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Quarterly Banking Profile

Second Quarter 2011

Notes to Users

  • Earnings Post 38 Percent Gain Despite Lower Revenues
  • Reduced Loan-Loss Provisions Lead to Improved Net Income
  • Fewer Banks Report Losses, More Report Earnings Increases
  • Domestic Deposit Growth Is Strong at Large Banks
  • Loan Balances Register First Actual Increase in Three Years
  • “Problem List” Shrinks for First Time Since 2006

  • Banks Earned $28.8 Billion in the Second Quarter

    FDIC-insured institutions reported net income of $28.8 billion in second quarter 2011, an increase of $7.9 billion (37.9 percent) from a year earlier. This is the eighth consecutive quarter that industry earnings have improved year-over-year, but it is the smallest such improvement in the past seven quarters. Lower expenses for loan-loss provisions were the principal source of the increase in quarterly net income. More than half of all institutions (59.6 percent) reported improved earnings compared with a year ago. This represents an improvement over first quarter 2011, when 56 percent of institutions reported year-over-year earnings gains. Only 15.2 percent of institutions reported a net loss for the quarter. This is the smallest percentage of institutions that were unprofitable since first quarter 2008. The average return on assets (ROA) rose to 0.85 percent, from 0.63 percent a year earlier. At community banks (institutions with less than $1 billion in assets), the average ROA of 0.57 percent was below the industry average, but more than twice the 0.26 percent registered a year ago.

    Loss Provisions Continue to Fall

    Loan-loss provisions totaled $19 billion, a decline of $21.4 billion (53 percent) from second quarter 2010. This is the seventh consecutive quarter that provisions have declined from year-earlier levels. The $21.4 billion provision decline was the smallest year-over-year decline in the past five quarters. Half of all institutions (50.4 percent) reported reduced provisions, while fewer than a third (32.6 percent) increased their provisions. Among community banks, 48.6 percent reported lower provisions, while 68.5 percent of institutions with more than $1 billion in assets reduced their provisions. As has been the case in recent quarters, the largest reductions in provisions occurred at credit card lenders that had reported large increases in loss reserves in first quarter 2010.

    Revenues Decline for a Second Consecutive Quarter

    Net operating revenue (net interest income plus total noninterest income) was lower than a year ago for the second quarter in a row, as net interest income declined by $1.9 billion (1.7 percent) and noninterest income fell by $1.1 billion (1.9 percent). The decline in net interest income was caused by lower asset yields at a number of the largest banks, reflecting growth in low-yielding balances at Federal Reserve banks. Net interest margins (NIMs) were lower than a year earlier at nine of the ten largest banks. Industry-wide, half of all banks (50.7 percent) had NIM declines, although only 39.4 percent reported declines in net interest income. The average NIM in the second quarter was 3.61 percent, down from 3.76 percent in second quarter 2010. At community banks, the average NIM improved slightly, from 3.80 percent to 3.83 percent. The reduction in the industry’s noninterest income reflected lower loan-servicing fee income (down $1.5 billion, or 40.9 percent), and a decline in service charges on deposit accounts (down $1.3 billion, or 12.8 percent). The only categories of noninterest income that had year-over-year growth were income from fiduciary activities (up $595 million, or 9.3 percent), investment banking fees (up $416 million, or 17.7 percent), and trading revenue (up $388 million, or 5.5 percent). Slightly more than half of all institutions (51.6 percent) reported year-over-year declines in noninterest income. In addition to the decline in net operating revenue, realized gains on securities and other assets fell by $1.3 billion (61.1 percent). Total noninterest expenses were $6 billion (6.2 percent) higher than a year ago.

    Trend in Loan Losses Remains Favorable

    Net loan charge-offs (NCOs) declined year-over-year for a fourth consecutive quarter, as the pace of improvement in loan losses continued to gain momentum. The $20.9 billion (42.1 percent) decline was the largest since the recovery in credit quality began. NCOs were lower across all major loan categories. The largest decline was in credit card NCOs, which were $9.6 billion (51.6 percent) lower than in second quarter 2010. Real estate construction loan NCOs were $2.9 billion (55.3 percent) less than a year earlier, while commercial and industrial loan (C&I) NCOs fell by $2.7 billion (50.9 percent). Half of all institutions (50.3 percent) reported year-over-year declines in NCOs, while 41.3 percent reported increases.

    Banks Report Sizable Declines in Noncurrent Loans

    At the end of June, insured institutions reported $319.8 billion in noncurrent loans (loans 90 days or more past due or in nonaccrual status), which was $22.2 billion (6.5 percent) less than they reported at the end of the first quarter. The decline in noncurrent balances in the second quarter was led by a $6.8 billion (3.9 percent) reduction in noncurrent closed-end 1-4 family residential real estate loans, and by a $6.1 billion (12.8 percent) reduction in noncurrent real estate construction and development loans. All other major loan categories also had declines in noncurrent levels during the quarter. This is the fifth consecutive quarter in which noncurrent loan balances have fallen; they are now $90.2 billion (22 percent) below the peak level reached at the end of first quarter 2010.

    Most Large Banks Continued to Reduce Their Loss Reserves

    Reserves for loan losses declined by $10.9 billion (5 percent) during the second quarter. This is the fifth consecutive quarter that reserves have fallen; at $207.6 billion, they are down $55.6 billion (21.1 percent) from their cyclical peak at the end of first quarter 2010. Banks added $9.8 billion less in loss provisions to their reserves than they charged-off during the quarter. Reserve reductions were more prevalent among the largest banks. Seventy of the 100 largest banks reduced their reserve balances during the quarter; in the remainder of the industry, only 36.8 percent reported reserve declines. The coverage ratio of reserves to noncurrent loans improved slightly, despite the decline in industry reserves, from 63.9 percent to 64.9 percent, reflecting lower noncurrent loan balances.

    Higher Securities Values Provide a Boost to Equity Capital

    Equity capital increased by $26.6 billion (1.8 percent), due in part to a $12.6 billion increase in unrealized gains on securities held for sale. Much of the increase in unrealized gains consisted of appreciation in the values of banks’ mortgage-backed securities portfolios. Retained earnings contributed $8.5 billion to equity formation, as banks paid $20.3 billion of their quarterly earnings in dividends. A year ago, second quarter dividends totaled $12.9 billion. Tangible common equity (equity less intangible assets, preferred stock, and deferred tax assets) increased by $35 billion (3.3 percent). At the end of the second quarter, the industry’s equity-to-assets ratio was 11.3 percent, the highest level since 1938. The industry’s three regulatory capital ratios— the leverage capital ratio, tier 1 risk-based capital ratio, and total risk-based capital ratio—were at all-time highs at the end of the quarter.

    Loan Balances Post a $64.4 Billion Increase

    Total loans and leases at insured institutions rose by $64.4 billion (0.9 percent) during the quarter. Apart from the $221 billion increase in reported balances in first quarter 2010 that was caused by new accounting rules, this is the first actual growth in loan balances since second quarter 2008. C&I loans increased for a fourth consecutive quarter, rising by $34.3 billion (2.8 percent), while auto loans were up by $9.7 billion (3.4 percent), credit card loan balances rose by $5.2 billion (0.8 percent), and closed-end first lien residential mortgages increased by $2.6 billion (0.2 percent). Loans to depository institutions increased by $27 billion (22.6 percent), but the increase in reported balances consisted of growth in intracompany loans between related institutions. Real estate construction loans declined for a 13th consecutive quarter, falling by $20.7 billion (7 percent). Home equity lines of credit declined by $8.5 billion (1.4 percent), and closed-end second-lien mortgage loans fell by $8.1 billion (5.8 percent). A majority of banks (53 percent) reported growth in loan balances in the second quarter.

    Large Banks Increase Their Balances at Federal Reserve Banks

    Total assets increased by $185.9 billion (1.4 percent) during the quarter. Excluding the accounting-driven increase in first quarter 2010, this is the largest quarterly increase in assets reported by the industry since fourth quarter 2008. Most of the growth in assets consisted of increases in balances at Federal Reserve banks, which rose by $137.3 billion (22.5 percent). Assets in trading accounts fell by $39.6 billion (5.4 percent). Total securities holdings declined by $1.6 billion, as institutions’ holdings of mortgage-backed securities rose by $27.3 billion (1.8 percent), and holdings of U.S. Treasuries, U.S. agency securities, and government-sponsored-enterprise securities fell by $36.7 billion (7.7 percent). Only half of all institutions (50.1 percent) reported growth in their total assets in the second quarter.

    Large Noninterest-bearing Deposits Register Strong Growth

    Total deposits increased by $163.1 billion (1.7 percent) in the second quarter. Deposits in domestic offices rose by $234.4 billion (2.9 percent), while foreign office deposits fell by $71.3 billion (4.4 percent). Noninterest-bearing domestic deposits increased by $165.6 billion (9.5 percent), and domestic deposits in accounts with balances greater than $250,000 rose by $279.6 billion (8.8 percent). Balances in large (greater than $250,000) noninterest-bearing transaction accounts that have temporary unlimited deposit insurance coverage through 2012 increased by $161.8 billion (15.4 percent). Most of the growth in large denomination deposits occurred at the largest banks. The 19 banks with assets greater than $100 billion reported an aggregate increase of $241.4 billion (12.6 percent) in domestic deposits with balances greater than $250,000 during the quarter. More than half of this increase ($127.7 billion) consisted of growth in large noninterest-bearing transaction accounts with unlimited deposit insurance coverage. All other insured institutions reported an aggregate increase of $35.1 billion (2.8 percent) in large-balance deposits. Time deposits declined for the 10th quarter in a row, falling by $41.3 billion (2.1 percent). Fed funds purchased and securities sold under repurchase agreements fell by $24.6 billion (4.6 percent). Advances from Federal Home Loan Banks declined by $16.9 billion (4.7 percent), and other secured borrowings fell by $30 billion (8.1 percent).

    Numbers of “Problem” Banks and Bank Failures Decline

    The number of insured commercial banks and savings institutions reporting quarterly financial results declined to 7,513, from 7,574 in first quarter 2011. Two new charters were created to absorb failed institutions during the second quarter, while 39 institutions were absorbed by mergers, and 22 insured institutions failed. This is the smallest number of failures in a quarter since first quarter 2009. The number of institutions on the FDIC’s “Problem List” declined for the first time since third quarter 2006. At the end of the second quarter, there were 865 “problem” institutions, down from 888 at the end of the first quarter. Total assets of “problem” institutions declined from $397 billion to $372 billion. The number of full-time equivalent employees reported by insured institutions—2,104,698—was 12,124 (0.6 percent) higher than in first quarter 2011.

    Chart 1. Quarterly Net Income

    Chart 2. More Banks Improved Their Earnings, while Fewer Were Unprofitable

    Chart 3. Provisions Continue to Decline, but Revenues Are Not Growing

    Chart 4. Quarterly Net Interest Margins by Asset Size

    Chart 5. Noncurrent Loans and Loan Losses Have Fallen, but Remain High

    Chart 6. Loan Balances Posted Their First Actual Increase in Three Years

    Chart 7. Most of the Recent Deposit Inflows Have Been Invested at Federal Reserve Banks

    Chart 8. Quarterly Changes in the Number of Troubled Institutions, 2007-2011

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

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

    TABLE III-A. Second Quarter 2011, All FDIC-Insured Institutions

  • Asset Concentration Groups
  • Asset Size Distribution & Geographic Regions
  • TABLE IV-A. First Half 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 Commercial Banks and State-Chartered Savings Banks

    TABLE VII-A. Servicing, Securitization, and Asset Sales Activities

    Last Updated 08/23/2011 Questions, Suggestions & Requests