The Federal Deposit Insurance Corporation (FDIC) released second quarter financial results on Aug. 23, 2011 showing clear indications that the U.S. banking industry is returning to health. Noncurrent loans peaked in early 2010 and have since declined steadily, while the share of banks reporting profits continues to increase. Asset quality also showed further improvement as noncurrent loans fell for a fifth consecutive quarter.
"The national numbers continue to improve and, fortunately for our state, Iowa banks' numbers remained strong during the recent economic recession and continue to lead the nation in key indicators during the recovery," says John Sorensen, president and CEO of the Iowa Bankers Association.
Mortgage foreclosure numbers were also released this week by the Mortgage Bankers Association. Iowa continues to perform better than the majority of states, ranking ninth lowest in new foreclosure starts. Slightly more than .5 percent of residential real estate loans in Iowa entered foreclosure in the second quarter of 2011. That compares to slightly over 1% nationally.
Iowa banks are profitable, well capitalized and are ready to lend
"Iowa banks are continuing to reap the benefits of being responsible lenders with a long-term goal of building healthy, thriving communities," Sorensen says. "In summary, Iowa banks are profitable, well capitalized and ready to lend."
Nationally, bank loan portfolios grew for the first time in three years. Loan balances posted a quarterly increase for only the second time in the last 12 quarters. Total loans and leases increased by $64.4 billion (0.9%), as loans to commercial and industrial borrowers increased by $34.3 billion, auto loans rose by $9.7 billion and credit card balances grew by $5.2 billion.
The industry has added over $200 billion of capital since the recession began, resulting in "industry averages for all three regulatory capital ratios [rising] to all-time high levels," according to the FDIC's Quarterly Banking Profile. The figures show 94% of Iowa banks recorded a profit at the end of the second quarter. Industry capitalization and profitability have put the industry on firm footing following the crisis.
First time since 2006 the number of "problem banks" has declined
The FDIC reported the number of institutions on the "Problem List" fell for the first time in 15 quarters, declining from 888 to 865 in the U.S. This is the first time since the third quarter of 2006 that the number of "problem" banks fell. Total assets of "problem" institutions declined from $397 billion to $372 billion.
Twenty-two insured institutions nationally failed during the second quarter, four fewer than in the previous quarter, and the fewest since the first quarter of 2009. This is the fourth quarter in a row that the number of failures has declined. Through the first six months of 2011, there have been 48 insured institution failures, compared to 86 failures in the same period of 2010.
The Deposit Insurance Fund (DIF) balance was positive for the first time in two years. The DIF balance (net worth of the fund) rose from a negative $1 billion to a positive $3.9 billion during the second quarter. The increase in fund balance stemmed primarily from assessment revenues from bank premiums and fewer expected bank failures. The contingent loss reserve, which covers the costs of expected failures, fell from $13.8 billion to $10.3 billion during the quarter.
Message for bank customers: "Your money is safe in the bank"
"The most important thing for bank customers to know is that their money is safe," Sorensen says, adding that in the more than 75-year history of the FDIC, not a penny of insured deposits has ever been lost in an FDIC-insured account. "FDIC now covers $250,000 per depositor per insured bank. The safest place for your money is in the bank. It's earning interest, it's FDIC insured and it's accessible."
About the Iowa Bankers Association: In its 124-year history, the Iowa Bankers Association (IBA) has dedicated itself to serving Iowa banks and their employees. The Association currently serves more than 95% of banks and savings institutions in the state. The IBA serves it members by providing legislative advocacy, training, regulatory compliance, and services designed to enhance the ability of banks to serve their communities. Learn more at www.iowabankers.com.