every three banks—63.9 percent—reported year-over-year increases in net operating revenue. In addition to the contribution from increased net operating revenue, first-quarter earnings received a boost from higher realized gains on investment securities and other assets, which were $2 billion more than a year earlier.

    Loan-Loss Provisions Continue to Fall

    Provisions for loan-and-lease losses fell for a tenth consecutive quarter, declining by $6.6 billion (31.6 percent) from first quarter 2011 levels. The $14.3 billion that banks set aside in provisions was the smallest quarterly total since second quarter 2007. Slightly fewer than half of all institutions (45.8 percent) reported lower loss provisions, while fewer than one in three (32 percent) increased their provisions over first quarter 2011 levels.

    Loan Losses Improve in All Major Loan Categories

    Loan losses declined from year-ago levels for a seventh consecutive quarter. Net charge-offs (NCOs) totaled $21.8 billion in the first quarter, the lowest quarterly total in four years, and $11.7 billion (34.8 percent) less than in first quarter 2011. Charge-offs were lower in all major loan categories. The largest year-over-year declines were in credit cards, where NCOs fell by $4.3 billion (37.7 percent), in real estate construction and land loans, where NCOs were $1.8 billion (60.6 percent) lower, and in commercial and industrial (C&I) loans, where NCOs declined by $1.5 billion (44.4 percent).

    Noncurrent Loans Decline to Three-Year Low

    The amount of loans and leases that were noncurrent—90 days or more past due or in nonaccrual status—fell for the eighth quarter in a row, declining by $1 billion (0.3 percent). At $305 billion, noncurrent loans are at their lowest level in three years. Noncurrent levels declined in most major loan categories; however, noncurrent loans secured by 1-4 family residential real estate properties increased by $7.5 billion (4.1 percent) as a result of the application of more stringent methodologies for recognizing impairment in junior-lien mortgages, as well as a $10 billion (14.3 percent) increase in noncurrent rebooked “GNMA loans” that carry federal guarantees.1 Excluding rebooked GNMAs, noncurrent first-lien mortgage balances declined by $7.2 billion (7.2 percent) during the quarter. Noncurrent real estate construction and land loans declined by $3.7 billion (11.4 percent), noncurrent C&I loans fell by $1.4 billion (7.9 percent), and noncurrent loans secured by nonfarm nonresidential real estate properties declined by $1.3 billion (3.2 percent).

    Large Banks Reduce Reserves Further

    Banks’ reserves for loan losses declined by $8 billion (4.2 percent) during the quarter, as net charge-offs of $21.8 billion exceeded loss provisions of $14.3 billion. This is the eighth consecutive quarter that industry reserves have fallen; at $183.1 billion, they are $80 billion (30.4 percent) below the peak level of two years ago, and their lowest level since year-end 2008. More institutions added to their reserves than reduced them (58.7 percent to 33.4 percent), but the magnitude of the reductions surpassed the additions. Almost 90 percent of the largest banks—institutions with more than $100 billion in assets—reduced their reserves in the first quarter. The reduction in reserves, combined with the modest decrease in noncurrent loan balances, meant that the industry’s “coverage ratio” of reserves to noncurrent loans declined for a third consecutive quarter, falling from 62.5 percent to 60 percent.

    Capital Levels Are at or Near Record Levels

    Banks added to their capital in the quarter, as bank equity increased by $18.1 billion (1.2 percent) and tier 1 leverage capital rose by $15.1 billion (1.2 percent). Retained earnings contributed $14.3 billion to the increase in capital, up from $13.6 billion in first quarter 2011. Banks paid $21 billion in dividends, an increase of $5.9 billion (38.9 percent) from a year ago. The average levels of all three regulatory capital ratios rose during the quarter. The average leverage capital ratio matched an all-time high of 9.2 percent at the end of the quarter, while the average tier 1 risk-based capital ratio set a new record of 13.28 percent. The total risk-based capital ratio rose from 15.31 percent to 15.52 percent during the quarter, almost matching the all-time high of 15.53 percent registered a year ago.

    Loan Balances Decline While Other Assets Increase

    Total assets of insured institutions increased by only $40.9 billion (0.3 percent), as total loan and lease balances declined by $56.3 billion (0.8 percent), and Fed funds sold and securities purchased under resale agreements fell by $13.3 billion (2.9 percent). Banks’ holdings of mortgage-backed securities increased by $84.6 billion (5.1 percent), while investments in state and municipal securities increased by $7.7 billion (3.5 percent). Balances due from Federal Reserve Banks increased by $60 billion (8.9 percent). Loan balances declined in most major categories during the quarter, led by credit cards, which had a seasonal drop of $38.2 billion (5.6 percent). Closed-end 1-4 family residential real estate loan balances fell by $19.2 billion (1 percent), home equity lines of credit declined by $13.1 billion (2.2 percent), and real estate construction and land loans fell by $11.7 billion (4.9 percent). Small business and farm loan balances declined by $10.8 billion (1.6 percent). The only major loan categories posting increases in the quarter were C&I loans (up $27.3 billion, or 2 percent), and auto loans (up $4.5 billion, or 1.5 percent).

    Deposits Continue to Replace Other Liabilities

    Deposits in domestic offices increased by only $67.8 billion (0.8 percent) after rising by more than $200 billion in each of the previous three quarters. In contrast to those quarters, when much of the deposit growth occurred in large-denomination noninterest-bearing accounts, much of the domestic deposit growth in first quarter 2012 consisted of smaller-denomination interest-bearing deposits. Deposits in foreign offices, which had fallen in each of the previous three quarters, increased by $6.9 billion (0.5 percent). For the sixth consecutive quarter, insured institutions reduced their nondeposit liabilities by $52 billion (2.4 percent). Federal Home Loan Bank advances fell by $21.7 billion (6.6 percent), while trading liabilities declined by $25.6 billion (8.2 percent).

    Only 16 Banks Fail in the First Quarter

    The number of insured institutions reporting quarterly financial results declined to 7,307, from 7,357 at year-end 2011. Two institutions’ financial reports had not been received at the time this publication was prepared. Mergers absorbed 27 institutions during the quarter, while 16 insured institutions failed. This is the smallest number of bank failures in a quarter since fourth quarter 2008, when there were 12 failures. For the second quarter in a row, no new reporters were added. In the last five quarters, the only new charters that have been added have been charters created to absorb or liquidate failed banks. The number of insured institutions on the FDIC’s “Problem List” declined from 813 to 772 during the quarter, and assets of “problem” banks fell from $319 billion to $292 billion. The number of “problem” institutions has fallen in each of the last four quarters, and is now at its lowest level since year-end 2009.

    Chart 1. Quarterly Net Income, 2008-2012

    Chart 2. More Banks Are Improving Their Earnings, While Fewer Are Unprofitable

    Chart 3. Provisions Declined While Revenues Rose in First Quarter 2012

    Chart 4. Quarterly Net Interest Margins, 2000-2012

    Chart 5. Indicators of Asset Quality Continue to Improve

    Chart 6. Quarterly Change in Total Loan Balances, 2007-2012

    Chart 7. Balances Are Still Falling in Most Major Loan Categories

    Chart 8. Quarterly Changes in the Number of Troubled Institutions

    TABLE I-A. Selected Indicators, All FDIC-Insured Institutions

    TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions

    TABLE III-A. First Quarter 2012, All FDIC-Insured Institutions

  • Asset Concentration Groups
  • Asset Size Distribution & Geographic Regions
  • TABLE IV-A. Full Year 2011, All FDIC-Insured Institutions

  • Asset Concentration Groups
  • Asset Size Distribution & Geographic Regions
  • TABLE V-A. Loan Performance, All FDIC-Insured Institutions

  • Asset Concentration Groups
  • Asset Size Distribution & Geographic Regions
  • TABLE VI-A. Derivatives, All FDIC-Insured Call Report Filers

    TABLE VII-A. Servicing, Securitization and Asset Sales Activities (All FDIC-Insured Call Report Filers)


    Footnotes:

    1 See GNMA Buy-Back Option in Notes to Users.

    Last Updated 05/24/2012 Questions, Suggestions & Requests