We came very close to copying our last Earnings Update and posting it here with some slight changes, but then we decided that we owed it to you, our loyal readers, to attempt to find a nugget of interesting news in the FDIC’s 4Q11 Quarterly Banking Profile. On the surface, the industry has regained its pre-crisis footing. Return on average assets and return on average equity were both positive. Loan loss provision reductions continued apace. Lending recovered slightly, as loans grew by 1.8% relative to 3Q11 and 1.2% year-over-year. This growth was once again driven by increased C&I lending – and, in particular, increased lending to small businesses.
Full-year net operating revenues, however, declined for only the second time since 1938, driven by declines in both net interest income and noninterest income. (When else did operating revenues decline, you ask? 2008. Use this trivia at parties at your own risk.) Renewed small business and middle market lending may signal the beginnings of a recovery and a more positive outcome for 2012.
Banks looking to expand their commercial lending business to take advantage of this trend should, of course, ensure that they have a sound risk rating framework in place. Institutions should also review their loan processes to ensure that they promote efficient credit decisioning, review available online banking and/or cash management technology to ensure that it meets the unique needs of small businesses (and invest in improvements as necessary), and consider how to create value propositions that appeal to the business, the owner, and the employees.