Federal Deposit Insurance Corporation (FDIC)-insured commercial
banks and savings institutions reported second-quarter 2012
earnings of $34.5 billion, outpacing the prior-year quarter's
earnings of $28.5 billion by 21%. This marks the 12th consecutive
quarter in which earnings have soared on a year-over-year basis.
Overall, the banking industry is gradually improving as evident
from the second quarter. Though the number of troubled assets and
institutions remain high, yet they are striving to show
improvements. Moreover, loan balances increased in the quarter and
loss provisions declined.
Results for the quarter were impacted by significant trading loss
JPMorgan Chase & Co.
) in July. On the other hand, major banks like
Wells Fargo & Company
Bank of America Corporation
) contributed to the overall earnings growth.
Performance in Detail
Institutions are striving hard to be profitable and are bolstering
Around two-thirds of all institutions insured by the FDIC, which
approximates 62.7%, reported enhanced quarterly net income compared
to the prior year. Moreover, shares of institutions reporting net
losses for the quarter slumped to 10.9% from 15.7% in the last
The profitability measure - average return on assets (ROA) surged
to 0.99% from 0.85% in the prior-year quarter.
Net operating revenue stood at $165.4 billion, up 0.8% year over
year. The increase was due to rise in gains from loan sales by $3.0
billion. Additionally, realized gains on investment securities and
other assets also augmented by $1.7 billion compared with the prior
Net interest income was recorded at $105.6 billion, almost in line
with the prior-year quarter. However, non-interest income rose to
$59.8 billion from $58.2 billion recorded in the prior-year
Total non-interest expenses for the institutions were $103.4
billion in the quarter, slightly down on a year-over-year basis.
The decline was aided by lower premises and equipment expenses and
reduced other non-interest expenses, though partly offset by higher
salaries and employee benefits expenses.
Overall, credit quality marked an improvement in the second quarter
of 2012. Net charge-offs substantially plummeted to $20.5 billion
from $28.9 million in the second-quarter of 2011.
Loss provisions for the institutions in the second quarter were
recorded at $14.2 billion, down 26% from $19.2 billion kept for
losses in the prior-year quarter.
For the ninth consecutive quarter, the level of non-current loans
and leases (those 90 days or more past due or in non-accrual
status) declined. Moreover, the percentage of non-current loans and
leases also reached the lowest level in more than three years,
since the first quarter of 2009.
Total loans and leases were $7.5 trillion, up 1.4% year over year.
This marked the fourth quarterly increase of loans in the last five
quarters. Total deposits also continued to rise and were recorded
at $10.3 trillion, up 0.6% year over year.
As of June 30, 2012, the net worth of the Deposit Insurance Fund
(DIF) increased to $22.7 billion, up from $15.3 billion as of March
31, 2012. The rise in fund included $4.0 billion kept for debt
guarantees under the FDIC's Temporary Liquidity Guarantee Program.
Moreover, assessment revenue and lower expectation of bank failures
also continued to impel growth in the fund balance. During the
quarter, the contingent loss reserve, that covers the costs of
expected failures, declined to $4.0 billion from $5.3 billion.
As of June 30, 2012, the number of "problem" institutions declined
from 772 to 732, the lowest since year-end 2009. Total assets of
"problem" institutions also fell to $282 billion from $292 billion.
During the second quarter of 2012, 15 insured institutions failed,
marking the smallest number of failures in a quarter since the
fourth quarter of 2008, when it recorded 12 failures. Moreover, to
date in the third quarter, nine banks have failed to sum the total
for the year to 40. Last year the number stood at 68 failures in
the comparable period.
Besides the heartening decline in the list of problem institutions,
the 12th straight quarter of consolidated profit from FDIC-insured
banks is significantly 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.
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The lingering economic uncertainty and its effects also weigh on
many banks. The need to absorb bad loans offered during the credit
explosion has made these banks susceptible to several problems.
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 security.
According to FDIC's acting chairman, Martin J. Gruenberg, the
industry is now better positioned to support the economic
stability. But we do not expect the potency of the sector to return
to its pre-recession peak anytime soon. The economic intricacy may
even result in further disappointments in the coming quarters.
However, it would be unfair to say that there has been no
improvement. At least, the data from FDIC speaks otherwise. The
industry is gradually moving towards regaining investor confidence.