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5 Charts Show Bank Recovery

By John Maxfield - Dec 4, 2012 at 3:48PM

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Earlier today, the FDIC's Quarterly Banking Profile was released. Here are five charts from it showing how far banks have come since the financial crisis.

Don't let the mundane nature of government press releases fool you, because many of them offer vital and extremely actionable information for investors.

A perfect example is the FDIC's Quarterly Banking Profile, an industry-wide report revealing the latest trends in the banking sector.

What follows are the five most important charts from the accompanying presentation released today.

1. Earnings at six-year high and growing
This chart shows that third-quarter earnings in the industry came in at $37.6 billion. This represents a six-year high and is the 13th consecutive quarterly year-over-year increase.

Source: FDIC's Quarterly Banking Profile.

For those of you who follow banks, this likely isn't a huge surprise. In the middle of last month, for instance, both JPMorgan Chase (JPM -0.80%) and Wells Fargo (WFC -1.28%), the nation's first and fourth largest banks by assets, respectively, reported record quarterly earnings. Wells Fargo alone originated a staggering $139 billion in home loans over the three-month time period.

Click here to read about JPMorgan's third-quarter earnings, and here for Wells Fargo's.

2. Net operating revenue fueled earnings gain
In the past few quarters, as my colleague Russ Krull discussed at the beginning of September, the improvement in industrywide earnings was driven largely by decreases in loan loss provisions as opposed to organic revenue growth. This notably changed last quarter, as net operating revenue -- that is, the sum of net interest income and noninterest income -- increased by 3% on a year-over-year basis. Needless to say, this represents an enormous inflection point for the industry and lends further credibility to claims that lenders like Bank of America (BAC 0.12%) may have finally turned the corner.

Source: FDIC's Quarterly Banking Profile.

3. Credit quality is improving
One of the biggest problems coming out of the financial crisis concerned the billions of dollars worth of toxic loans on bank balance sheets. As I've noted before, for instance, over the last four calendar years, Bank of America has charged off a staggering $105 billion in bad loans, the majority of which were made to subprime borrowers.

Fortunately, as you can see below, this trend is well on the road to recovery. According to the FDIC, while industrywide loan loss provisions totaled a still-significant $14.8 billion last quarter, this was nevertheless 20.6% less than the $18.6 billion that insured institutions set aside for losses in the same quarter last year.

Source: FDIC's Quarterly Banking Profile.

4. More banks are growing, and fewer are recording losses
At the height of the financial crisis in 2008, the banking industry was evenly split between banks that were growing on a year-over-year basis and those that were recording quarterly losses. In the meantime, the gulf has continued to widen as both the number of banks growing their bottom lines has increased and the number recording losses has decreased.

Source: FDIC's Quarterly Banking Profile.

5. Fewer banks are failing
In a similar vein to the previous figure, the number of quarterly bank failures has dropped to the lowest level since the fourth quarter of 2008 -- that was the first quarter after the collapse of Fannie Mae and Freddie Mac, Lehman Brothers, and Washington Mutual, among others. In the three months of July, August, and September, a comparatively modest 12 banks were seized by regulators compared to 50 at the height of the crisis.

In addition, the FDIC continued to reduce the number of so-called "problem" banks, removing 38 institutions from its unofficial watch list. This marked the sixth consecutive quarter in which the number of problem banks has decreased, and it's the first time in three years that the list has included fewer than 700 institutions.

Source: FDIC's Quarterly Banking Profile.

The Foolish bottom line
Make no mistake about it, the banking sector is improving. But to see whether it's time to get in on this trend, check out this recently released in-depth report on Bank of America. In it, our senior banking analysts Anand Chokkavelu explains why he believes shares in the megabank could "double or triple over the next five years." To access a copy instantly, simply click here now.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
$32.35 (0.12%) $0.04
Citigroup Inc. Stock Quote
Citigroup Inc.
$47.83 (-0.06%) $0.03
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$116.38 (-0.80%) $0.94
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.24 (-1.28%) $0.52
U.S. Bancorp Stock Quote
U.S. Bancorp
$47.25 (-0.57%) $0.27

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