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    FDIC Quarterly 3 2011, Volume5, No. 4

    Quarterly Banking Profile

    Commercial Lending Activity RisesTotal assets of insured institutions increased by $207.1billion (1.5 percent) during the quarter. Most of theasset growth occurred in securities portfolios and tradingaccounts, while loan balances registered a secondconsecutive quarterly increase. Mortgage-backed securi-

    ties holdings increased by $54.4 billion (3.5 percent),while banks U.S. Treasury securities rose by $10.4billion (6.4 percent). Assets in trading accountsincreased by $61 billion (8.8 percent). Balances withFederal Reserve banks, which had grown by $253 billionin the first six months of 2011, declined by $91.2 billion(12.2 percent). Total loans and leases increased for asecond consecutive quarter, rising by $21.8 billion (0.3percent). The largest growth was in C&I loans, whichincreased by $44.8 billion (3.6 percent). This is the fifthconsecutive quarter that C&I loan balances have risen.Small C&I loans (loans with original balances of lessthan $1 million) declined by $3.1 billion (1.1 percent).

    Residential mortgage loan balances increased by $23.7billion, the largest quarterly increase since third quarter2007. Real estate construction loan balances fell for a14th consecutive quarter, declining by $20.3 billion (7.4percent). Loans to depository institutions declined by$37.1 billion (25.3 percent), as a result of the elimina-tion of intracompany loans between two affiliated banksthat merged during the third quarter. Adjusted for theimpact of this transaction, overall loan growth in thethird quarter was comparable to the growth reported inthe previous quarter. The larger increases in securitiesproduced a decline in the average risk weighting of the

    industrys assets. The ratio of risk-weighted assets tototal assets fell to 67 percent at the end of the quarter,the lowest level since first quarter 1994.

    Reserves Decline for Sixth Quarter in a RowLoan-loss reserves fell by $10.4 billion (5 percent)during the quarter, as net charge-offs exceeded lossprovisions by $8.2 billion. A majority of banks (54.5percent) increased their reserves, but the 38.2 percentthat reduced reserves included 17 of the 20 largest

    banks. The reduction in total reserves caused the indus-trys coverage ratio of reserves to noncurrent loans tofall from 64.9 percent to 63.7 percent during the quar-ter. The industrys ratio of reserves to total loans andleases also declined, from 2.84 percent to 2.69 percent.

    Internal Capital Growth ImprovesTotal equity capital increased by $24.5 billion (1.6percent), as retained earnings contributed $15.5 billionto equity growth. Retained earnings were $5 billion(48.2 percent) higher than in third quarter 2010, andrepresent the largest quarterly total since third quarter

    2006. The growth in retained earnings came on top of a$6.5 billion (48.9 percent) year-over-year increase inquarterly dividend payments. Equity received an addi-tional boost from unrealized gains on securities held forsale, which rose by $7.7 billion (38.5 percent) duringthe quarter. Tier 1 regulatory capital, which does notinclude unrealized securities gains, increased by $15.1billion (1.3 percent). Total regulatory capital had asmaller increase$10.9 billion, or 0.8 percentdue tothe reductions in loan-loss reserves. At the end of thequarter, more than 96 percent of all FDIC-insured insti-tutions, representing more than 99 percent of totalindustry assets, met or exceeded the quantitativerequirements for well-capitalized status, as defined forPrompt Corrective Action purposes.

    Chart 5

    Noncurrent Loans and Loan Losses Continue to Fall,but Remain above Pre-Crisis Levels

    Percent

    0

    1

    2

    3

    4

    5

    6

    1990 1993 1996 1999 2002 2005 2008 2011

    Noncurrent Loan Rate

    Quarterly Net Charge-off Rate

    Chart 6

    Strong Deposit Inows Have Not Been Accompaniedby Loan Growth

    Quarterly Change (Billions of Dollars)

    43

    189

    237

    6128

    -6

    -116-140

    -109

    -210

    -133-107

    -7 -14

    -126

    6470

    235

    150

    7

    155

    308

    67 80

    -28

    133149

    180163

    234

    22

    203221*

    126

    -58-82

    145140

    -$300

    -$200

    -$100

    $0

    $100

    $200

    $300

    $400

    1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

    Change in Total Loans and Leases

    Change in Total Deposits

    2007 2008 2009 2010

    * FASB Statements 166 and 167 resulted in the consolidation of large amounts of securitizedloan balances back onto banks' balance sheets in the first quarter of 2010. Although the totalamount consolidated cannot be precisely quantified, the industry would have reported a declinein loan balances for the quarter absent this change in accounting standards.

    2011

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    FDIC Quarterly 4 2011, Volume5, No. 4

    No New Charters Were Added in the QuarterThe number of insured institutions reporting financialresults declined to 7,436 at the end of the quarter, from7,513 in the second quarter. Mergers absorbed 49 insti-tutions during the quarter, and 26 institutions failed.One institution had not yet reported third-quarter

    results. For only the second time in the 39 years forwhich data are available, no new charters were addedduring the quarter (the other occasion was second quar-ter 2010). The number of institutions on the FDICsproblem list declined from 865 to 844 during thequarter. Total assets of problem institutions fell from$372 billion to $339 billion. The number of full-timeequivalent employees at FDIC-insured commercialbanks and savings institutions increased by 5,012 (0.2percent) during the quarter, to 2,109,911.

    Author: Ross Waldrop, Sr. Banking AnalystDivision of Insurance and Research

    (202) 898-3951

    The Flow of Large-Denomination Deposits intoLarge Banks IncreasesTotal deposits increased by $234.5 billion (2.4 percent)in the third quarter. Deposits in foreign offices declinedby $45 billion (2.9 percent) while domestic depositsrose by $279.5 billion (3.4 percent). About two-thirds

    of the increase in domestic deposits ($183.8 billion)consisted of large-denomination (balances greater than$250,000) noninterest-bearing transaction deposits,which have temporary unlimited deposit insurancecoverage through the end of 2012. Three-quarters ofthe increase in these large deposits occurred at the tenlargest banks, although more than half of all banks(55.9 percent) reported increases in these accounts.

    Nondeposit liabilities declined by $51.2 billion (2.2percent), as banks reduced their Federal Home LoanBank advances by $17.9 billion (5.2 percent).

    Chart 7

    Banks Continue to Reduce the Risk in Their

    Asset PortfoliosRisk-Weighted Assets as a Percent of Total Assets

    60

    62

    64

    66

    68

    7072

    74

    76

    78

    80

    1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

    2005 2006 2007 2008 2009 2010 2011

    Chart 8

    -21

    268 11 14

    27

    54

    81

    53

    111

    136150

    73

    54

    31 24

    -23

    9

    12

    21

    24

    50

    45

    41

    45

    41

    30

    2622

    2

    21

    101

    -25

    0

    25

    50

    75

    100

    125

    150

    175

    200

    1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

    Quarterly Failures

    Net Quarterly Change inNumber of Problem Banks

    2007 2008 2009 2010 2011

    Quarterly Changes in the Number of TroubledInstitutions, 20072011

    4433 44

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    FDIC Quarterly 5 2011, Volume5, No. 4

    Quarterly Banking Profile

    TABLE I-A. Selected Indicators, All FDIC-Insured Institutions*2011** 2010** 2010 2009 2008 2007 2006

    Return on assets (%) 0 92 0 64 0 65 -007 0 03 0 81 128

    Return on equ ity (%) 8 20 5 83 5 87 -072 0 35 775 12 30

    Core cap ital ( leverage) rat io (%) 917 8 96 8 89 8 60 747 797 8 22

    Non cur re nt assets pl us other r ea l es tate owne d to a ssets (%) 262 324 311 336 191 095 054

    Net charge-of fs to loans (%) 161 2 64 2 55 2 52 129 0 59 0 39

    Asset g rowth rate (%) 3 25 111 178 -545 6 19 9 88 9 03

    Net interest margin (%) 3 61 3 79 3 76 3 49 3 16 3 29 3 31

    Net operating income growth (%) 5181 1,00452 1,63237 -15476 -9071 -2759 852

    Number of institutions reporting 7,436 7,761 7,658 8 ,012 8 ,305 8 ,534 8 ,680

    Commercial banks 6 ,352 6 ,623 6 ,530 6 ,840 7,087 7,284 7,401

    Savings insti tutions 1,084 1,138 1,128 1,172 1,218 1,250 1,279

    Percentage of unprofitable institutions (%) 1557 2 099 2 207 3 084 2489 1210 795

    Num be r of p ro bl em i ns ti tut io ns 8 44 8 60 8 84 702 2 52 76 50

    Assets of pr obl em in st it ut ion s (i n bi lli ons) $ 33 9 $ 37

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