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FDIC Second Quarter Report and Bank's Financial Health Grades

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FDIC Second Quarter Report and Bank's Financial Health Grades

Last week, the FDIC released its 2014 Second Quarter Report, which summarizes the financial health of the banks. In addition, the FDIC released the 2014 Second Quarter Call Reports of all the banks. That information has been imported into DepositAccounts.com’s data bank and the financial health grades of all banks had been updated based on that information. The NCUA has also released the 2014 Second Quarter data from credit unions, so the financial health grade information on all credit unions is current. If you would like to review the latest health ratings of your bank or credit union, check out our Bank Health Ratings page. This page also has a table of banks and credit unions ranked by Texas ratio, a standard financial health metric.

The tone of this latest FDIC Press Release is cautiously optimistic, with most of the news positive for bankers. In particular, the industry’s loan balance, which totaled $8.1 Trillion, continued to rise for the fifth straight quarter. This growth is the highest since 2007, when loans grew by $203 Billion. Here are some of the noteworthy excerpts from the FDIC press release:

  • Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.2 billion in the second quarter of 2014, up $2.0 billion (5.3 percent) from earnings of $38.2 billion the industry reported a year earlier.
  • Total loan and lease balances rose by $178.5 billion (2.3 percent) in the second quarter to $8.1 trillion. This is the largest quarterly increase since the fourth quarter of 2007.
  • The average return on assets (ROA) rose slightly to 1.07 percent in the second quarter from 1.06 percent a year earlier. The average return on equity (ROE) rose from 9.46 percent to 9.54 percent.
  • The number of banks on the FDIC's "Problem List" declined from 411 to 354 during the quarter.
  • Seven FDIC-insured institutions failed in the second quarter, compared to 12 in the second quarter of 2013.
  • The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance rose to $51.1 billion as of June 30 from $48.9 billion at the end of March. Assessment income was the primary contributor to the growth in the Fund balance.
  • 6,656 banks and savings associations deposits are insured by the FDIC (down from 6,730 in the last quarter)

The first thing to note is that net income from all banks rose in the second quarter on a year-over-year basis. According to the FDIC, this "was mainly attributable to a $1.9 billion (22.4 percent) decline in loan-loss provisions and a $1.5 billion (1.4 percent) decline in noninterest expenses." 57.5% of the FDIC insured institutions reported year-over-year in growth in quarterly earnings, and the proportion of unprofitable banks during the second quarter dropped to 6.8%, the lowest level since Q1 2006.

Also notable is how loans are trending upward. According to the FDIC report, total loans grew by 2.3%, the largest quarterly increase since Q4 2007. Banks are more likely to offer higher deposit rates when loans are growing and deposits are shrinking. Insured deposits declined 0.2% in the second quarter, as opposed to the first quarter deposits’ increase of 1.9%. While these the two trends (growing loans and declining deposits) are not substantial, they could signal the beginning of higher deposit rates.

Continuing the good news, there are fewer "problem" banks; this downward trend has been consistent for the last 13 quarters. According to the FDIC, the number of banks on the FDIC's "Problem List" declined from 411 to 354 during the quarter. The number of "problem" banks now is less than half the post-crisis high of 888 at the end of Q1 2011.

The FDIC doesn't name any of these problem banks. Calculated Risk Blog has an unofficial list of 437 problem banks based on public enforcement actions. When I reported on the FDIC's 2014 Q1 report in May, the unofficial problem bank number was 499.

Health Ratings

In addition to the quarterly report, the FDIC updated its database with the institutions' public financial reports that were filed by June 30, 2014. This is the data that we use to determine the health grades of banks and credit unions. We have finished importing both the FDIC data and the NCUA data, and all our bank health grades have been updated.

You can view a table of banks and credit unions with the worst Texas Ratios in our Bank Health Ratings page. From here you can also search for your bank and credit union to view its Texas Ratio, health score and other financial data.

BauerFinancial typically takes at least a week to update its ratings. Bankrate has been taking over a month before it updates its ratings.

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