Federal Deposit Insurance Corporation (FDIC)-insured commercial
banks and savings institutions reported fourth-quarter 2012
earnings of $34.7 billion, outpacing the prior-year quarter's
earnings of $25.3 billion by 36.9%. This marks the 14th consecutive
quarter in which earnings have soared on a year-over-year
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For full year 2012, earnings stood at $141.3 billion, up 19.3% as
compared with 2011. Moreover, earnings reported for the year
reflects second-highest level after $145.2 billion earned in
Overall, the banking industry is gradually improving as evident
from the fourth quarter results. The number of troubled assets and
institutions declined and are striving to show improvements.
Moreover, loan balances increased in the quarter and loss
Banks with assets worth more than $10 billion contributed to the
overall earnings growth during the fourth quarter. Though these
form 1.5% of U.S. banks, the banks accounted for approximately 82%
of the industry earnings.
Such major banks include Wells Fargo &
Company ( WFC ),
Citigroup Inc. ( C ), JPMorgan
Chase & Co. ( JPM ) and Bank
of America Corporation ( BAC ).
Performance in Detail
Institutions are striving hard to be profitable and are bolstering
Around 60% of all institutions insured by FDIC reported enhanced
quarterly net income compared to the prior year. Moreover, shares
of institutions reporting net losses for the quarter slumped to
14.0% from 20.2% in the last year.
The profitability measure - average return on assets (ROA) surged
to 0.97% from 0.73% in the prior-year quarter.
Net operating revenue stood at $169 billion, up 4.5% year over
year. The increase was due to rise in gains from loan sales by $2.4
billion. Additionally, trading income augmented by $1.9 billion
compared with the prior year.
Net interest income was recorded at $104.4 billion, down 2.5% year
over year, reflecting five-year low average net interest margin.
The average net interest margin declined to 3.32%, from 3.57% in
the prior-year quarter, as average asset yields reduced more than
average funding costs.
However, non-interest income rose to $64.6 billion from $54.6
billion recorded in the prior-year quarter.
Total non-interest expenses for the institutions were $108.1
billion in the quarter, slightly up on a year-over-year basis. The
upsurge was aided by higher salaries and employee benefits expenses
and elevated other non-interest expenses, though partly offset by
lower premises and equipment expenses.
Overall, credit quality marked an improvement in the fourth
quarter of 2012. Net charge-offs plummeted to $18.6 billion from
$25.6 million in the fourth quarter of 2011.
Loss provisions for the institutions in the fourth quarter were
recorded at $15.1 billion, down 25% from $20.1 billion kept for
losses in the prior-year quarter.
For the 11th 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 reached the lowest level in 4 years.
Total loans and leases were $7.7 trillion, up 2.7% year over year.
This marked the 6th quarterly increase in loans in the last 7
quarters. Total deposits also continued to rise and were recorded
at $10.8 trillion, up 5.9% year over year.
As of Dec 31, 2012, the net worth of Deposit Insurance Fund (DIF)
increased to $33.0 billion, up from $25.2 billion as of Sep 30,
2012. The rise in funds included $1.8 billion kept for debt
guarantees under the FDIC's Temporary Liquidity Guarantee
Moreover, assessment revenues and lower expectation of losses
related to bank failures continued to impel growth in the fund
Bank Failures and Problem Institutions
During the fourth quarter of 2012, 8 insured institutions failed,
marking the smallest number of failures in a quarter since the
second quarter of 2008, when it had recorded 2 failures. Moreover,
in 2012, 51 failures were recorded, as compared with 92 failures in
2011 and 157 in 2010.
As of Dec 31, 2012, the number of "problem" institutions declined
from 694 to 651. Total assets of "problem" institutions also
plummeted to $233 billion from $262 billion.
Besides the heartening decline in the list of problem
institutions, the 14th 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
The sector presents a slightly improved picture as compared with
2011, with nagging issues like depressed home prices along with
loan defaults and unemployment levels subsidizing. Further, the
lingering economic uncertainty and its effects 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 efficiency 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, 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