Overview of the Industry
The 7,181 FDIC-insured commercial banks and savings institutions that filed financial results for the first nine months of 2012 reported net income of $106.9 billion, an increase of 15.0 percent compared to the first nine months of 2011. This is the third consecutive year that industry earnings have registered a year-over-year increase. The improvement in earnings was attributable to lower expenses for loan-loss provisions, increased noninterest income, higher realized gains on securities and other assets, and growth in net interest income. Two out of every three institutions reported year-over-year increases in net income, and the percentage of institutions with negative net income for the first nine months of the year fell to 10.7 percent, down from 15.9 percent a year earlier.
The average return on assets (ROA) for the first nine months was 1.02 percent, up from 0.92 percent for the same period of 2011. This is the highest nine-month industry ROA since 2007. More than half of insured institutions (57.7 percent) had higher ROAs in 2012 than in 2011. Insured institutions set aside $43.3 billion in provisions for loan and lease losses during the first nine months of 2012, a decline of $14.4 billion (25.0 percent) compared to the same period in 2011. The industry’s total noninterest income increased by $10.3 billion (5.9 percent), as income from loan sales rose by $9.3 billion (201.9 percent). Total noninterest expenses were $9.3 billion (3.0 percent) higher, led by a $6.6 billion (5.0-percent) increase in salary and benefit expenses.
A challenging environment of low short-term interest rates combined with a flat yield curve contributed to a decline in the industry’s net interest margin in 2012. The average margin fell from 3.61 percent in the first three quarters of 2011 to 3.46 percent for the first three quarters of 2012. However, the industry’s interest-earning assets grew by 4.6 percent from the end of September 2011 through the end of September 2012, helping to boost net interest income by $1.9 billion (0.6 percent).
Indicators of asset quality continued to improve in 2012. In the twelve months ended September 30, total noncurrent loans and leases -- those that were 90 days or more past due or in nonaccrual status – declined by $22.2 billion (7.1 percent). Loans secured by real estate properties accounted for more than half ($13.0 billion) of the reduction in noncurrent loans. New accounting and reporting guidelines resulted in a $14.9 billion (8.1 percent) increase in the amount of noncurrent 1-4 family residential real estate loan balances reported, but this increase did not represent deterioration in the underlying performance of these loans. Noncurrent real estate construction and development loans fell by $17.0 billion (45.9 percent), and noncurrent real estate loans secured by nonfarm nonresidential properties declined by $8.2 billion (19.6 percent). Noncurrent balances in all other major loan categories declined, led by loans to commercial and industrial (C&I) borrowers (down $5.0 billion, or 26.1 percent). Net charge-offs of loans and leases (NCOs) totaled $64.4 billion in the first three quarters of 2012, a decline of $23.5 billion (26.7 percent) over the same period in 2011. Credit card NCOs registered the largest year-over-year decline, falling by $9.3 billion (31.4 percent). Net charge-offs of real estate construction and development loans declined by $4.0 billion (56.4 percent), C&I NCOs were $2.8 billion (32.6 percent) lower than in the first nine months of 2011, and NCOs in all other major loan categories also posted significant declines. At the end of September 2012, there were 694 institutions on the FDIC’s “Problem List,” down from 844 “problem” institutions a year earlier.
Asset growth remained modest in 2012, but loan balances increased, after three consecutive years of contraction. During the 12 months ended September 30, total assets of insured institutions increased by $411.0 billion (3.0 percent). Loans and leases accounted for more than half of the increase in total assets, rising by $267.8 billion (3.7 percent). C&I loans increased by $173.6 billion (13.5 percent), residential mortgage loans rose by $33.2 billion (1.8 percent), auto loans increased by $19.8 billion (6.7 percent) and real estate loans secured by multifamily residential properties were up by $10.9 billion (5.0 percent). In contrast, real estate construction and development loans fell by $44.3 billion (17.4 percent), and home equity loans declined by $41.0 billion (6.7 percent).
Growth in deposits outpaced the increase in total assets. In the 12 months ended September 30, total deposits of insured institutions increased by $504.0 billion (5.0 percent). Deposits in domestic offices rose by $554.9 billion, (6.5 percent), while foreign office deposits fell by $50.9 billion. Much of the increase in domestic deposits occurred in balances in noninterest-bearing transaction accounts that have temporary full FDIC insurance coverage. These accounts increased by $301.8 billion (21.7 percent), with $276.9 billion of the increase consisting of balances above the basic FDIC coverage limit of $250,000. Nondeposit liabilities declined by $152.3 billion (6.8 percent), while equity capital rose by $59.2 billion (3.8 percent).