FDIC Second Quarter Report: Some Good...Some Bad

The Federal Deposit Insurance Corp. offered a mixed bag with its banking report for the second quarter Tuesday as U.S. banks posted their highest quarterly net income increase since 2007, while 45 institutions failed and more than 50 were added to the agency’s “problem” list.

Reductions in loan-loss provisions helped boost the industry’s quarterly earnings to $21.6 billion – a dramatic increase from the year-ago loss of $4.4 billion and the highest overall total in three years. Almost two out of three institutions (65.5 percent) reported higher year-over-year quarterly net income.

The proportion of institutions reporting quarterly net losses was also down from the year before but still historically high at 20 percent, the FDIC said. More than 29 percent of banks reported losses last year.

Other highlights from the report:

- Margins improved for most banks. More than 70 percent of all institutions reported year-over-year increases in net interest income, though a large percentage of that may be attributable to changes in accounting rules.
- Noninterest income fell. More than half of all institutions reported year-over-year reductions in quarterly noninterest expense, partly due to new accounting rules but mainly due to drops in servicing income (fees) and fewer gains on loan sales and other assets. This is the seventh consecutive quarter that fee income has declined from the prior year.
- Net charge-offs recorded the first year-over-year decline since fourth quarter 2006. This was despite a more than 100 percent increase in charge-offs of real estate loans, reflecting further deterioration in commercial real estate portfolios. Almost half of banks with more than $1 billion in assets reported lower net charge-offs, while only 43.6 percent of community banks reported year-over-year declines.
- Noncurrent loans (loans more than 90 days past due) declined for the first time in more than four years. However, the bulk of that reduction happened at larger banks – noncurrent loans at banks with less than $1 billion in assets (community banks) actually increased slightly.
- Rising securities values helped grow equity capital. More than half of all institutions increased their leverage capital ratios during the quarter, while still more increased their total risk-based capital ratios. Banks paid $13 billion in dividends in the second quarter – twice what they paid the year before.
- Assets declined for the fifth time in the past six quarters. All major loan categories had reduced balances during the quarter, lead by real estate C&D loans, which fell by $35 billion. Banks continued to reduce holdings of riskier assets, as the ratio of risk-weighted assets to total assets fell to its lowest level since 1995.
- No new charters were added during the quarter for the first time in almost four decades. More than 100 banks did not report financial results in the second quarter, having either failed or been consolidated. The number of institutions on the FDIC’s “Problem List” increased from 775 to 829 during the quarter. Total assets of “problem” institutions fell, from $431 billion to $403 billion.

*Rob Robertson - Collin County Business Press


To view the entire report, go to the FDIC’s Web site at www.fdic.gov.