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Quarterly Banking Profile

Second Quarter 2012

Notes to Users

  • Second Quarter Net Income Totals $34.5 Billion, as Earnings Continue to Rise
  • Improving Asset Quality Remains Key to Higher Profits
  • Loan Balances Increase by $102 Billion
  • "Problem List" Shrinks for Fifth Consecutive Quarter

  • Earnings Improvement Trend Reaches Three-Year Mark

    The benefits of reduced expenses for loan losses outweighed the drag from declining net interest margins, as insured institutions posted a 12th consecutive year-over-year increase in quarterly net income. Banks earned $34.5 billion in the quarter, a $5.9 billion (20.7 percent) increase compared with second quarter 2011. Almost two out of every three banks (62.7 percent) reported higher earnings than a year ago. Only 10.9 percent were unprofitable, down from 15.7 percent in second quarter 2011. The average return on assets (ROA) rose to 0.99 percent from 0.85 percent a year earlier. This is the third-highest quarterly ROA for the industry since second quarter 2007.

    Banks Reduce Loan-Loss Provisions to Five-Year Low

    Banks set aside $14.2 billion in provisions for loan losses in the second quarter. This amount represents a $5 billion (26.2 percent) decline from second quarter 2011, and is the smallest quarterly total in five years. The reduction in provision expenses helped offset a $287 million (0.3 percent) decline in net interest income, as the industry’s average net interest margin fell to a three-year low. The average net interest margin was 3.46 percent, compared with 3.61 percent a year earlier, because average asset yields declined faster than average funding costs. Noninterest income made a positive contribution to the increase in earnings, rising by $1.6 billion (2.8 percent) from second quarter 2011. Gains on loan sales and on fair values of financial instruments contributed to the rise in noninterest income, while a $4.7 billion decline in trading income limited the year-over-year improvement. Net operating revenue (the sum of net interest income and total noninterest income) was only $1.3 billion (0.8 percent) higher than in second quarter 2011. Realized gains on securities and other assets were $1.7 billion (208.2 percent) higher than a year ago. A few large banks accounted for most of the dollar amounts of the decline in trading results, increased gains on loan sales and higher realized gains on securities.

    Net Charge-Offs Decline Across All Loan Categories

    Net charge-offs totaled $20.5 billion in the second quarter, an $8.4 billion (29.1 percent) reduction from second quarter 2011. This is the eighth consecutive quarter that charge-offs have declined from year-earlier levels and represents the lowest quarterly charge-off total since first quarter 2008. The year-over-year improvement was led by a $2.2 billion (24.6 percent) decline in credit card charge-offs, a $1.5 billion (25.2 percent) decline in charge-offs of residential mortgage loans, and a $1.2 billion (51.5 percent) drop in real estate construction loan charge-offs. All major loan categories posted lower charge-offs compared with a year ago. Half of all insured institutions (50.6 percent) reported year-over-year declines in charge-offs.

    Noncurrent Loan Balances Continue to Fall

    Noncurrent loan balances (loans 90 days or more past due or in nonaccrual status) declined for a ninth consecutive quarter, falling by $12.9 billion (4.2 percent). Noncurrent levels fell in all major loan categories. The largest declines occurred in real estate construction and development loans, where noncurrent balances fell by $5.1 billion (17.8 percent), and in real estate loans secured by nonfarm nonresidential properties, where noncurrents declined by $3.6 billion (9.2 percent). Well over half of all institutions (58 percent) reported reductions in noncurrent balances during the quarter.

    Reserve Drawdowns at Large Banks Surpass Reserve Buildups at Smaller Institutions

    Reserves for loan losses fell by $6.7 billion (3.6 percent) during the quarter, as the $14.2 billion in loss provisions that banks added to reserves were less than the $20.5 billion in net charge-offs that were taken out. More banks (54.4 percent) reported reserve increases than reported reductions (38.2 percent), but the reductions were concentrated among larger institutions, and added up to more than the additions. Eight of the 10 largest banks (and 34 of the 50 largest) reduced their reserves in the second quarter. Reserve balances have fallen for nine consecutive quarters, and are $86.7 billion (32.9 percent) below the peak level reached at the end of first quarter 2010. Even with the reduction in reserves, the larger drop in noncurrent loan balances during the quarter meant that the industry’s “coverage ratio” of reserves to noncurrent loans inched up from 60 percent to 60.4 percent between March 31 and June 30.

    Retained Earnings Provide a Boost to Capital

    Insured institutions continued to build their capital in the second quarter. Total equity capital increased by $20.3 billion (1.3 percent), with retained earnings contributing $14.9 billion to capital growth. This is the second-highest quarterly total for retained earnings since third quarter 2006. Dividends were $763 million (3.8 percent) lower than in second quarter 2011. Tier 1 regulatory capital rose by $14 billion (1.1 percent), but total risk-based capital was basically unchanged (up $524 million, or 0.04 percent), due to the decline in reserves, declines in deferred tax assets, and declines in intangible assets. At midyear, almost 97 percent of all insured institutions, representing more than 99 percent of insured institution assets, met or exceeded the requirements for “well-capitalized” institutions as defined for Prompt Corrective Action purposes.

    Loans Increase for Fourth Time in Last Five Quarters

    Total assets increased by $105.3 billion (0.8 percent), as loan balances rose for the fourth time in the last five quarters. Total loans and leases grew by $102 billion (1.4 percent), with loans to commercial and industrial (C&I) borrowers increasing by $48.9 billion (3.6 percent), residential mortgage loans rising by $16.6 billion (0.9 percent), and credit card balances growing by $14.7 billion (2.3 percent). Balances of real estate construction and development loans fell for a 17th consecutive quarter, declining by $10.9 billion (4.8 percent), while home equity lines of credit declined for the 13th quarter in a row, falling by $10.2 billion (1.7 percent). Loans to small businesses and farms posted a $1.5 billion (0.2 percent) increase, driven primarily by seasonal demand for agricultural credit. More than 60 percent of institutions reported growth in total loan balances during the quarter. Banks reduced their mortgage-backed securities holdings by $33.1 billion (1.9 percent), and increased their holdings of U.S. Treasury securities by $20.1 billion (12 percent).

    Nondeposit Liabilities Increase

    Deposits increased by $61.6 billion (0.6 percent) during the quarter. Deposits in domestic offices rose by $88.1 billion (1.0 percent), while foreign office deposits fell by $26.5 billion (1.8 percent). Much of the growth in domestic deposits ($71.7 billion) consisted of noninterest-bearing transaction accounts with balances greater than $250,000 that are temporarily fully covered by the FDIC. The portion of these deposits that is above the $250,000 basic coverage limit increased by $65.7 billion (5.0 percent). In addition to the increase in large-denomination domestic deposits, insured institutions increased their nondeposit liabilities for the first time in seven quarters. Securities sold under repurchase agreements increased by $28 billion (6.7 percent), and Federal Home Loan Bank advances rose by $19.8 billion (6.5 percent).

    More Than a Year Since Last New Charter

    During the second quarter, the number of insured institutions reporting financial results declined from 7,308 to 7,246. Forty-five institutions were merged into other institutions, and 15 institutions failed. No new charters were added during the quarter. This is the fourth quarter in a row in which no new charters have been added. It has been more than six quarters since the last time a new charter was created other than to absorb a failing bank. The number of full-time equivalent employees at FDIC-insured institutions increased from 2,102,280 to 2,108,200. The number of institutions on the FDIC’s “Problem List” fell for a fifth consecutive quarter, from 772 to 732. Total assets of “problem” institutions declined from $291 billion to $282 billion.

    Chart 1. Quarterly Net Income, 2008-2012

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

    Chart 3. Quarterly Provisions and Revenues, 2007-2012

    Chart 4. Quarterly Net Interest Margins, 2006-2012

    Chart 5. Noncurrent Loans and Loan Losses Continue to Fall, but Remain Well Above Pre-Crisis Levels

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

    Chart 7. Deposit Inflows Have Slowed in 2012

    Chart 8. Quarterly Changes in the Number of Troubled Institutions, 2007-2012

    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 2012, All FDIC-Insured Institutions

  • Asset Concentration Groups
  • Asset Size Distribution & Geographic Regions
  • TABLE IV-A. First Half 2012, 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

    Last Updated 08/28/2012 Questions, Suggestions & Requests