Federal Deposit Insurance Corporation (FDIC)-insured
commercial banks and savings institutions reported third-quarter
2012 earnings of $37.6 billion, outpacing the prior-year
quarter's earnings of $35.2 billion by nearly 7%. This marks the
highest quarterly net income reported by the industry since the
third quarter of 2006.
Overall, the banking industry is exhibiting gradual improvement
as evident from the third quarter. Though the number of troubled
assets and institutions remain high, they are striving hard to
regain composure. Moreover, loan and deposit balances increased
in the quarter while loss provisions declined.
Major banks like
JPMorgan Chase & Co.
Wells Fargo & Company
Bank of America Corporation
) contributed to the overall earnings growth. These banks (with
at least $10 billion of assets) have earned nearly 82% of the
industry's total third-quarter profit. These banks earned $30.9
billion during the reported quarter.
Performance in Detail
Institutions are striving hard to be profitable and are
bolstering their productivity. This is evident as nearly 58% of
all institutions insured by the FDIC reported enhanced quarterly
net income compared to the prior-year quarter. Further, shares of
institutions reporting net losses for the quarter fell to
approximately 11% from 14% in the last year.
Moreover, average return on assets (ROA) surged to 1.06% from
1.03% in the year-ago quarter.
Net operating revenue stood at $169.6 billion, up 3.0% year over
year. The surge was largely driven by increases in non-interest
income and gains from loan sales.
Net interest income totaled $106.0 billion, up 0.7% from the
prior-year quarter. Likewise, non-interest income rose 7.0% to
$63.7 billion from $59.5 billion recorded in the prior-year
Moreover, total non-interest expenses for the institutions were
$104.5 billion in the quarter, elevating 4.0% on a year-over-year
Overall, credit quality marked an improvement in the third
quarter of 2012. Net charge-offs dipped by 16.5% to $22.3 billion
from $26.7 billion in the third-quarter of 2011. Further, for the
10th consecutive quarter, the level of non-current loans and
leases (those 90 days or more past due or in non-accrual status)
Loss provisions for the institutions in the reported quarter were
recorded at $14.8 billion, down 20.6% from $18.6 billion kept for
losses in the prior-year quarter. This marks the 12th consecutive
quarter in which loss provision plummeted on a year-over-year
Total loans and leases were $7.6 trillion, up 3.2% year over
year. This marked the fifth quarterly increase in loans in the
last six quarters. Total deposits also continued to rise and were
recorded at $10.5 trillion, up 5.0% year over year.
As of September 30, 2012, the net worth of the Deposit Insurance
Fund (DIF) increased to $25.2 billion, up from $22.5 billion as
of June 30, 2012. A jump in assessment revenue and lower
expectation of bank failures continued to impel growth in the
Bank Failures and Problem Institutions
During the third quarter of 2012, 12 insured institutions failed,
marking the smallest number of failures in a quarter since the
fourth quarter of 2008. Moreover, in the first nine months of
2012, a total of 43 insured institutions failed, with combined
assets of $9.5 billion.
As of September 30, 2012, the number of "problem" institutions
declined from 732 to 694, the lowest since the third quarter of
2009. Total assets of "problem" institutions also fell to $262
billion from $282 billion.
Still a Long Way to Go
Beside a considerable drop in the list of problem institutions,
the 13th straight quarter of consolidated profit from
FDIC-insured banks is quite impressive. While the financials of a
few large banks continue to stabilize on the back of an economic
recovery, the industry still remains on shaky ground.
The sector presents a similar picture to that of 2011, with
nagging issues like depressed home prices along with still-high
loan defaults and unemployment levels troubling such
institutions. Further, the lingering economic uncertainty and its
effects continue to weigh on many banks. The need to absorb bad
loans offered during the credit explosion has made these banks
susceptible to various problems.
Yet, banks are actively responding to every legal and regulatory
pressure. In fact, this promptness has positioned the banks well
to encounter impending challenges. As the sector is undergoing a
radical structural change, it is expected to witness headwinds in
the near to mid term. But entering the new capital regime will
significantly improve the industry's long-term stability and
However, we do not expect the potency of the sector to return to
its pre-recession peak anytime soon. The economic intricacy may
lead to further disappointments in the coming quarters.
Nevertheless, it would be unfair to say that there has been no
improvement. We believe the industry is gradually moving closer
towards regaining investor confidence.
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