Friday, February 25, 2011

USA Problem Bank List Increases to 884 (Charts) *FDIC Quarterly Banking Profile*

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FDIC Quarterly Banking Profile

USA Problem Bank List Increases to 884 with Total Assets of $390 Billion

Quarterly Banking Profile (QE December 31, 2010) The Federal Deposit Insurance Corporation (FDIC) has issued the Quarterly Banking Profile for the 7,657 commercial banks and savings institutions reporting.  Overall, the USA banking system has rebounded from the 2008 financial crisis but systemic problems and weakness continue.
Insured Institution Performance
On the positive side, the FDIC headlined the Quarterly Banking Profile:
* Banks Earned $21.7 Billion in Fourth Quarter as Recovery Continues
* Full-Year Net Income of $87.5 Billion Is Highest Since 2007
* Asset Quality Improves for Third Consecutive Quarter
* Institutions Set Aside Half as Much for Loan Losses as a Year Earlier
On the negative side, the FDIC also noted in the Quarterly Banking Profile:
* 157 Insured Institutions Failed During 2010

Quarterly Banking Profile Review Although the FDIC is reporting an increase in aggregate Net Income for the 7,657 commercial banks and savings institutions for 2010. Aggregate Capital continues adequate. 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 to +0.66% in 2010 from -0.08% in 2009
* Net charge-off ratio has increased to 2.54% in 2010 from 2.52% in 2009
* Noncurrent (non-earning) assets to total assets has decreased to 3.11% in 2010 from 3.36% in 2009
* Total failed banks has increased to 157 in 2010 from 140 in 2009
* Total problem banks has increased to 884 at 12/31/2010 from 702 at 12/31/2009

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 -0.08%, respectively. The annualized Return on Assets in 2010 is a much improved +0.66% (annualized). A Return on Assets of +1.00% is a benchmark and above is considered very good. Chart data is:
Year, Return on Assets
2004: 1.28%
2005: 1.28%
2006: 1.28%
2007: 0.81%
2008: 0.03%
2009: (0.08%)
2010: 0.66%

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 has been a very high 2.52%  and 2.54% in 2009 and 2010, respectively. If the Net Charge-Off Ratio does not begin to decrease in 2012, Net Income and therefore Return on Assets will also begin decreasing. A net Charge-Off Ratio of less than 0.50% is a benchmark and considered very good. Chart data is:
Year, Net Charge-Off Ratio
2004: 0.56%
2005: 0.49%
2006: 0.39%
2007: 0.59%
2008: 1.29%
2009: 2.52%
2010: 2.54%

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 2012, Net Income and therefore Return on Assets will also begin decreasing. A Noncurrent Assets Ratio of less than 0.50% is a benchmark and considered very good. Chart data is:
Year, Noncurrent Asset Ratio
2004: 0.53%
2005: 0.50%
2006: 0.54%
2007: 0.95%
2008: 1.91%
2009: 3.36%
2010: 3.11%

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 297 compared to 0 in both 2005 and 2006. As noted below regarding total problem banks, bank failures in 2012 should continue at a high rate. Chart data is:
Year, Total Bank Failures
2004: 4
2005: 0
2006: 0
2007: 3
2008: 25
2009: 140
2010: 157

Total Problem Banks (Chart) The FDIC problem bank list continues to rise, actually skyrocket, although the total assets of these banks has leveled off. Now at 12/31/2010 the total is an astronomical 884. The total assets of the problem banks from the year-ends 2004 through 2009 were $28B, $7B, $8B, $22B, $159B, and $403B, respectively. The total assets of the current (12/31/2010) 884 problem banks is $390B, indicating most of these are small to medium community banks. Chart data is:
Date, Total Problem Banks
12/31/2004: 80
12/31/2005: 52
12/31/2006: 50
12/31/2007: 76
12/31/2008: 252
12/31/2009: 702
12/31/2010: 884

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