Arizona regulators closed Gold Canyon Bank on Friday, bringing the 2013 year-to-date total to 5. Click the image above to view the Bank Trends Interactive Failed Bank Map.
Gold Canyon Bank, Gold Canyon, AZ
Q4 Assets: $45.2mm
Texas Ratio: 233%
Estimated Cost to FDIC DIF: $11.2mm
Acquiror: First Scottsdale Bank, N.A., Scottsdale, AZ
Though most industry experts predict that regulatory and competitive challenges will force scores of banks to sell themselves, the U.S. Bancorp (USB) chairman and chief executive says that if the long-awaited consolidation didn’t occur when many banks were struggling, it’s not going to happen when they are making money again.
“If the boards have decided to carry that cross this far, then they are going to wait,” for the best possible deal, Davis said Tuesday at an investor conference in Boston.
The FDIC released its Quarterly Banking Profile for the fourth quarter 2012 earlier this week and we wanted to highlight a few key points with graphical illustrations from Bank Trends. In the images below, we’ve carved the banking sector into 3 groups: banks under $1 billion in assets, banks with $1-10 billion in assets, and banks with over $10 billion in assets.
FDIC-insured institutions earned $9.3B in the fourth quarter, a 37% rise from the Q4 2011, and 60% of institutions reported year-over-year improvements in quarterly earnings. Only 14% of banks posted negative earnings, down from 20% a year ago.
If we use Return on Assets as a measure of profitability, banks with $1-10B in assets had the best year as they posted a 1.10% ROA. Banks under $1B had a 0.71% ROA and banks over $10B had a 1.0% ROA.
Noninterest income was up 18% on a year-over-year basis, primarily driven by gains on loan sales, increased trading revenue, and reduced losses on sales of foreclosed property. Because of their economies of scale, bigger banks have a definite edge when it comes to generating noninterest income as you can easily see in the chart below. Measured as a percentage of earning assets, noninterest income for banks over $10B was 2.16%, compared to 1.53% for $1-10B banks and 1.08% for banks under $1B.
Asset quality continues to improve across the board as banks reduced loan loss provisions by 24% in Q4 compared to this time last year. In the Coverage Ratio chart below, loan loss allowances as a percentage of noncurrent loans were 74% for banks under $1B, 66% for banks $1-10B, and 58% for banks over $10B.
Other items worth noting from the Q4 Report are:
Over 98% of banks have filed their Q4 Call Report, giving us an opportunity to see how community banks performed across the country in 2012. For this analysis we looked at banks with $50 million in assets up to $10 billion, then divided these banks into three groups: Small Community Banks ($50-$500m), Midsized Community Banks ($500m-$2B), and Regional Community Banks ($2B-$10B).
Midsized banks led the pack in 2012 delivering a 57% increase in pre-tax ROE for the year, ending at 12.08%. Q4 saw a slight decrease from Q3 levels, but overall it was a solid year for banks in this asset group. Regional banks ended the year at 11.22% pre-tax ROE, which was 10% higher than the previous year, but a slight decline from Q3 levels as well. Small banks had an impressive 37% improvement over the prior year and ended 2012 at 9.31%, which again was a slight decline from Q3 levels.
Net Interest Margin Breakdown
Despite increasing duration on the loan portfolio, yield on earning assets has fallen steadily over the past 5 years and the fourth quarter of 2012 was no exception. Smaller community banks (assets $50m-$500m) had the highest yield at 4.52%, followed by mid-sized banks ($500m-$2B) at 4.42%, while the larger regional banks lagged at 4.38%. This worsening pattern and its distribution between various asset groups was similar for NIM. Cost of funding earning assets continued its multi-year downward trend for all banks and, as expected, the larger asset groups outperformed their smaller peers for this metric. Funding costs fell to 0.66% for Regional banks, 0.71% for Midsized community banks, and 0.73% for Small banks.
Noncurrent loans ratios continued to improve for all asset groups, and by the end of 2012 noncurrent loans were at similar levels to the second quarter of 2008 (the five year graph trend looks like a big frown that peaked in 2010). Noncurrent loans as a percentage of reserves (ALLL) is still well above 100% with the Small banks having adequate coverage at 130%, Midsized banks at 142%, and Regional banks at 164%. Texas ratios (no matter how you calculate them) fell every quarter throughout 2012 and reached their lowest point by year end.
Hiring was up 3.3% with more employees added across all three asset groups. Service charge income as a percentage of interest bearing deposits was down across the board by about 4%. Small and Midsized banks saw increased non-interest income (excluding gains/losses on OREO) during the year, while Regional banks saw a slight decrease. Transaction accounts increased funding bases, while CD balances decreased, and banks of all sizes used less wholesale funding.
2012 was a year for bankers to develop forward-looking strategic plans, a welcome contrast to the past 4 years of putting out one credit quality fire after another. While problem loans still sit on the books, many banks have clearly dealt with these issues and are in the late stages of resolving them. Bankers are realizing that NIM is getting more compressed than ever as asset yields reach record lows, and top-performing bankers are finding niches of loan demand to replace lower yielding securities with higher yielding loans. Trends in non-interest income should be the new benchmark of concern for the savvy banker looking to improve or maintain earnings in 2013 and beyond. As we near the end of the recession’s effects on bank performance, we should see top performing banks with novel strategies and sound management bouncing higher and outperforming their peers over the next few quarters.
Our latest update finds 834 institutions on our “unofficial” problem bank map with assets of $311 billion. Below is a summary of the aggregate Call Report data and a breakdown by enforcement order type:
Number of Problem Banks: 834
Average Texas Ratio: 98.9%
Aggregate Assets: $311.8 billion
Supervisory or Written Agreement: 92 banks
Formal Agreement: 152 banks
Consent Order: 462 banks
Cease & Desist: 127 banks
Corrective Action: 2 banks
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Bank Trends…Peer Analysis for Community Bankers
Great discussion on the state of the banking industry from Steven Hovde, President & CEO of Hovde Financial. (via Bank Director)