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FDIC Report on Fourth Quarter Performance of the Banking Industry


The FDIC released its fourth quarter 2007 comprehensive summary of financial results for all FDIC-insured institutions. Some interesting stats were reported in their Complete Quarterly Banking Profile. As you would expect, there were several negative trends, but in terms of number of 2007 bank failures and the number of problem banks, it could have been a lot worse. Of course there are signs that it will get worse. This WSJ article reports that the FDIC is taking steps to brace for an increase of bank failures. Make sure you read my post on FDIC and NCUA facts if you're concerned about your bank. Below are some excerpts from the Quarterly Banking Profile with a few of my comments:

Quarterly Net Income Declines to a 16-Year Low
Record-high loan-loss provisions, record losses in trading activities and goodwill impairment expenses combined to dramatically reduce earnings at a number of FDIC-insured institutions in the fourth quarter of 2007.

One in Four Large Institutions Lost Money in the Fourth Quarter
Earnings weakness was fairly widespread in the fourth quarter. More than half of all institutions (51.2 percent) reported lower net income than in the fourth quarter of 2006, and 57.1 percent reported lower quarterly ROAs. However, the magnitude of the decline in industry earnings was attributable to a relatively small number of large institutions.

Full-Year Earnings Fall to Five-Year Low
For all of 2007, insured institutions earned $105.5 billion, a decline of $39.8 billion (27.4 percent) from 2006. This is the lowest annual net income for the industry since 2002 and is the first time since 1999-2000 that annual net income has declined. While much of the decline in industry earnings was concentrated among some of the largest institutions, evidence of broader weakness in earnings bespoke an operating environment that was less favorable than in previous years. Fewer than half of all insured institutions--49.2 percent--reported improved earnings in 2007, the first time in at least 23 years that a majority of insured institutions have not posted full-year earnings increases.

Net Charge-Off Rate Rises to Five-Year High
Net charge-offs registered a sharp increase in the fourth quarter, rising to $16.2 billion, compared to $8.5 billion in the fourth quarter of 2006.

Three Failures in 2007 Is Most Since 2004
At the end of 2007, there were 76 FDIC-insured commercial banks and savings institutions on the "Problem List," with combined assets of $22.2 billion, up from 65 institutions with $18.5 billion at the end of the third quarter.

One thing to note is that these 76 banks only account for $22.2 billion in total assets. That eliminates a few banks such as IndyMac which has total assets of over $32 billion and Countrywide Bank which has over $121 billion in assets.

Asset Growth Remains Strong in the Fourth Quarter
Assets continued to grow strongly in the fourth quarter, but the focus of growth shifted away from residential mortgage loans.

Domestic Deposits Post Record Growth
Deposits in domestic offices of insured institutions increased by $170.6 billion (2.5 percent), the largest quarterly dollar increase ever reported by the industry. Deposits in noninterest-bearing accounts rose by $64.9 billion (5.8 percent), time deposits grew by $53.5 billion (2.1 percent), and deposits in other interest-bearing accounts increased by $49.1 billion (1.6 percent).

It's surprising to see the largest deposit increase in noninterest-bearing accounts. With so many high interest checking and savings account options available, you would think more people would take advantage of these.

Thanks to reader who mentioned this news story in the comments.

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Holy Matrimony
Holy Matrimony   |     |   Comment #1
Wow...64.9 billion dollars in non-interest bearing accounts.

A big reason one might deposit into a non-interest-bearing account is so the money is not reported to the IRS.

Anonymous   |     |   Comment #2
Or maybe it's people lured by the $100/$200 sign-up bonus on free checking accounts.
Gomer   |     |   Comment #3
Could be a lot of business accounts, as well. Most of the higher-rate checking accounts are for personal accounts only. Businesses are more likely to open up non-interest-bearing checking accounts.
Anonymous   |     |   Comment #4
Is there a way to get and post a list of the 76 FDIC insured banks that are mentioned to be on the "problem list?"
Banking Guy
Banking Guy   |     |   Comment #5
I forgot to mention that the FDIC doesn't name these banks since it would scare away their deposit customers.
Anonymous   |     |   Comment #6
I know at lease one reason why people
keep their money in non-interest bearing accounts. Since the interest
received is relatively small these days, and someone having large amount
of money on short investment time, may trigger next tax bracket on all
income received for the year and
thus defeating the interest gained as
liability instead of profit.
Anonymous   |     |   Comment #7
Anon - tax brackets don't work like that; they are marginal tax rates, not applied to all of your income.