Where Banks Were Strong — and Weak — in FDIC's Report Card
March 3, 2015 1:35 PM
There was plenty for banks to be encouraged about in the Federal Deposit Insurance Corp.'s most recent Quarterly Banking Profile, which reported comprehensive industry earnings for the fourth quarter and all of 2014. Community bank lending is showing steady growth, capital levels keep rising and the FDIC's insurance reserves are stabilizing. But the numbers also contained worrisome signs. Here are key takeaways from the report.
Image: Bloomberg
Image: Bloomberg
It Paid to Be Small
The report read like a tale of two industries as smaller institutions outperformed the industry at large. Net income for community banks rose 28% from a year earlier while earnings for the industry overall dropped 7.3%. Loans also grew at a faster clip for community banks during the quarter, rising 2.5%, versus 1.8% for all banks. Meanwhile, income at the four biggest banks declined more than $4 billion from a year earlier, which was attributed to higher litigation costs.
Image: Fotolia
Image: Fotolia
Return to Normalcy?
Several indicators point to banks settling in to more normal lending strategies six years after the crisis. The FDIC reported loans over the previous year had grown 5.3%, the highest 12-month growth rate since mid-2008. And after a prolonged period of declines in loss provisions, the industry set aside more to cover loan losses on a year-over-year basis for the second straight quarter, and they still managed to report higher revenues.
Stormy Waters Remain
Yet the FDIC report also indicates a bumpy road ahead on numerous fronts. The industry's average quarterly return on assets fell 13 basis points from a year earlier to 0.96%, its first dip below 1% in two years. The average net interest margin was also tighter. Noninterest income fell 0.3% due to a $1.6 billion decline in revenue from mortgage sales and servicing, which is still feeling the effects of a sudden jump in interest rates in late 2013.
Image: Fotolia
Image: Fotolia
Capital is Still King
Banks continue to strengthen their capital standing. Equity capital rose nearly 1% from a year earlier, and total risk-based capital rose 1.3%. The FDIC said $13.9 billion in retained earnings were added to capital growth during the quarter, far surpassing the $4.8 billion contributed a year earlier.
Image: Fotolia
Image: Fotolia
'High Quality' Assets Surge
Among the 1.3% increase in total assets during the quarter, banks' holdings of U.S. Treasury bonds grew 17.3% and balances at Federal Reserve banks rose 4.4%. The FDIC said the increases in both categories were mostly seen at banks with over $250 billion in assets, which are now required under the Liquidity Coverage Ratio to bulk up on "high quality liquid assets" that can be sold off easily in a crisis.
Image: Fotolia
Image: Fotolia
No New Charters
Once again, it was an uneventful quarter and year for the chartering of new banks. For the second time in three years, the industry finished 2014 with no new banks added to the industry.
Image: Fotolia
Image: Fotolia
FDIC Finances Still Rebounding
With failures abated and banks still paying deposit insurance assessments, the "reserve ratio" of Deposit Insurance Fund capital to insured deposits exceeded 1% for the first time since 2007. The fund was also helped significantly by projections for future failures. The FDIC reported a provision for insurance losses of negative-$6.79 billion, and a total of negative-$8.3 billion for the year. It was the highest annual negative provision since such data has been collected.
