Industry recovering, although pace of improvement varies

Earnings data for the first half of the year published by the FDIC on August 29 shows the typical smaller bank is doing better this year than last year. Specifically in the Upper Midwest, however, the number of smaller banks earning more this year than in 2012 is roughly equal to the number that saw their earnings decline..Aggregate earnings for the nation's banks with fewer than $100 million in assets came in at $481 million for the first six months of the year as of June 30. That works out to $224,661 per bank, a 9.7 percent improvement over the first six months of 2012. In the 14 Upper Midwest states tracked by NorthWestern Financial Review (Mont., N.D., S.D., Wyo., Colo., Neb., Kan., Mo., Minn., Iowa, Wis., Ill., Ind., and Mich.), seven states saw smaller institutions beat last year's earnings pace, while banks in the other seven states fell behind it..Smaller banks in Colorado, Kansas, Montana, South Dakota, Nebraska, Minnesota and Missouri generally recorded better first-half earnings than they did a year ago. The biggest improvement was in Montana, where 35 banks with less than $100 million in assets collectively earned $7 million in the first six months of the year, for an average of $200,000 per institution, compared to 37 institutions which collectively earned $5 million in the first six months of last year, for an average of $135,135 per institution. The change represents an improvement of 48 percent..Smaller Missouri banks experienced a 27 percent improvement in six-month earnings, while South Dakota's smaller banks reported an increase of 15.7 percent. Colorado's smaller banks reported earnings 13.3 percent ahead of last year, while gains at smaller banks in Minnesota equaled 9.8 percent more than 2012. Earnings at smaller banks in Kansas were 4.3 percent ahead of 2012, and gains in smaller banks in Nebraska were 2.8 percent ahead of last year..South Dakota's 38 smaller banks averaged $315,789 in six-month earnings, the highest for any of the states in the Upper Midwest. Iowa's smaller banks averaged $313,868 per bank, but that was off from the first six months of 2012 when they averaged $348,684 per bank..Colorado's 30 smaller institutions reported the smallest average net income for the six month period at $66,666 per institution. But that was ahead of last year's performance for the period when the average was $58,823..Considering all banks, Wisconsin institutions showed the biggest improvement over last year, with six-month earnings coming in at $497 million compared to $407 million last year (an improvement of 22.1 percent). Wisconsin has 261 banks, down nine from a year ago. Other states with total industry aggregate increases over last year's first two quarters were Kansas with $293 million in earnings (an improvement of 4.2 percent); Missouri with $745 million (2.9 percent improvement); Minnesota with $340 million (3.3 percent improvement); Illinois with $1.315 billion (0.9 percent improvement); Indiana with $353 million (5 percent improvement); Montana with $162 million (27.5 percent improvement); Colorado with $228 million (12.8 percent improvement) and South Dakota with $17.087 billion (28.9 percent improvement)..Banks in Iowa, Michigan and North Dakota saw aggregate income for the first two quarters for all banks decline compared to last year. Earnings stayed essentially the same in Wyoming and Nebraska. .FDIC Chairman Martin Gruenberg said the earnings numbers are generally positive. "Asset quality continues to recover, loan balances are trending up, fewer institutions are unprofitable, the number of problem banks is down, and the number of failures is significantly below levels of a year ago," Gruenberg said. "However, industry revenue growth remains weak, reflecting narrow margins and modest loan growth. And the current interest rate environment creates an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention. Nonetheless, overall these results show a continuation of the recovery in the banking industry.".The data also show that as the industry consolidates, assets are shifting toward larger institutions..The number of banks across the country dropped by 573 to 6,940 — a 7.6 percent decline — during the 12 months ended June 30. Banks with more than $100 million in assets saw a drop of 164 institutions, or 3 percent, from 4,963 during the year-long period. Banks with fewer than $100 million in assets experienced a loss of 409 institutions, or 16 percent, from the 2,550 institutions that existed a year ago..Currently, there are 4,799 banks with $100 million in assets or more, and 2,141 banks with fewer than $100 million in assets..And, while the total amount of assets of the banks in the under $100 million cohort is declining, assets in the greater than $100 million cohort are growing, even as the number of institutions in that group declines..The industry in Upper Midwest states generally reflected this consolidation trend, although in some states the process of moving assets to larger banks was even more pronounced than in the national trend. In South Dakota, Nebraska, Kansas and Iowa, not only did the assets of the larger banks grow, but the number of institutions with more than $100 million in asset grew during the last year, as the number of smaller banks in those states declined..In North Dakota and Wisconsin, the number of banks with more than $100 million in assets grew, but the total assets of banks in that group still declined in the last year.