Many US banks are at risk of failure

September 12, 2008

Here’s a table on Florida’s banking sector health. Source for all data is the FDIC.

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.44

3.45

3.87

Net charge-offs to loans & leases

1.05

0.87

0.55

Percent of Unprofitable institutions 

48.36

41.12

31.34

Nonperforming assets to assets

3.24

2.48

1.96

Core capital (leverage) ratio

9.78

9.90

10.05

Noncurrent loans & leases to total loans and leases

3.80

2.97

2.30

Loss allowance to noncurrent loans and leases

48.00

58.65

70.14

 

The reader should pay particular attention to the last row. Non performing means more than 30 days delinquent. Non current means more than 90 days past due and not accruing interest, in other words, loans that are almost certainly not going to be paid anytime in the future. This table shows that banks’ allowance, meaning the amount in percentage that they have set aside to cover those failing loans, has decreased by 30 percent since the fourth quarter of 2007. But at the same time, the ratio of non current loans to all loans and leases has increased by about 40 percent.

 

What this means is that Florida’s banking system does not have enough funds set aside to cover loan defaults, and is not recognizing its problem either. Since financing conditions are almost certain to deteriorate even further from here, more losses, and bank failures rising to high levels in Florida is assured.

 

Another striking fact is that, for commercial banks, and savings institutions across the US, net interest margin, which is a measure of potential profitability,  has remained about the same for the past six months, despite all the rate cuts by the Fed. This shows how powerless monetary policy has been in this crisis.

 

Here’s the same data for all US commercial banks and saving instituitions, across the country.

 

Percent Value

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.35

3.38

3.58

Net charge-offs to loans & leases

0.70

0.60

0.43

Percent of Unprofitable institutions  

16.73

13.95

12.15

Nonperforming assets to assets

1.46

1.20

0.95

Core capital (leverage) ratio

8.92

8.98

9.06

Noncurrent loans & leases to total loans and leases

1.94

1.64

1.27

Loss allowance to noncurrent loans and leases

74.23

81.32

101.47

 

The same last row here on this table shows the same kind of deterioration in all US banks. While during the last quarter of 2007, banks in general had set aside an equal amount in percentage to their non current loans, that amount has shrank by about 26 percent since then, while loans in default have increased by about 50 percent. The significance of this situation can never be overstated. To compare this value, banks’ loss allowance to noncurrent loans and leases, which now stands at 74 percent, never fell below 120 percent during the period 2000-2003, which covers  the last recession. In fact, the present ratios are lowest on FDIC’s public data. 

 

The number of unprofitable institutions has risen by 37 percent in the past two quarters.

 

Finally, here’re the same tables for Georgia, Nevada, California, Arizona, Ohio, Virginia, Michigan, Colorado, and Utah, the ten states with the highest foreclosures to total households ratio.

 

Georgia:

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.20

3.22

3.41

Net charge-offs to loans & leases

0.87

0.82

0.36

Percent of Unprofitable institutions 

34.25

25.42

15.12

Nonperforming assets to assets

2.75

2.23

1.55

Core capital (leverage) ratio

8.32

8.19

8.28

Noncurrent loans & leases to total loans and leases

2.98

2.48

1.69

Loss allowance to noncurrent loans and leases

48.97

53.19

68.40

 

The number of unprofitable institutions has doubled in the past two quarters. Loss allowance to noncurrent loans has fallen by about 30 percent. In general Florida and Georgia are similar, only Georgia is a bit worse in some respects.

 

California

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.80

3.81

4.11

Net charge-offs to loans & leases

0.85

0.59

0.31

Percent of Unprofitable institutions 

40.17

32.46

28.19

Nonperforming assets to assets

1.67

1.27

0.76

Core capital (leverage) ratio

9.78

9.90

10.05

Noncurrent loans & leases to total loans and leases

3.80

2.97

2.30

Loss allowance to noncurrent loans and leases

72.11

85.34

137.48

Loss allowance ratio has fallen by 47 percent. Amount of unprofitable institutions has risen by 42 percent in the past two quarters. The speed of deterioration in California’s banking sector is the second highest in this list, after Nevada.

 

Arizona

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

4.23

4.27

4.88

Net charge-offs to loans & leases

0.41

0.28

0.20

Percent of Unprofitable institutions 

52.14

41.12

29.41

Nonperforming assets to assets

3.03

1.93

1.20

Core capital (leverage) ratio

11.24

11.25

11.45

Noncurrent loans & leases to total loans and leases

2.75

2.02

1.10

Loss allowance to noncurrent loans and leases

47.87

60.18

105.63

 

Similar to California,  Arizona’s banking sector is in great trouble, and is the slowest in this list to recognize the seriousness of the situation.

 

Ohio

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

2.92

3.14

3.01

Net charge-offs to loans & leases

0.87

0.65

0.43

Percent of Unprofitable institutions 

13.97

12.24

14.97

Nonperforming assets to assets

1.60

1.42

1.23

Core capital (leverage) ratio

8.31

8.56

8.67

Noncurrent loans & leases to total loans and leases

2.18

1.88

1.57

Loss allowance to noncurrent loans and leases

66.66

62.99

62.97

 

Ohio so far seems healthier than many others in this list.

 

Virginia

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.63

3.65

5.93

Net charge-offs to loans & leases

0.16

0.20

1.80

Percent of Unprofitable institutions 

16.05

16.05

15.66

Nonperforming assets to assets

0.75

0.65

1.10

Core capital (leverage) ratio

9.78

9.90

10.05

Noncurrent loans & leases to total loans and leases

0.77

0.65

1.45

Loss allowance to noncurrent loans and leases

144.87

169.21

208.89

 

Virginia is the strongest in this group. It doesn’t appear like a state in crisis, with respect to the overall status of its institutions.

 

Michigan

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.77

3.80

4.01

Net charge-offs to loans & leases

1.50

1.31

0.61

Percent of Unprofitable institutions 

31.30

24.43

22.56

Nonperforming assets to assets

3.01

2.50

1.95

Core capital (leverage) ratio

9.54

9.38

9.76

Noncurrent loans & leases to total loans and leases

3.51

2.89

2.19

Loss allowance to noncurrent loans and leases

53.44

56.04

64.80

 

Starting from an already troubled base, Michigan’s banking sector has been deteriorating continuously during the past quarters. A lot of bank failures are highly likely. 

 

Colorado

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

3.93

3.90

4.23

Net charge-offs to loans & leases

0.28

0.23

0.29

Percent of Unprofitable institutions 

11.21

9.65

7.76

Nonperforming assets to assets

1.20

1.11

0.81

Core capital (leverage) ratio

8.59

8.68

8.47

Noncurrent loans & leases to total loans and leases

1.45

1.36

0.89

Loss allowance to noncurrent loans and leases

83.12

87.57

129.84

 

There’s a clear trend of deterioration in Colorado’s banking sector, but it hasn’t yet reached the levels of California or Arizona.

 

Utah

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

2.96

2.95

3.17

Net charge-offs to loans & leases

1.50

1.26

1.07

Percent of Unprofitable institutions 

18.97

13.79

8.93

Nonperforming assets to assets

0.74

0.62

0.52

Core capital (leverage) ratio

10.44

10.53

10.27

Noncurrent loans & leases to total loans and leases

1.13

1.13

0.87

Loss allowance to noncurrent loans and leases

136.49

114.47

125.03

 

The banks of Utah appear to be aggressive on loan loss provisioning, and this should be conducive to better results. The deterioration in profitability is worrisome.

 

Nevada

 

Percent

June 30, 2008

March 31, 2008

December 31, 2007

Net interest margin

4.94

5.11

5.33

Net charge-offs to loans & leases

1.82

1.55

0.85

Percent of Unprofitable institutions 

46.88

50.00

32.26

Nonperforming assets to assets

3.79

1.96

1.14

Core capital (leverage) ratio

24.19

24.86

24.57

Noncurrent loans & leases to total loans and leases

4.29

2.24

1.38

Loss allowance to noncurrent loans and leases

57.26

99.66

150.77

 

With about half of its banks unprofitable, Nevada is one the hardest hit states of the credit crisis. The speed of deterioration in bank portfolios is nothing short of horrible. There’s nothing positive to be sad about Nevada’s situation, and bank failures are assured.

 

 

 

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One Response to “Many US banks are at risk of failure”

  1. […] on the unhealth of the banking industry can be found here. Possibly related posts: (automatically generated)If It’s Not A Capital Issue, Then Why Are […]

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