5 Important Charts About Banking

Every three months, the FDIC publishes its Quarterly Banking Profile (link opens PDF), an invaluable and comprehensive summary of the performance of FDIC-insured financial institutions. If you want to get a feel for how the banking sector is doing, then this is the place to go.

The most recent report, released on Tuesday, includes the cumulative results of more than 7,000 banks across the country. But because the data can be both dense and voluminous, I've broken out the most important points and illustrated them in five charts.

Five important charts about banking
Figure 1 is a chart of the industry's fourth-quarter net income. Taken together, banks earned $34.7 billion in the final three months of last year. This was $9.3 billion more than banks posted in the fourth quarter of 2011, equating to a 36.9% increase, and it was the second highest fourth-quarter net income that the industry has ever recorded, behind only 2006.

Source: FDIC's Quarterly Banking Profile.

The improved profitability stemmed from two sources. First, noninterest income increased by $10 billion on a year-over-year basis, driven by increased trading revenue and reduced losses on sales of foreclosed property. Second, banks set aside only $15.1 billion for bad loans last quarter relative to the $20 billion that they provisioned for in the fourth quarter of 2011. According to the FDIC, this was the smallest fourth-quarter loan loss provision since 2006 and it marks the 13th consecutive quarter with a year-over-year decline.

Figure 2 shows why provisions are declining, as the proportion of loans that are delinquent continues to decrease. This figure peaked at 5.4% in the first quarter of 2010 and came in at 3.6% at the end of last year.

Source: FDIC's Quarterly Banking Profile.

In terms of severity, 4.1% of all loans are more than 90 days past due while only 1.9% are between 30 and 89 days delinquent. The difference largely has to do with the foreclosure process on mortgage loans in so-called judicial states -- that is, states which require lenders to go through a judicial process before foreclosing on a home.

In Florida, for example, where it takes an average of 28 months to foreclose on a house, 12% of all mortgages are in the foreclosure process compared to 7.1% nationwide, according to the Mortgage Bankers Association. With this in mind, it's perhaps no surprise that a chart of these different delinquency rates looks a little bit like an alligator, as you can see in Figure 3.

Source: FDIC's Quarterly Banking Profile.

Getting back to Figure 2, it's worth noting that credit card delinquencies are at their lowest point since the second quarter of 2005. Also, commercial and industrial loans have almost completely recovered to pre-crisis levels. The problem continues to be in the real estate sector, where 6% of all loans are at least 30 days past due -- as a side note, this figure differs from the 7.1% cited above because the Mortgage Bankers Association's estimate doesn't include loans collateralized by commercial real estate.

Moving on to Figure 4, this compares the aggregate value of loans in the industry to the aggregate value of deposits. Analysts use this ratio to assess the extent to which banks are lending -- a higher ratio indicates higher lender and vice versa. This was recently in the news after Bloomberg reported that the loan-to-deposit ratios at the nation's top eight commercial banks including JPMorgan Chase (NYSE: JPM  ) , Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , Citigroup (NYSE: C  ) , and U.S. Bancorp (NYSE: USB  ) fell to 84% in the four quarter.

Source: FDIC's Quarterly Banking Profile.

Suffice it to say, Bloomberg's observation was only the tip of the iceberg. For the industry overall, the loan-to-deposit ratio dropped to 71% last quarter, the lowest level in more than 20 years, and roughly 26 percentage points less than the peak in 2000. The explanation is that the growth in deposits has significantly outpaced the growth in loans. Over the last three years, for instance, loans have increased by 2.6% while deposits have jumped by a staggering 17.6%.

Finally, unlike the loan-to-deposit ratio, Figure 5 shows that capital levels are at the highest point in more than two decades. Since the financial crisis, international banking regulators have required banks to hold more capital than ever in an effort to prevent the same type of liquidity runs that led to the downfalls of Bear Stearns and Lehman Brothers.

Source: FDIC's Quarterly Banking Profile.

Jamie Dimon, the chairman and chief executive officer of JPMorgan, addressed this trend recently by saying, "I think all banks will have too much capital in two and a half years. And they're not going to know what to do with it." Perhaps, but that likely won't change the opinion of regulators like the Federal Reserve and Treasury Department who provided hundreds of billions of dollars in capital and other sources of funding to stop the financial system from going into cardiac arrest five years ago.

At the end of the day, the collective picture painted by these five charts is much different from the prevailing impression of banks. Are they still recovering from the financial crisis? Yes, as evidenced by the still-elevated delinquency rates. But banks are making near-record levels of profit and accumulating vast amounts of highly liquid capital on their balance sheets. Is this good or bad? It's a bit of both. However, the rest of America won't share in the prosperity until banks start lending again in earnest.

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