Federal Reserve Bank of San Francisco

Third Quarter 2012: The Banking Recovery Moved Forward

November 21, 2012

The First Glance 12L provides a first look at the financial performance of the 12th Federal Reserve District banks each quarter. The 3Q12 report, subtitled “The Banking Recovery Moved Forward”, tracks the recovery of District banks from recession. One chart compares the percentage of banks that lost money in 2009 compared to the first nine months of 2012. Overall, 61% of banks lost money in the earlier period compared to 17% thus far in 2012. Over a three year period (2008-2010), District banks lost money on average before finally turning a profit in 2011. The average profitability rate (return on average assets) has climbed to a still relatively low 0.67% in 2012 (nine months annualized). Improved earnings are mostly attributable to better loan quality, with the worst loans having been charged off and delinquency rates having dropped significantly. District banks have begun to originate loans again, with total loans up 2.8% year-over-year, on average. Some types of loans grew at a fast clip during the year, including commercial and industrial and 1-4 family first lien loans. The percentage of District banks in less-than-satisfactory condition (CAMELS ratings 3, 4 or 5) continued to edge down to 44% from the record-high 60% at year-end 2010. Looking forward, banks will continue to face challenges, such as a difficult interest rate environment to make profits, a weak economy with modest loan demand, and overhead pressures. As usual, the First Glance 12L report also includes sections on “Banks Supervisors’ Hot Topics” and comparisons of trends at commercial banks, industrial banks and savings institutions.

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