DBO – Quarterly Report – Second Quarter 2014 (Sep16, 2014)

Introduction

The Quarterly Report presents summary statistics for banks, industrial banks, credit unions, offices of foreign banks and trust companies with a comparison to the previous quarter, and to the same quarter one year ago. The intention of the Quarterly Report is to show at-a-glance significant changes on the balance sheets and reports of income of DFI licensees. We invite readers to review the Financial Statistics page on our website, and the financial data published by the Federal Reserve Bank of San Francisco, Federal Deposit Insurance Corporation and National Credit Union Administration.

Commercial Banks

As of June 30, 2014, the number of state-chartered banks decreased by 11 or 6.6% to 155 from 166 on June 30 one year ago. It was a decrease of one or 0.6% from March 31. Assets as of June 30, 2014 were $333.7 billion, up $48.4 billion or 17.0% from the $285.3 billion reported in the second quarter of 2013, and up $19.1 billion or 6.1% from the prior quarter. Total equity capital was $42.8 billion up 15.0% from $37.2 billion one year ago and up 9.4% from the prior quarter. This caused the equity capital to total asset ratio to decrease to 12.82 percent from 13.04% one year ago and to increase from 12.43% in the prior quarter.

Loans were $224.2 billion, up $30.9 billion or 16.0% from $193.3 billion a year ago and up 6.5% from the $210.5 billion on March 31. Deposits were $265.7 billion, up $37.7 billion or 16.5% from June 30 one year ago and up 4.9% or $12.5 billion from last quarter. This caused the loan to deposit ratio to decrease to 84.38% from 84.77% one year previous and to increase from 83.14% in the previous quarter.

Quarterly earnings for state-chartered banks in the second quarter were $760.4 million, up a fraction of a percent from the $759.7 million earned in the second quarter of 2013 and up 6.2% or $44.5 million from the $715.9 million earned in the first quarter of 2013.

The net interest margin for 2013 was 3.17% down from 3.38% one year ago and from 3.25% in March. Loan loss reserves as of June 30, 2014 were $2.9 billion, down $164.8 million or 5.4% from the $3.1 million as of June 30, 2013 and down a fraction of a percent from the prior quarter.

Noncurrent loans were down $520.0 million or 19.2% from $2.7 billion to $2.2 billion over the year, and down $138.7 million or 6.0% from last quarter. This caused reserve coverage of noncurrent loans to increase to 132.22% from 112.93% in the second quarter of 2013 and from 124.57% in the prior quarter. Other real estate owned went from $609.3 million as of June 30, 2013 to $456.5 million a year later, a change of $152.8 million or 25.1% from one year ago and a change of $44.0 million or 8.8% from the $500.5 million in OREO reported as of March 31, 2014.

Industrial Banks

As of June 30, 2014 there were five industrial banks, down from six in the prior year and the prior quarter. As a consequence of the merger of a large industrial bank into a commercial bank, double-digit decreases were registered in most categories. Total assets were $635.6 million, down 92.5% from the $8.5 billion reported one year ago and down 92.9% from the $8.9 billion reported in the prior quarter. At $158.4 million, total equity capital was down 87.9% from June 30, 2013 and down 88.9% from last quarter. This caused the equity capital to asset ratio, at 24.92% to increase from 15.42% in the prior year and from 15.94% in the prior quarter. Loans, at $493.9 million, were down 92.7% over the year and down 93.4% from last quarter.

Deposits were $422.7 million, down 93.4%% from $6.4 billion in June 2013 and down 93.7% from the prior quarter. This caused the loan to deposit ratio to increase to 116.85% from 106.11% in the prior year and from 111.93% in the prior quarter.

Industrial banks reported net income of $4.3 million in the second quarter of 2014, down 93.9% from $70.7 million in the second quarter 2013. Loan loss reserves were $16.4 million, down $109.2 million or 86.9% from the second quarter 2013 and down $107.6 million or 86.8% from the prior quarter. Loan loss provisions made in the second quarter of 2014 were $2.2 million, down $9.3 million or 81.0% from the $11.5 million provision for the same quarter of 2013.

Noncurrent loans were $12.4 million, down $63.9 million or 83.7% from $76.3 million as of June 30, 2013 and down $68.7 million or 84.7% from last quarter. This caused reserve coverage of noncurrent loans to decrease to 132.32% from 164.56% in June 2013 and to decrease from 152.94% in December. Other real estate owned went from $9.4 million as of June 30, 2013 to $4.7 million a year later, a change of $4.7 million or 50.2% from one year ago and a change of $2.7 million or 36.9% from the $7.4 million in OREO reported in the last quarter.

Credit Unions

Total assets at June 30, 2014 were $82.4 billion, up $3.3 billion or 4.2% from $79.0 billion one year ago, and up a fraction of a percent from the previous quarter. Shares, at $70.4 billion were up by 3.5% from the $68.0 billion one year ago and were down a fraction of a percent from the prior quarter. Loans were up 12.5% over the year, going from $40.6 billion to $45.7 billion and up $1.8 billion or 4.0% from the prior quarter. Net worth, at $9.2 billion was up 9.2% from $8.4 billion one year ago and up 2.6% from the $9.0 billion reported in the first quarter. This caused the net worth to asset ratio to increase to 11.15% from 10.63% one year ago and from 10.89% in the previous quarter. The allowance for loan losses was down 23.0% from $756.0 million one year ago to $582.5 million and down 4.8% from $611.6 million in the first quarter.

Delinquent loans, at $389.4 million were down $89.3 million or 18.7% from $478.7 million one year ago and were up $60.3 million or 18.3% from $329.1 million in the previous quarter. Delinquent loans as a percentage of total loans were 0.85% as of June 30, 2014 as compared to 1.18% one year ago and 0.75% in the last quarter. Other real estate owned was $57.3 million as of June 30, 2014; down $6.1 million or 9.6% from $63.4 million a year previous and down 1.0% from the $57.9 million reported in the last quarter.

Net margin to average assets at 3.66% was down from 4.01% last year at this time and up from 3.61% last quarter, while the provision for loan losses was down 22.5%, going from a negative $14.7 million as of June 30, 2013 to a negative $11.4 million over the year. Net income year to date was down 3.0% from $435.5 million in the second quarter 2013 to $422.4 million in the first half of 2014. Net income for the quarter was $227.8 million, up $33.2 million or 17.1% from income in the first quarter 2013.

The number of credit unions at the close of the second quarter went from 150 last year to 145; a decrease of five, or 3.3 percent from the prior year. There was no change from the prior quarter.

Foreign Banks

Total assets of state chartered offices of foreign banks at the close of the second quarter of 2014 were $31.4 billion, up $1.3 billion or 4.2% from $30.1 billion one year ago, and up 6.2% from the $29.6 billion in the previous quarter. Loans, at $25.5 billion were up 5.9% from $24.1 billion one year ago and up 2.1% or $530.4 million from the $25.0 billion reported in the previous quarter. Deposits were $12.3 billion, up 5.1% over the year from $11.7 billion and down a fraction of a percent over the quarter. The number of foreign banking organizations with state-chartered offices in California remained constant at 31 during the year.

Trust Companies

Total corporate assets of trust companies at June 30, 2014 were $330.6 million, down $8.7 million or 2.6% from the $339.4 million a year previous and down $3.9 million or 1.2% from the $334.5 million in the prior quarter. Income from fiduciary activities in the first half of 2014 was $189.7 million, up $8.2 million or 4.5% from $181.4 million in the same period of 2013. Income for the quarter was $95.3 million and up 1.0% from the first quarter 2014.

Net income for the second quarter of 2013 was a loss of $22.2 million as compared to the net loss of $15.5 million in the same period of 2013. The number of trust companies remained constant at eight during the period.