INDUSTRY EARNINGS

FDIC Reports Banking Industry Essentially Broke Even in 4th Quarter of 2009

Source:
Federal Deposit Insurance Corporation
www.fdic.gov

Commercial banks and savings institutions insured by the FDIC reported an aggregate profit of $914 million in the fourth quarter of 2009, a $38.7 billion improvement from the $37.8 billion net loss the industry sustained in the fourth quarter of 2008. More than one-half (50.3%) of all institutions reported year-over-year improvements in their quarterly net income. Almost one-third (32.7%) of all institutions reported net losses for the quarter, compared to 34.6% a year earlier. For the full-year of 2009, banks reported net income totaling $12.5 billion, up from $4.5 billion reported for 2008.

For the full-year of 2009, industry earnings represented an ROAA of 0.09%, up from 0.03% in 2008.

The FDIC reported that several factors contributed to the year-over-year improvement in quarterly earnings.

• Non-interest income was $21.7 billion (53.2%) higher and non-interest expense declined by $16.2 billion (14.2%).

• Realized losses on securities and other assets were $8.7 billion lower.

• Net interest income was $1.7 billion (14.1%) higher.

• Provisions for loan losses totaled $61.1 billion in the quarter, a decline
of $10 billion (14.1%) from the fourth quarter of 2008. This is the first time
since the third quarter of 2006 that quarterly loss provisions have been below year-earlier levels.

Total loans and leases declined by $128.8 billion (1.7%) during the fourth quarter of 2009. This is the sixth consecutive quarter in which the industry’s loan balances declined. Loans to C&I borrowers declined by $54.4 billion (4.3%) and real estate construction and development loans declined by $41.5 billion (8.4%).
Total assets of insured institutions declined by $137.2 billion (1.0%). while total loans and leases declined as mentioned above, banks’ investments in mortgage-backed securities increased by $44.8 billion (3.3%) and U.S. Treasury securities rose by $15.9 billion (18.3%).

Now for the bad news. The FDIC noted that indicators of asset quality continued to deteriorate during the fourth quarter, although the pace of deterioration slowed for a third consecutive quarter. Insured banks and thrifts charged off $53.0 billion in uncollectable loans during the fourth quarter, up from $38.6 billion charged off a year earlier. Noncurrent loans and leases increased by $24.3 billion during the fourth quarter. At the end of 2009, noncurrent loans and leases totaled $391.3 billion, or 5.37% of the industry’s total loans and leases.

As expected, the number and total assets of institutions on the FDIC’s “problem list” continued to rise. At the end of December 2009, there were 702 insured institutions (8.8% of the nation’s 8,012 banks and savings associations) on the list, up from 552 on September 30, 2009. The total assets of “problem” institutions increased during the quarter from $345.9 billion to $402.8 billion. Forty-five institutions failed during the fourth quarter of 2009, bringing the total number of failures for the year to 140, the highest annual total since 1992.

Total insured deposits in the nation’s 8,012 insured institutions increased by 13.5% ($641.3 billion) during 2009, which reflects the temporary increase in the standard maximum FDIC deposit insurance amount from $100,000 to $250,000.
The FDIC’s liquid resources, cash and marketable securities, increased to $66 billion at year-end 2009 from $23 billion at the end of September 2009. The liquid resources position reflects the almost $46 billion in deposit insurance premiums, about three years worth, that most insured institutions prepaid by the end of the fourth quarter.

The FDIC’s Deposit Insurance Fund (DIF) balance decreased by $12.7 billion
during the fourth quarter. The fund balance of negative $20.9 billion (unaudited) as of December 31, 2009, reflects a $44 billion contingent loss reserve that has been set aside to cover estimated losses. Combining the fund balance with this contingent loss reserve shows total DIF reserves of $23.1 billion.