Speaking at his firm’s banking seminar in Sioux Falls, S.D., on No.v 17, Greg Honl, CPA at Eide Bailly, suggested an OTS memorandum as a guide for stress testing your capital plans. Even if you are not a thrift, you might find this 5-page document to be valuable.
U.S. Rep. Barney Frank is following the trend established by recent U.S. senators who sponsored major banking legislation. After Rep. Frank announced he would not seek re-election in 2012, it occurred to me that Sen. Don Riegle of Michigan, Sen. Phil Gramm of Texas and Sen. Christopher Dodd of Connecticut also declined to run for re-election after passing banking bills bearing their names.
After the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was passed, Sen. Riegle left the Senate in 1995. Sen. Gramm has his name on the Gramm-Leach-Bliley Act of 1999. He completed his service in the U.S. Senate in 2002 upon completion of his third term. And Sen. Christopher Dodd decided not to seek re-election after the Dodd-Frank Act passed in July 2010.
Ironically, after the next election, neither of the main sponsors of the biggest banking legislation ever will be in Congress as regulators continue to write the rules to implement the law and bankers struggle to comply with it.
Rep. Barney Frank will announce his retirement this afternoon at 1 p.m. at a conference to be held in Newton, Mass.
The FDIC’s third quarter figures report 7,436 total insured institutions, compared to 8,099 at the end of the third quarter two years ago. A decline of 663 institutions represents an 8.1 percent contraction in the number of charters. Sadly, however, the decline is disproportionately concentrated among smaller banks. The number of banks with fewer than $100 million at the end of the third quarter was 2,490 compared to 2,915 two years ago. That’s a decline of 425 charters, or 14.5 percent; the number of banks with more than $100 million in assets declined to 4,946 from 5,184, or 4.5 percent.
Also, the FDIC reports that 15.57 percent of all institutions were unprofitable in the third quarter, but among banks with fewer than $100 million in assets, 17.31 percent were unprofitable, and among larger banks only 14.7 percent were unprofitable. In many Upper Midwest states, the profitability delta between the larger and smaller banks was even more pronounced. In Colorado, 25.64 percent of small banks were unprofitable; 20.0 percent of large banks were unprofitable. In Indiana, 18.92 percent of smaller banks were unprofitable, 6.6 percent of larger banks were unprofitable. In Iowa, 7.27 percent of smaller banks were unprofitable, 4.37 percent of larger banks were unprofitable. In Michigan, 18.92 percent of smaller banks were unprofitable, 12.5 percent of larger banks were unprofitable. In Missouri, 23.78 percent of smaller banks were unprofitable, 15.26 percent of larger banks were unprofitable.
In a couple states, however, smaller banks did better than larger banks. In Minnesota, 13.0 percent of smaller banks were unprofitable, while 14.53 percent of larger banks were unprofitable. And in Illinois, 16.13 percent of smaller banks were unprofitable, while 19.35 percent of larger banks were unprofitable.
For additional perspective, here are ROA and ROE numbers by state, for the last three years:
Colorado: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.43 percent, 0.09 and -0.17; ROE — 4.02, 0.86 and -1.51. Banks with over $100 million in assets: ROA — 0.68, -0.10 and 0.01; ROE — 7.25, -1.06 and 0.09.
Illinois: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.37 percent, 0.50 and 0.22; ROE — 3.34, 4.36 and 1.84. Banks with over $100 million in assets: ROA — 0.40, 0.33 and -0.12; ROE — 4.10, 3.45 and -1.39.
Indiana: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.42 percent, 0.38 and -0.07; ROE — 3.32, 3.10 and -0.60. Banks with over $100 million in assets: ROA — 0.83, 0.48 and 0.05; ROE — 7.73, 4.79 and 0.52.
Iowa: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 1.10 percent, 1.04 and 0.78; ROE — 9.69, 8.88 and 6.83. Banks with over $100 million in assets: ROA — 1.02, 0.76 and 0.63; ROE — 10.44, 7.78 and 6.80.
Kansas: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.90 percent, 0.61 and 0.50; ROE — 8.12, 5.51 and 4.49. Banks with over $100 million in assets: ROA — 0.80, 0.36 and 0.21; ROE — 6.79, 3.63 and 2.13.
Michigan: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.63 percent, 0.32 and -0.16; ROE — 4.71, 2.27 and -1.06. Banks with over $100 million in assets: ROA — 0.14, -0.79 and -1.67; ROE — 1.50, -9.01 and -19.90.
Minnesota: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.79 percent, 0.52 and 0.10; ROE — 7.46, 4.85 and 0.90. Banks with over $100 million in assets: ROA — 0.63, 0.33 and 0.35; ROE — 6.40, 3.32 and 3.51.
Missouri: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.52 percent, 0.60 and 0.19; ROE — 4.55, 5.15 and 1.68. Banks with over $100 million in assets: ROA — 0.82, 0.49 and -0.05; ROE — 8.47, 5.26 and -0.57.
Montana: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.63 percent, -0.04 and 0.47; ROE — 5.98, -0.38 and 4.08. Banks with over $100 million in assets: ROA — 0.96, 0.77 and 1.05; ROE — 8.70, 7.06 and 9.73.
Nebraska: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.91 percent, 0.90 and 0.76; ROE — 7.83, 7.58 and 6.27. Banks with over $100 million in assets: ROA — 1.22, 1.18 and 0.02; ROE — 11.72, 11.84 and 0.26.
North Dakota: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 1.11 percent, 0.89 and 0.73; ROE — 11.32, 8.86 and 7.31. Banks with over $100 million in assets: ROA — 1.50, 1.14 and 0.67; ROE — 14.22, 11.09 and 6.64.
South Dakota: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 1.46, percent, 0.90 and 0.87; ROE — 13.13, 8.04 and 7.56. Banks with over $100 million in assets: ROA — 1.00, 0.84 and 1.01; ROE — 8.72, 6.97 and 9.64.
Wyoming: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.79 percent, 0.24 and 0.59; ROE — 8.17, 4.46 and 6.09. Banks with over $100 million in assets: ROA — 0.55, 0.65 and 1.09; ROE — 5.40, 6.14 and 10.74.
Wisconsin: Banks with less than $100 million in assets: year-to-date ROA for 2011, 2010 and 2009, respectively – 0.57 percent, 0.60 and 0.46; ROE — 4.90, 5.02 and 3.73. Banks with over $100 million in assets: ROA — 0.58, -0.22 and -0.42; ROE — 5.28, -2.05 and -4.41.
Here are some of the key facts regarding third quarter bank earnings, published yesterday by the FDIC:
Click here for the FDIC press release and related information.
Conditions in banking improved during the last quarter in Minnesota, according to the Federal Reserve Bank of Minneapolis, although earnings growth remains weak. The Fed shared third quarter data at a press briefing yesterday.
“Compared with pre-2008, Minnesota banks are still facing high loan delinquencies, low profits and weak loan growth,” commented Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “Improvements in profits and loan growth — which remains significantly more negative than national loan growth — were small this quarter. At the same time, measures of asset quality were generally on a positive trend.”
The Fed said the data shows that Minnesota median bank lending decreased 4.15 percent compared to a year earlier. This is the biggest decrease in lending in the region. Median bank lending in Montana dropped 3.75 percent compared to a year ago, and median bank lending in Wisconsin dropped 3.25 percent. It dropped 0.73 percent in Michigan. Median bank lending grew in North Dakota by 3.24 percent from a year ago, and in South Dakota it grew by 0.32 percent.
Overall asset quality showed strong improvement in the third quarter, the Fed said in a press release. The improvement in the quality of commercial real estate loans was somewhat worse in Minnesota than in the country overall. The same is true for commercial real estate loans, which have a ratio of weak loans to bank loss-absorbing resources of about 6 compared to a ratio of about 5 for the nation.
The median total risk-based capital ratio for Minnesota’s 372 banks was 14.98 percent at the end of the third quarter, compared to 15.70 percent for the nation. Minnesota’s ratio represents and improvement of 1.0 percent over a year ago, compared to an improvement of 96 basis points on the national median.
The median ratio of noncurrent and delinquent loans as a percent of capital and allowance was 15.21 percent, a drop of 429 basis points from a year ago. Nationally, the median ratio was 14.38 percent, a drop of 297 basis points from a year earlier.
Median ROA was 0.79 percent, compared to the national median of 0.78 percent. In Minnesota, at the end of the third quarter, the median provision as a percent of average assets was 0.19 percent compared to 0.23 percent for the nation.
Perhaps it was a foregone conclusion, but now it is official: the super committee has failed. This is the committee that was supposed to identify trillions of dollars in spending cuts for the coming 10 years.
Moody’s Analystics economist Mark Zandi spoke to bankers at the American Bankers Association convention in San Antonio on Oct. 25. In that presentation, he characterized the super committee’s work as very important. He said the chances of the U.S. economy slipping into recession would increase if the committee failed to produce any cost savings.
We covered the speech in the Dec. 1 edition of NorthWestern Financial Review magazine. Here is a snippet:
The congressional super committee that is attempting to reduce federal spending by $4 trillion in 10 years needs to succeed, he said, although he acknowledged that the odds of success are low. He said $1.2 trillion in cuts would be enough to be viewed as successful and at least $500 billion to $600 billion in cuts need to be identified to avoid recession.
With super committee success, Zandi put the prospects of another near-term recession at one in three. Presumably, those odds increase with the super committee failure. The law triggers automatic spending cuts in the event of super committee inaction, however, those wouldn’t start until 2013. A lot could happen between now and then.
Here is how the Chicago Tribune covered the super committee conclusion. Here is the actual statement issued by the super committee.
Look for complete ABA convention coverage in the December 1 edition of NorthWestern Financial Review.
The Superintendent of Banking for the State of Iowa closed the Polk County Bank on Friday, Nov. 18. Grinnell State Bank of Grinnell, Iowa, acquired the closed institutions from the FDIC, which was named receiver.
It was the first Iowa bank closed under Superintendent James Schipper, who came into the job on January 15. It is the only bank failure in Iowa this year; there were no bank failures in Iowa in 2010. The last bank to fail in Iowa was Vantus Bank, Sioux City, (a federally-chartered savings and loan) in September 2009.
Polk County Bank was the state’s 188th-largest bank with $91.6 million in assets, three offices and 33 full-time equivalent employees. On its June 30 call report, the bank reported losses so far this year totaling $1.9 million. It’s capital at the time was 1.88 percent.
“The bank had experienced significant growth in its real estate lending portfolio,” Schipper said in press release. “This growth combined with the recession led to asset quality problems that resulted in heavy losses and depletion of the bank’s capital. The management and staff of Polk County Bank have been fully cooperative. Unfortunately, efforts of the Miller family to obtain needed capital were not successful and it became necessary to close the bank. This bank closure is not indicative of the overall condition of our Iowa state-chartered banks, which remains strong.”
Grinnell State Bank agreed to acquire essentially all of the bank’s assets and all is $82.0 million in deposits.
The FDIC says the estimated cost to the Deposit Insurance Fund will be $12.0 million. It was the 89th bank closing this year.
Here is the FDIC press release.
Click here for access to the press release from the Iowa Division of Banking.