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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Saturday, November 27, 2010

Bank Failure Friday: No FDIC Closures! *2010 total stays at 149*

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2009 Bank Failures were 140, 2010 YTD is 149


Bank Failure Friday: No FDIC Closures!

The 2010 USA bank failures remain at 149 with no FDIC closings on Friday, November 26, 2010. This was expected since it is the Thanksgiving holiday. The 149 closings in 2010 exceed the 2009 total of 140.

Prior Week Bank Closings (Friday, November 19, 2010)

Total assets of the closed banks were $969,400,000 ($969.4 million), based on the September 30, 2010 call reports (regulatory financial statements). All 3 banks were merged via purchase and assumption agreements into other banks.

Overall, two were small community banks, of just over $100 million in total assets, that were closed by the FDIC. First Banking Center was larger with $750.7 million in total assets and a moderate size community bank.

#147 Gulf State Community Bank, Carrabelle, FL
As of September 30, 2010, Gulf State Community Bank had approximately $112.1 million in total assets
Centennial Bank, Conway, Arkansas, to assume all of the deposits
Centennial Bank agreed to purchase essentially all of the assets

#148 Allegiance Bank of North America, Bala Cynwyd, PA
As of September 30, 2010, Allegiance Bank of North America had approximately $106.6 million in total assets
VIST Bank, Wyomissing, Pennsylvania, to assume all of the deposits
VIST Bank agreed to purchase essentially all of the assets

#149 First Banking Center, Burlington, WI
As of September 30, 2010, First Banking Center had approximately $750.7 million in total assets
First Michigan Bank, Troy, Michigan, to assume all of the deposits
First Michigan Bank agreed to purchase essentially all of the failed bank's assets

The next FDIC bank closings, if any, will most likely be announced on Friday, December 3.


Links
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FDIC Failed Bank List (FDIC)


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Wednesday, November 24, 2010

Federal Reserve Lowers USA 2010 & 2011 GDP Projections (Charts) *Higher unemployment rate projections for 2010 & 2011*

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Federal Reserve Building 1937


FOMC Meeting Minutes and Summary of Economic Projections
"Disappointingly slow": progress toward meeting Committee's dual mandate of maximum employment and price stability


FOMC Statement The related FOMC Statement was released and reviewed in a previous post on November 3, 2010: Federal Reserve: Pace of USA Economic Recovery Continues to Be Slow (Review, Chart) *Will purchase $600B US Treasury securities*. This post reviews the actual Minutes and Summary of Economic Projections, which are an addendum to the minutes, and were released on November 23, 2010.

From "Modest" to "Slow" The Federal Reserve previously, for months, utilized the wording and theme of "modest" and "moderate" regarding economic activity, recovery, and growth. The current statement, and minutes, has changed to "slow": slow pace of recovery in output, slow pace of recovery in employment, disappointingly slow progress in FOMC objectives. As always, the FOMC statement is carefully worded.


Summary of Economic Projections
GDP Projections Lowered for 2010 & 2011
Unemployment Rate Projections Raised for 2010 & 2011

The short story on the release of the FOMC meeting minutes was the economic recovery is going to take a few years (up to 5 or 6 years).
* 2010 GDP projection was lowered to 2.4%-2.5% from 3.0%-3.5% and prior to that 3.2%-3.7%
* 2011 GDP projection was lowered to 3.0%-3.6% from 3.5%-4.2% and prior to that 3.4%-4.5%
* 2010 Unemployment Rate projection was raised to 9.5%-9.7% from 9.2%-9.5% and prior to that 9.1%-9.5%
* 2011 Unemployment Rate projection was raised to 8.9%-9.1% from 8.3%-8.7% and prior to that 8.1%-8.5%

"In their discussion of the economic situation and outlook, meeting participants generally agreed that the incoming data indicated that output and employment were continuing to increase, but only slowly. Progress toward the Committee's dual objectives of maximum employment and price stability was described as disappointingly slow. Participants variously noted a number of factors that were restraining growth, including low levels of household and business confidence, concerns about the durability of the economic recovery, continuing uncertainty about the future tax and regulatory environment, still-weak financial conditions of some households and small businesses, the depressed housing market, and waning fiscal stimulus. Although participants considered it quite unlikely that the economy would slide back into recession, some noted that continued slow growth and high levels of resource slack could leave the economic expansion vulnerable to negative shocks. In the absence of such shocks, and assuming appropriate monetary policy, participants' economic projections generally showed growth picking up to a moderate pace and the unemployment rate declining somewhat next year. Participants generally expected growth to strengthen further and unemployment to decline somewhat more rapidly in 2012 and 2013."

GDP Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, November 2010
The central tendency excludes the three highest and three lowest projections for each variable in each year.

Change in Real GDP (%)
                        Central Tendency (November)     Central Tendency (June)     Central Tendency (April)
2010                  2.4 to 2.5                                    3.0 to 3.5                           3.2 to 3.7
2011                  3.0 to 3.6                                    3.5 to 4.2                           3.4 to 4.5
2012                  3.6 to 4.5                                    3.5 to 4.5                           3.5 to 4.5
2013                  3.5 to 4.6                                    na                                       na
Longer Run         2.5 to 2.8                                    2.5 to 2.8                           2.5 to 2.8



Unemployment Rate Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, November 2010
The central tendency excludes the three highest and three lowest projections for each variable in each year.

Unemployment Rate (%)
                       Central Tendency (November)     Central Tendency (June)     Central Tendency (April)
2010                 9.5 to 9.7                                    9.2 to 9.5                           9.1 to 9.5
2011                 8.9  to 9.1                                   8.3 to 8.7                           8.1 to 8.5
2012                 7.7 to 8.2                                    7.1 to 7.5                           6.6 to 7.5
2013                 6.9 to 7.4                                    na                                       na
Longer Run        5.0 to 6.0                                    5.0 to 5.3                           5.0 to 5.3



Federal Open Market Committee Meeting Minutes; June 22 & 23, 2010
<Emphasis added by italics>

Staff Review of the Economic Situation "The information reviewed at the November 2-3 meeting indicated that the economic recovery proceeded at a modest rate in recent months, with only a gradual improvement in labor market conditions, and was accompanied by a continued low rate of inflation. Consumer spending, business investment in equipment and software, and exports posted further gains in the third quarter, and nonfarm inventory investment stepped up. But construction activity in both the residential and nonresidential sectors remained depressed, and a significant portion of the rise in domestic demand was again met by imports. U.S. industrial production slowed noticeably in August and September, hiring at private businesses remained modest, and the unemployment rate stayed elevated. Headline consumer price inflation was subdued in recent months, despite a rise in energy prices, as core consumer price inflation trended lower."

Staff Review of the Financial Situation "The decision by the Federal Open Market Committee (FOMC) at its September meeting to maintain the 0 to 1/4 percent target range for the federal funds rate was widely anticipated. However, yields declined as market participants reportedly interpreted the language of the accompanying statement to imply higher odds of additional asset purchases and a longer period of exceptionally low short-term interest rates. Investors took particular note of the statement's indication that inflation was below the levels consistent with the FOMC's dual mandate for maximum employment and price stability. In the weeks following the FOMC meeting, Federal Reserve communications, along with economic data releases that continued to point to a tepid economic outlook, appeared to reinforce market expectations that additional policy accommodation would be forthcoming in the near term."

Staff Economic Outlook "Because the recent data on production and spending were broadly in line with the staff's expectations, the forecast for economic activity that was prepared for the November FOMC meeting showed little change to the staff's near-term outlook relative to the forecast prepared for the September FOMC meeting. However, the staff revised up its forecast for economic activity in 2011 and 2012. In light of asset market developments over the intermeeting period, which in large part appeared to reflect heightened expectations among investors that the Federal Reserve would undertake additional purchases of longer-term securities, the November forecast was conditioned on lower long-term interest rates, higher stock prices, and a lower foreign exchange value of the dollar than was the staff's previous forecast. These factors were expected to provide additional support to the recovery in economic activity. Accordingly, the unemployment rate was anticipated to recede somewhat more than in the previous forecast, although the margin of slack at the end of 2011 was still expected to be substantial."

Committee Policy Action "Though the economic recovery was continuing, members considered progress toward meeting the Committee's dual mandate of maximum employment and price stability as having been disappointingly slow. Moreover, members generally thought that progress was likely to remain slow. Accordingly, most members judged it appropriate to take action to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the Committee's mandate. In their discussion of monetary policy for the period immediately ahead, nearly all Committee members agreed to keep the federal funds rate at its effective lower bound by maintaining the target range for that rate at 0 to 1/4 percent and to expand the Federal Reserve's holdings of longer-term securities. To increase its securities holdings, the Committee decided to continue its existing policy of reinvesting principal payments from its securities holdings into longer-term Treasury securities and intended to purchase a further $600 billion of longer-term Treasury securities at a pace of about $75 billion per month through the second quarter of 2011. One member dissented from this action, judging that the risks of additional securities purchases outweighed the benefits. Members agreed that the Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster its goals of maximum employment and price stability."


FOMC Statement: November 3, 2010


Federal Open Market Committee
Release Date: November 3, 2010
For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,


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Friday, November 19, 2010

Bank Failure Friday: FDIC Closes 3 Banks *2010 total now 149*

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2009 Bank Failures were 140


Bank Failure Friday: FDIC Closes 3 Banks

The 2010 USA bank failures increased to 149 with the closure of the 3 banks listed below. The 146 closings in 2010 exceed the 2009 total of 140. Total assets of the closed banks were $969,400,000 ($969.4 million), based on the September 30, 2010 call reports (regulatory financial statements). All 3 banks were merged via purchase and assumption agreements into other banks.

Overall, two were small community banks, of just over $100 million in total assets, that were closed by the FDIC. First Banking Center was larger with $750.7 million in total assets and a moderate size community bank.

#147 Gulf State Community Bank, Carrabelle, FL
As of September 30, 2010, Gulf State Community Bank had approximately $112.1 million in total assets
Centennial Bank, Conway, Arkansas, to assume all of the deposits
Centennial Bank agreed to purchase essentially all of the assets

#148 Allegiance Bank of North America, Bala Cynwyd, PA
As of September 30, 2010, Allegiance Bank of North America had approximately $106.6 million in total assets
VIST Bank, Wyomissing, Pennsylvania, to assume all of the deposits
VIST Bank agreed to purchase essentially all of the assets

#149 First Banking Center, Burlington, WI
As of September 30, 2010, First Banking Center had approximately $750.7 million in total assets
First Michigan Bank, Troy, Michigan, to assume all of the deposits
First Michigan Bank agreed to purchase essentially all of the failed bank's assets

The next FDIC bank closings, if any, will most likely be announced on Friday, November 26.


Links
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Thursday, November 18, 2010

USA Industrial Production Index Unchanged in October (Charts) *Manufacturing up, utilities down*

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USA Industrial Production Index at 93.4


USA Industrial Production Index Unchanged in October

Official Statement (Federal Reserve Statistical Release) Industrial production was unchanged in October after having fallen 0.2 percent in September. For the manufacturing sector, output gained 0.5 percent in October after having risen 0.1 percent in September. Factory production in September was initially reported to have decreased 0.2 percent, but incoming data on steel, fabricated metal products, machinery, and chemicals helped boost the index. The output of utilities dropped 3.4 percent in October, as unseasonably warm temperatures reduced demand for heating. Production at mines fell 0.1 percent. At 93.4 percent of its 2007 average, total industrial production in October was 5.3 percent above its year-earlier level.

Cycle History The current Industrial Production Index (preliminary) of 93.4 is up +7.9 and +9.2% from the Great Recession cyclical bottom of 85.5 in June 2009. The Index is down -7.3 and -7.3% from the cyclical peak of 100.7 in September 2007. Therefore, the current Index is mid-range between cyclical peak and trough.

Trend The current Industrial Production Index (preliminary) of 93.4 continues just below the August 2010 short-term and intermediate-term peak 93.5 and has increased 14 of the last 16 months, since the cyclical trough in June  2009. The current Index is above the 12-month moving average of 91.7 and has been for 13 consecutive months. The current Index is above the 24-month moving average of 89.9 and has been for 7 consecutive months. The current Index is above the 36-month moving average of 92.7 and has been for 4 consecutive months. The 12-month moving average is ascending after a cyclical trough of 87.7 in December 2009. The 24-month moving average is leveling off and in October is at a cyclical low. The 36-month moving average continues descending. (The 12-month, 24-month, and 36-month moving averages charts are not shown on this page).

Industrial Production Index (Chart) Below is a chart of the latest 38 months (3+ years) of the Industrial Production Index from the cyclical peak of 100.7 in September 2007 through the latest month reported, October 2010 of 93.4. As can be seen, the Index bottomed in July 2009 at 85.5, ascended through August 2010 to 93.5. The Index has now stayed just below this peak in September and October. The Index indicates USA manufacturing is holding steady but not expanding.



Commentary The October Industrial Production Index of 93.4, unchanged from September, was a little disappointing. However, the Index has remained above 93 since July 2010 and 4 consecutive months (93.3, 93.5, 93.4, and 93.4). Previously, the Index had been below 93 for 20 consecutive months (November 2008 through June 2010.


USA Capacity Utilization Rate Unchanged in October

Official Statement (Federal Reserve Statistical Release) The capacity utilization rate for total industry was flat at 74.8 percent, a rate 6.6 percentage points above the low in June 2009 and 5.8 percentage points below its average from 1972 to 2009.

Cycle History The current Capacity Utilization Rate (preliminary) of 74.8 is up +6.6 and +9.8% from the Great Recession cyclical bottom of 68.2 in June 2009. The Index is down -6.9 and -8.4% from the cyclical peak of 81.7 in April 2007. Therefore, the current Index is approximately mid-range between cyclical peak and trough.

Trend The current Capacity Utilization Rate (preliminary) of 74.8 continues just below the August 2010 short-term and intermediate-term peak 74.9 and has increased 14 of the last 16 months, since the cyclical trough in June 2009. The current Rate is above the 12-month moving average of 73.4 and has been for 13 consecutive months. The current Rate is above the 24-month moving average of 71.9 and has been for 7 consecutive months. The current Rate is above the 36-month moving average of 74.3 and has been for 3 consecutive months. The 12-month moving average is ascending after a cyclical trough of 70.0 in December 2009. The 24-month moving average has leveled off and has been at a cyclical low of 71.9 in August, September, and October 2010. The 36-month moving average continues descending. (The 12-month, 24-month, and 36-month moving averages charts are not shown on this page).

Capacity Utilization Rate (Chart) Below is a chart of the latest 43 months (3+ years) of the Capacity Utilization Rate from the cyclical peak of 81.7 in April 2007 through the latest month reported, October 2010 of 74.8. As can be seen, the Rate bottomed in June 2009 at 68.2, ascended through August 2010 to 74.9. The Rate has now stayed just below this peak in September and October. The Rate indicates USA manufacturing is holding steady but not expanding.


Commentary The conclusion is the same as for the October Industrial Production Index: unchanged from September and a little disappointing. However, the Rate has remained above 74 since May 2010 and 6 consecutive months. Previously, the Rate had been below 74 for 17 consecutive months (December 2008 through April 2010.


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Friday, November 12, 2010

Bank Failure Friday: FDIC Closes 3 Banks *2010 total now 146*

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FDIC Logo


Bank Failure Friday: FDIC Closes 3 Banks

The 2010 USA bank failures increased to 146 with the closure of the 3 banks listed below. The 146 closings in 2010 exceed the 2009 total of 140. Total assets of the closed banks were $1,002,400,000 ($1.002 billion), based on the September 30, 2010 call reports (regulatory financial statements). All 3 banks were merged via purchase and assumption agreements into other banks.

Overall, two were small community banks, of about $204 million or less in total assets, that were closed by the FDIC. Darby Bank & Trust was larger with $654.7 million in total assets, though still a relatively small community bank.

#144 Tifton Banking Company, Tifton, GA
As of September 30, 2010, Tifton Banking Company had total assets of $143.7 million
Ameris Bank, Moultrie, Georgia, to assume all of the deposits
Ameris Bank, Moultrie, Georgia agreed to purchase virtually all the assets

#145 Darby Bank & Trust Co., Vidalia, GA
As of September 30, 2010, Darby Bank & Trust Co. had total assets of $654.7
Ameris Bank, Moultrie, Georgia, to assume all of the deposits
Ameris Bank, Moultrie, Georgia, agreed to purchase virtually all of the assets

#146 Copper Star Bank, Scottsdale, AZ
As of September 30, 2010, Copper Star Bank had total assets of $204.0 million
Stearns Bank National Association, St. Cloud, Minnesota, to assume all of the deposits
Stearns Bank National Association, St. Cloud, Minnesota, agreed to purchase essentially all of the assets

The next FDIC bank closings, if any, will most likely be announced on Friday, November 19.


Links
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Wednesday, November 10, 2010

USA Total Consumer Credit Increases in September (Charts) *Revolving credit down 25th consecutive month*

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USA revolving credit decreased in September for the 25th consecutive month


USA Total Consumer Credit Increases in September

Official Statement The Federal Reserve reported, "Consumer credit declined 1-1/2 percent at an annual rate in the third quarter. Revolving credit declined 8-3/4 percent at an annual rate, and nonrevolving credit increased 2-1/2 percent. In September, consumer credit increased 1 percent at an annual rate."

Total Consumer Credit (Chart) Total consumer credit increased in August by +$2,145M or +0.09% to $2,411,714M. This was the first increase after 7 consecutive monthly decreases. Total consumer credit peaked in July 2008 at $2,581,858M and the current September amount is the first increase since January 2010. The cyclical bottom to-date was August 2010 and the current September amount is down -$170,143M and -6.6% from the peak and up +$2,145 and +0.09% from the bottom. The chart below shows the latest 27 months of total outstanding consumer credit, beginning with the cyclical peak in July 2008.


Total Revolving Credit (Chart) Total revolving credit decreased in September by -$8,259M or -1% to $813,939M. This was the 25th consecutive monthly decrease. Total revolving credit peaked in August 2008 at $973,644M and the current September amount is the cyclical bottom to-date, down -$159,705 and -16.4% from the peak. Total revolving credit has decreased every month since the peak. The chart below shows the latest 26 months of total outstanding revolving credit, beginning with the cyclical peak in August 2008.



Total NonRevolving Credit (Chart) Total nonrevolving credit increased in September by +$10,404M or +.66% to $1,597,775M. This was the 5th consecutive monthly increase. The cyclical peak was in July 2008 at $1,609,285M and the cyclical trough was in November 2009 at $1,582,855M. The current September amount is down -$11,510M and -0.72% from the July 2008 cyclical peak and up +$14,920M and +0.94% from the November  2009 cyclical trough. Therefore, the current September amount is closer to the cyclical bottom than the peak. The chart below shows the latest 27 months of total outstanding nonrevolving credit, beginning with the cyclical peak in July 2008.



Commentary

In September 2010, nonrevolving credit increased for the 5th consecutive month while revolving credit decreased for the 25th consecutive month. However, this time nonrevolving credit increased more than the decrease in revolving credit which resulted in an overall increase in total consumer credit. This is a positive for economic growth.

As can be seen from the charts above and was so noted, USA Total Consumer Credit, Total Revolving Credit, and Total  NonRevolving Credit, consumer debt, peaked in July and August 2008 (The Great USA Credit Bubble) and has generally downtrended (total consumer credit and total revolving credit) or been flat (nonrevolving credit) since. The decrease in revolving credit has been greater than the increases in nonrevolving credit resulting in a general decrease in total consumer credit for most of 2010.

While reports say consumers are deleveraging, i.e. paying off their debt, it should also be noted that banks have tightened lending standards. Therefore, some consumers who could  have borrowed (and spent) as recently as the first half of 2008 cannot obtain credit in 2010 or certainly not as much credit. In addition, consumer uncertainty regarding the future plus the current high unemployment and underemployment rates have lowered loan demand. Since consumer spending, consumption, is a significant portion  of the USA economy (60%+ of GDP), all of these factors slow down the USA economic (GDP) growth.



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