Wednesday, February 23, 2011

FDIC: Profitability Returns Yet Problem Bank List Grows in 4Q 2010

For all of 2010, banks reported a profit of almost $87.5 billion. More than two out of every three institutions (67.5%) reported higher earnings in 2010 than in 2009. The proportion of unprofitable institutions fell from 31% in 2009 to 21% in 2010. Overall, the average return on assets for the banking industry was 0.66% for 2010, up from -0.08% for 2009.

Reductions in provisions for loan losses were responsible for most of the year-over-year improvement in earnings. Insured institutions set aside $31.6 billion in provisions for loan losses in the fourth quarter, almost 50% less than the $62.9 billion they set aside a year earlier. This is the smallest quarterly loss provision for the industry since third quarter 2007.

Noninterest income from service charges on deposit accounts was $5.5 billion (13.1%) lower than in 2009. This is the first time in the 69 years that these data have been collected that full-year service charge income has declined.

Net loan and lease charge-offs (NCOs) totaled $41.9 billion in the fourth quarter, a decline of $13 billion (23.7%) compared to fourth quarter 2009. With the exception of credit cards (which reflected the application of new accounting rules in 2010), almost all major loan categories posted year-over-year declines in quarterly charge-offs.

Asset quality improved in the fourth quarter. The amount of loan and lease balances that were noncurrent (90 days or more past due or in nonaccrual status) fell for a third consecutive quarter, declining by $17.9 billion (4.7%). Noncurrent balances declined in all major loan categories.

Additionally, other real estate owned declined for the first time since fourth quarter 2005, falling by $374 million. At the end of 2010, noncurrent assets and other real estate owned represented 3.11% of total industry assets, the lowest share since the end of third quarter 2009.

Equity capital fell by $8.5 billion (0.6%) in the fourth quarter, the first quarterly decline since fourth quarter 2008. The drop was caused by a $16.2 billion (71.9%) decline in unrealized gains on securities held for sale. In contrast, insured institution Tier 1 leverage capital, which is not affected by changes in securities values, increased by $3.4 billion (0.3%).

At the end of 2010, almost 96% of all insured institutions, representing more than 99% of all insured institution assets, met or exceeded the minimum requirements for being well-capitalized.

Total assets of insured institutions declined by $51.8 billion (0.4%) in the fourth quarter, while deposits posted strong growth, rising by $149.3 billion (1.6%). Loans fell by almost $35.7 billion during the quarter. However, banks reported an increase in commercial and industrial loans and 1-4 family mortgages during the quarter.

The number of institutions on the FDIC’s “Problem List” increased from 860 to 884 in the fourth quarter. Total assets of “problem” institutions increased from $379 billion to $390 billion.

11.02.23 (Source: FDIC)

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