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Decade of Change

FDIC data reveals that, for the nine months ended September 30, 2013, Insured banks reported an aggregate annualized return on equity of 9.5%, well beneath the 15.0% attained during the ten-year earlier period. Between those intervals, the industry Net Interest Margin, which is largely related to market interest rates, fell from 3.7% to 3.3%.

Reducing nonperforming asset percentages, either through write-downs or asset sales, offsets the need for loss reserves, allows for increased holdings of strongly performing assets, and possibly lowers the need for a capital cushion. As a long-term strategy, reductions of assets that add nothing to the bottom line will please current owners, who seek returns, and foster independence.

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