Magazine article American Banker

FDIC: 10% of Small Banks Losers in Record Prosperity

Magazine article American Banker

FDIC: 10% of Small Banks Losers in Record Prosperity

Article excerpt

WASHINGTON -

In a third quarter when the banking industry posted record earnings, nearly one in 10 banks with assets of less than $100 million lost money, the Federal Deposit Insurance Corp. said Wednesday.

Though regulators cautioned that about half these institutions are start-ups, which are typically unprofitable in their first few years of operation, they said the rate of unprofitability must still be considered high, reflecting an increasingly tough environment for small banks.

"Small banks are facing more pressures than large institutions and in some instances have fewer options in terms of dealing with competitive pressures," FDIC analyst Ross Waldrop said. "They don't have the same ability to generate fee income; they are much more dependent on the traditional intermediation -- and there is a lot of competition in that area."

The rosy performance of the industry as a whole overshadowed these shortcomings. The FDIC said in its Quarterly Banking Profile that the country's 8,621 commercial banks earned a combined $19.4 billion in the three months ended Sept. 30, up from $17 billion in the previous quarter and $15 billion in the third quarter last year.

Industrywide return on assets reached an all-time high of 1.42% in the quarter, the highest since the third quarter of 1995, when it was 1.32%.

Banks' noninterest income rose to $36.9 billion, from $34.5 billion in the second quarter and $29.6 billion a year earlier. Noninterest income continued to account for an increasingly large portion of earnings among banks with more than $1 billion of assets, climbing to a high of 46.2%. Among banks with less than $1 billion of assets, though, that share fell slightly, to 26.8%.

The industry, as a result, is on its way to record earnings for the year. Commercials banks posted profits of $54.3 billion during the first nine months of 1999, up from $47 billion the year earlier. …

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