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Christopher "Kit" Menkin is of editor (, an internet trade publication for the finance/leasing industry. He has 46 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on several company... More
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  • Securities Are Outpacing Loans At US Banks And Thrifts 2 comments
    Mar 5, 2013 12:09 PM

    (click to enlarge)

    SNL Financial reports "Margin pressure is unlikely to abate for banks as loan growth remains relatively weak, interest rates continue to be low and banks still hold sizable amounts of lower-yielding securities on their balance sheets."

    Profits at U.S. banks jumped almost 37 percent for the October-December period, reaching the highest level for a fourth quarter in six years as banks continued to step up lending. (1) According to SNL Financial, "Loans have comprised smaller portions of bank balance sheets as underwriting standards have tightened and the slow economic recovery has generated few credits that meet banks' new standards. Most bankers have said that loan growth has come from market share gains rather than underlying economic growth, and that does not seem to have changed much."

    SNL data shows that real estate owned held at commercial banks and savings banks totaled $38.51 billion at the end of the fourth quarter 2012, down from $42.62 billion a year earlier and $47.96 billion at the end of the fourth quarter of 2010. SNL data shows that OREO (real estate owned) held at commercial banks and savings banks totaled $38.51 billion at the end of the fourth quarter 2012, down from $42.62 billion a year earlier and $47.96 billion at the end of the fourth quarter of 2010. (2)

    Community banks grew their loan books in the fourth quarter, led by gains in residential construction and commercial lending (3) Some say banks are holding onto property as it is increasing in value, but the real fact is most of this property is in high foreclosure and high unemployment areas and not being very well maintained for any resell value.

    There certainly is demand for business cash flow and equipment, thus the growth of independent, small business loans, credit card cash advance, factoring, and other short term advance products, the banks are not directly in this marketplace. Regional banks state these credits are always asking for money having champagne appetites with beer spending budgets.

    As they stay out of this marketplace, they find more competition as well as margin difficulties with the better credits, many who have a lot of cash on hand. As reported last week, many have profits and margins under control. (4)

    Banks with more than $1 billion in assets saw their margins decline to 3.28% in the fourth quarter from 3.39% in the linked quarter and 3.54% a year earlier, according to the FDIC's latest quarterly bank profile. Banks with less than $1 billion in assets also experienced continued margin compression in the fourth quarter, as their margins fell to 3.70% in the period from 3.77% in the third quarter and 3.83% a year earlier. (5)

    The good news is that inflation has been held quite a bit in check, something which the Fed should be given a lot of credit, as well as now retired from the US Treasury ex-secretary Timothy Geithner should also be given credit. Those that did not speak highly of him, may learn to rue his absence. Time will tell.

    The feds say interest rates will be low as long as unemployment is high, so look for it to remain low at least through this year, maybe next year, too. The real fear should be inflation, as corporations and many individuals are doing extremely well.

    It appears both consumer and corporate lifestyles are changing and growth may no longer be the number one goal. Maybe holding onto to a livable margin is now most important. Or is that word "surviving" more suitable?

    5. Full FDIC 4th quarter report

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • Westcoaster
    , contributor
    Comments (848) | Send Message
    Excellent article Christopher.


    Now if unemployment would just catch up to the banks the Fed can slowly raise rates again.


    As the American slowly tips their toes into the risky business market I agree with your sentiment that the loan market might bifurcate a bit. Risky loans will be made but they will be priced with double reserves and a rate to match.


    OREO in my area is now almost all comprised of raw land. Many banks are choosing to build their way out or partner with developers to improve this land. It's a good sign for us.


    I think Geithner and Bernanke go down as very successful public servants. If Bernanke retires I see Geithner as a shoe in for his job. He earned our trust and earned his stripes during these last few years and I look forward to his future leadership no mater where he is. I think back to the C-Span hearings about his tax return errors and all of the Republicans ripping on him. He apologized, blamed Turbo Tax, and then all of the Democrats rightly said, Hey we really don't have anyone better to lead Treasury. They made the right call.
    8 Mar 2013, 11:47 AM Reply Like
  • Christopher Menkin
    , contributor
    Comments (99) | Send Message
    Author’s reply » Thank you. I usually stay away from opinions and try to be more objective, but I think, under the circumstances, Geithner and Bernanke have done an excellent job. Our real enemy during all this time has been "inflation." As unemployment drops, whether interest raises or not, inflation is a real enemy to prosperity for all.
    9 Mar 2013, 11:35 AM Reply Like
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