Commentary

Monday, October 31, 2011

Amid record increases in deposits, and low demand for business and consumer loans, the FHLB is suffering portfolio declines and low demand along with the rest of the industry.  FHLB advances had an overall decrease of 13.2% for the year so far, the lowest level since 2000.  FHLB Dallas and Chicago led the pack with 26.7% and 24.4% declines respectively. Only two FHLB banks had increases in the 3d Qtr. with Cincinnati at .5% and Indianapolis at 1.6% increase. They are suffering the same problems that banks are currently experiencing, i.e. shrinking net margins, lower loan balances, higher yield investments being replaced with lower yields.  Investments are also declining at FHLB banks, but in some cases are overtaking their advance balances. Their regulator, the FHFA has warned that  since their primary role is to provide liquidity to banks, they cannot continue to operate this way.  Are the issues in our industry temporary in nature, or structural like other economic problems in the U.S.?

 

 

Monday, October 24, 2011

The focus is now on loan growth for most banks. Regional banks Q3 results are reporting modest loan growth, improving credit quality, and continued shrinkage in loan loss reserves.  All of this is good news except that low interest rates, lower fee income, and higher compliance costs are obstacles to higher revenue. Huntington Bancshares was the leader of the 10 largest regional banks with loans and leases up 4% for the quarter, net charge offs down .92% and loan loss reserves decreasing by 63% from one year ago.  The key to loan growth will always be adding new core customers. Studies have shown that two thirds  of those new DDA customers add revenue through additional products and services. It may be wise to consider innovative new deposit products, even though the industry is awash in short term liquidity. The brokered market still offers the best option for extending liabilities.