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Tuesday, November 30, 2010

USA Problem Bank List Increases to 860 (Charts) *FDIC Quarterly Banking Profile*

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USA Failed Banks in 2010 at 149


USA Problem Bank List Increases to 860 with Total Assets of $379 Billion

Quarterly Banking Profile (QE September 30, 2010) The Federal Deposit Insurance Corporation (FDIC) has issued the Quarterly Banking Profile for the 7,760 commercial banks and savings institutions reporting.  Overall, the USA banking system has rebounded from the 2008 financial crisis but systemic problems and weakness continue.
On the positive side, the FDIC headlined the Quarterly Banking Profile:
* Year-over-Year Earnings Improve for Fifth Consecutive Quarter
* Net Income Totals $14.5 Billion, Up from $2 Billion a Year Earlier
* Lower Loan-Loss Provisions Remain Key to Earnings Gains
* Asset Quality Trends Continued to Improve
* Industry Assets Increase by $163 Billion
On the negative side, the FDIC also noted in the Quarterly Banking Profile:
* The Number of “Problem” Institutions Continues to Rise

Quarterly Banking Profile Review Although the FDIC is reporting an increase in aggregate Net Income for the 7,760 commercial banks and savings institutions at Q3 September 30, 2010, much of this is attributable to a reduction in the Provision for Loan & Lease Losses expense. Both the Net Charge-Off and Noncurrent Assets ratios remain too high and, if not reduced in the next few quarters, will negatively impact Net Income and therefore Return on Assets. The following was noted and charted below:
* Return on assets has increased in 2010 from 2009
* Net charge-off ratio has increased in 2010 from 2009
* Noncurrent (non-earning) assets to total assets has increased in 2010 from 2009
* Total failed banks has increased in 2010 from 2009
* Total problem banks has increased in 2010 from 2009

Return on Assets (Chart) The aggregate Return on Assets for all FDIC insured institutions bottomed in 2008 and 2009 at about a break-even +0.03% and +0.07%, respectively. The annualized Return on Assets at Q3 September 30, 2010 is an improved +0.56% (annualized) and is not expected to materially change for the worse as of Q4 December 31, 2010. Chart data is:
Year, Return on Assets
2005: 1.28%
2006: 1.28%
2007: 0.81%
2008: 0.03%
2009: 0.07%
9/30/10 (annualized): 0.56%


Net Charge-Offs to Loans (Chart) The ratio of Net Charge-Offs to Loans continues increasing, which reveals ongoing weakness in loan performance. Net Charge-offs are loan charge-offs net of any recoveries via settlements, payments, or sale of collateral. The Net Charge-Off Ratio was a very high 2.50% in 2009 and continues too high in Q3 September 30, 2010 at 2.59% (annualized). If the Net Charge-Off Ratio does not begin to decrease in the first half of 2011, Net Income and therefore Return on Assets will also begin decreasing. Chart data, from 2005 through Q3 2010, is:
Year, Net Charge-Off Ratio
2005: 0.49%
2006: 0.39%
2007: 0.59%
2008: 1.29%
2009: 2.50%
9/30/10 (annualized): 2.59%



Noncurrent Assets to Total Assets (Chart) The ratio of Noncurrent Assets to Total Assets continues above 3.0%, which is too high. Noncurrent Assets are loans and leases that are noncurrent (90 days or more past due or in nonaccrual status) plus other real estate owned (foreclosed and/or deeded to bank). Noncurrent assets are nonearning assets. As with the Net Charge-Off Ratio discussed above, if the Noncurrent Asset Ratio does not begin to decrease in the first half of 2011, Net Income and therefore Return on Assets will also begin decreasing. Chart data, from 2005 through Q3 2010, is:
Year, Noncurrent Asset Ratio
2005: 0.50%
2006: 0.54%
2007: 0.95%
2008: 1.91%
2009: 3.36%
9/30/10 (annualized): 3.25%



Total Failed Banks by Year (Chart) Bank failures and therefore FDIC seizure of banks has dramatically increased in 2009 and 2010 - a 2-year total of 289 compared to 0 in both 2005 and 2006. As noted below regarding total problem banks, bank failures in 2011 should continue at a high rate. Chart data, from 2005 through November 26, 2010, is:
Year, Total Bank Failures
2005: 0
2006: 0
2007: 3
2008: 25
2009: 140
11/26/10 YTD: 149



Total Problem Banks (Chart) The FDIC problem bank list continues to rise, actually skyrocket, although the total assets of these banks has leveled off. From the year-ends 2005 through 2009, the total problem banks were 52, 50, 76, 252, and 702, respectively. Now at 9/30/2010 the total is an astronomical 860. The total assets of the problem banks from the year-ends 2005 through 2009 were $7B, $8B, $22B, $159B, and $403B, respectively. The total assets of the current (9/30/2010) 860 problem banks is $379B, indicating most of these are small to medium community banks. Chart data, from YE 2005 through September 30, 2010, is:
Date, Total Problem Banks
12/31/2005: 52
12/31/2006: 50
12/31/2007: 76
12/31/2008: 252
12/31/2009: 702
9/30/2010: 860




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