IV. Financial Statements and Notes
Overview of the Industry
The 7,657 FDIC-insured commercial banks and
savings institutions that filed financial reports as
of December 31 reported $87.5 billion in net
income for the full year 2010. This represented a
considerable improvement over the $10.6 billion
aggregate net loss posted in 2009.1 But it is well
below the record annual earnings of $145.2
billion registered in 2006. The average return on
assets (ROA) was 0.66 percent, up compared to a
negative 0.08 percent in 2009. The year-over-year
improvement in earnings was broad-based. More
than two out of every three institutions (67.5
percent) reported higher net income in 2010
compared to a year earlier. More than one in five
institutions (21 percent) reported a net loss for the
year, but this was a significantly smaller percentage
than in 2009, when 30.8 percent
were unprofitable.
Lower expenses for asset-quality problems and
reduced charges for goodwill impairment were the
principal sources of the improvement in industry
net income. Provisions for loan and lease losses
totaled $156.9 billion, which was $92.6 billion
(37.1 percent) less than insured institutions
set aside in 2009. Slightly more than half of
all institutions (51 percent) reported reduced
loss provisions in 2010. Charges for goodwill
impairment totaled $1.7 billion in 2010, a decline
of $28.7 billion compared to 2009. Additional
support for the improvement in industry net
income was limited by a $32.2 billion increase in
income taxes.
Year-over-year comparisons of revenues
are complicated by the application of new
accounting rules to financial reporting in
2010.2 Implementation of the new rules led to
the consolidation of a significant amount of
securitized assets (primarily credit card balances)
back onto the originating banks’ balance sheets
in 2010. Along with the resulting increase in
reported loan balances, there was also an impact
from the cash flows associated with these balances.
At institutions affected by the reporting changes,
reported levels of interest income and expense, net
interest income, and net charge-offs were elevated,
while noninterest income items such as income
from securitization activities, servicing fees, and
trading revenues were reduced. The effects were
evident in industry totals. Net interest income was
$34.4 billion (8.7 percent) higher than in 2009,
while noninterest income was $23.6 billion (9.1
percent) lower. The change in reporting rules had
little or no effect on net revenues. Net operating
revenue (the sum of net interest income and total
noninterest income) was only $10.8 billion (1.6
percent) higher than in 2009.
The average net interest margin (NIM) improved
to 3.76 percent from 3.47 percent in 2009, as
average funding costs fell more rapidly than
average asset yields. This is the highest annual
NIM since 2002, when it reached 3.96 percent.
A majority of institutions (57.1 percent) reported
higher NIMs in 2010, with the largest increases
occurring at institutions that had securitized credit
card receivables and were affected by the new
accounting rules.
The decline in noninterest income reflected
reduced servicing fees (down $13.2 billion, or
44 percent), lower securitization income (down
$4.3 billion, or 89.9 percent), and lower trading
revenue (down $1.4 billion, or 5.6 percent). The
application of new reporting rules contributed
to these declines. Among the noninterest income
categories that were not affected by the new rules,
service charges on deposit accounts were $5.5
billion (13.1 percent) lower than in 2009, gain
on sales of loans and other assets was $3.2 billion
(29.4 percent) lower, and investment banking
income was $2.1 billion (17.8 percent) lower.
Noninterest expenses fell by $12.6 billion in 2010,
as a result of the $28.7 billion reduction in charges
for goodwill impairment. Salaries and employee benefits expenses
increased by $5.8 billion (3.5
percent), as the number of employees at insured
institutions rose by 23,407 (1.1 percent). Expenses
for premises and fixed assets were $1.0 billion (2.3
percent) lower than in 2009.
Insured institutions charged-off $187.1 billion
(net) in troubled loans in 2010, a $1.7 billion
(0.9 percent) decline from 2009. This is the first
year-over-year decline in charge-offs in four years,
and it occurred despite a $26.6 billion (69.8
percent) increase in reported credit card charge-offs
caused by the new reporting rules that took
effect in 2010. Most major loan categories had
lower charge-offs in 2010. Charge-offs of loans to
commercial and industrial (C&I) borrowers were
$11.2 billion (35.1 percent) lower, charge-offs of
real estate construction and development loans
fell by $6.8 billion (24.8 percent), and charge-offs
of non-credit card consumer loans declined
by $6.1 billion (31.9 percent). Apart from credit
cards, the only other major loan category that had
increased charge-offs was real estate loans secured
by nonfarm nonresidential properties. Net charge-offs
of these loans were $4.6 billion (54.5 percent)
higher than in 2009.
In the twelve months ended December 31, the
amount of loans and leases that were noncurrent
(90 days or more past due or in nonaccrual
status) declined by $36.4 billion (9.2 percent).
This is the first 12-month decline in noncurrent
loans and leases since 2005. As was the case with
charge-offs, most major loan categories registered
improvement in noncurrent levels. Noncurrent
real estate construction and development loans
declined by $20.4 billion (28.4 percent) in
2010, while noncurrent C&I loans fell by $12.5
billion (30.2 percent). Noncurrent residential
mortgage loans declined by $3.4 billion (1.9
percent). The two major loan categories where
noncurrent balances increased in 2010 were real
estate loans secured by nonfarm nonresidential
properties (where noncurrent balances were up
by $3.9 billion, or 9.2 percent) and credit cards
(where noncurrent balances rose by $968 million,
or 6.7 percent). The latter increase reflected the
application of new reporting rules in 2010.
Total assets of insured institutions increased
by $234.2 billion (1.8 percent), in 2010. The
increase was attributable to new reporting rules
that caused more than $300 billion in securitized
loan balances to be consolidated into banks’
balance sheets at the beginning of the year. Credit
card balances at year end 2010 were $280.5
billion (66.6 percent) higher than a year earlier.
In contrast, balances in all other major loan
categories declined during 2010. The largest
decline occurred in real estate construction and
development loans, where balances fell by $129.2
billion (28.7 percent). Other large declines
occurred in C&I loans (down $36.0 billion, or 2.9
percent), home equity lines of credit (down $24.7
billion, or 3.7 percent), real estate loans secured by
nonfarm nonresidential properties (down $20.5
billion, or 1.9 percent), and 1-4 family residential
mortgages (down $18.2 billion, or 1 percent).
Insured institutions’ securities holdings increased
by $167.3 billion (6.7 percent) during the year,
as their U.S. Treasury securities rose by $85.1
billion (83.0 percent) and their mortgage-backed
securities increased by $87.4 billion (6.3 percent).
Total deposits increased by $196.2 billion (2.1
percent), as deposits in domestic offices rose by
$176.3 billion (2.3 percent). Most of the increase
in domestic deposits occurred in noninterest-bearing
accounts, which grew by $136.9 billion
(8.8 percent). Nondeposit liabilities declined by
$30.7 billion (1.3 percent) during the year, as
advances from Federal Home Loan Banks fell
by $146.7 billion (27.5 percent). Other secured
borrowings increased by $205.6 billion, as part
of the consolidation of securitized loan balances
back into balance sheets at the beginning of 2010.
Total equity capital, including minority interests
in consolidated subsidiaries, increased by $68.8
billion (4.8 percent) in 2010.
The number of institutions on the FDIC’s
“Problem List” increased from 702 to 884 during
2010. This is the largest number of “Problem”
institutions since March 31, 1993, when there were
928. Total assets of “Problem” institutions declined
from $402.8 billion to $390.0 billion. During
2010, 157 insured institutions with $92.1 billion in
assets failed and were resolved by the FDIC.
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