Tuesday, August 23, 2011

USA Banks Return on Assets Increase (Chart) *Continued improvement in latest quarter reported*

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FDIC Quarterly Banking Profile

Banks Earned $28.8 Billion in the Second Quarter (FDIC, August 23, 2011) FDIC-insured institutions reported net income of $28.8 billion in second quarter 2011, an increase of $7.9 billion (37.9 percent) from a year earlier. This is the eighth consecutive quarter that industry earnings have improved year-over-year, but it is the smallest such improvement in the past seven quarters. Lower expenses for loan-loss provisions were the principal source of the increase in quarterly net income. More than half of all institutions (59.6 percent) reported improved earnings compared with a year ago. This represents an improvement over first quarter 2011, when 56 percent of institutions reported year-over-year earnings gains. Only 15.2 percent of institutions reported a net loss for the quarter. This is the smallest percentage of institutions that were unprofitable since first quarter 2008. The average return on assets (ROA) rose to 0.85 percent, from 0.63 percent a year earlier. At community banks (institutions with less than $1 billion in assets), the average ROA of 0.57 percent was below the industry average, but more than twice the 0.26 percent registered a year ago.

USA Banks Return on Assets The USA Banks Return on Assets (ROA) was +1.28% for the years ended 2004, 2005, and 2006. The ROA decreased to +0.81% and +0.03% in 2007 and 2008. The ROA then turned negative to -0.07% in 2009, before rebounding to +0.65% in 2010. For 2011 year-to-date, the six months ended June 30, 2011, the ROA continued improving to +0.86%.

Conclusion The USA Banks Return on Assets of +0.86% for the six months ended June 30, 2011 signals continued improvement in profitability and ongoing stability in the banking system. The current ROA is the highest since 2007 (+0.81%). As can be seen from the chart above, the USA Banks Return on Assets continues rebounding from the USA financial system crisis in 2008 and the Great Recession that officially ended the QE June 30, 2009. Return on assets reflects the overall performance, and health, of the banking system and takes into account all of the income statement components, including net interest margins, loan loss provisions, operating expenses, and income taxes. Return on assets also indicates how effectively and efficiently assets are being deployed and if the asset mix is ultimately profitable. An ROA of +1.00% is a banking benchmark. The various types of banks are also included within this banking system ROA: credit card, international, agricultural, commercial lenders, mortgage lenders, consumer lenders, other specialized, and all other.
For the six months ended June 30, 2011, the ROA for these banking segments were:
Credit card banks +3.83%
International banks +0.53%
Agricultural banks +1.09%
Commercial lenders +0.68%
Mortgage lenders +0.49%
Consumer lenders +1.60%
Other specialized (< $1 billion total assets) +1.63%
All other (< $1 billion total assets) +0.80%
All other (> $1 billion total assets) +0.84%

About the FDIC

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 7,575 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.

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