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PCBB Banc Investment Daily July 02, 2013
Banc Investment Daily
July 02, 2013

When The Cicada Sang to Bankers in 1996

Especially if you live in the eastern US, you will no doubt have been waiting with bated breath for the emergence of the descendents of long absent insect friends to arrive. This is the time for the every 17Y occurrence of the singing and breeding season of the cicada. The media has been abuzz with the story and many areas of the country are right now in the middle of their own cicada party. What the cicada's parents told them to expect upon their emergence into the world, they will find to not be terribly useful, however.
Here's what Ma and Pa Cicada were thinking about back in 1996...everyone was learning the Macarena, Seinfeld was still on TV, the Spice Girls were spicy and Tickle Me Elmo was giggling over being the hottest toy. It was the year of Prince Charles' and Princess Di's divorce, the DVD was a new invention, the world had 5.8B people, Bill Clinton was President, the Yankees won the World Series and Atlanta hosted the summer Olympics.
Today the world has over 7B people and the US population is around 314mm (in 1996, US population was 269 million). US GDP growth was around 3.8% in 1996 and the latest print was only 1.8%. The US unemployment rate was 5.4% and now stands at 7.6%. Life expectancy in the US was 76Ys and is now 79Ys. For the cicada, that life expectancy is 2 to 4 weeks.
In the banking world back then, things were different too. The 1Y Treasury was yielding 5.50% and the 10Y was yielding 6.70%. The Fed had just dropped the Fed Funds rate to 5.25%, though it would raise the rate to 5.50% in early 1997. CPI was at 2.8% in 1996 (a little surprising given the level of interest rates) and it is currently at 1.1%.
In 1996, there were also 11,480 banking institutions per the FDIC vs. 7,028 today. Back in 1996 there were actually fewer banking employees at only 1.7mm vs. 2.1mm today. Total assets in banking institutions in 1996 totaled $5.6T vs. $14.4T now.
The number of unprofitable institutions in 1996 was 5.6% and that number is now 8.4%. Here is a statistic that will cause some pain to bankers searching for return - the yield on earning assets was 8.11% in 1996 and it is now 3.72%. However, the cost of funds for the industry rested at 4.04% in 1996 and it is now only 0.45%. Thus, the decline in NIM is not as much as one might think. NIM has fallen from 4.06% in 1996 to 3.27% now. ROE averaged 13.31% back then and is now 9.95%. The efficiency ratio 61.49% in 1996 and now rests at 58.92%.
How about all those delayed earnings banks have stuffed into ALLL? Back then, the loan loss allowance to loans was 1.74% and is now 2.03%. However, the loss allowance to noncurrent loans is hugely different, declining from 159% then to 59% now. Non-current assets and OREO was 0.81% and is now 2.08%. Net loans and leases were 113% to deposits vs. only 89% now.
That is a whole lot of numbers, but we thought it would be fun to take a quick look back into history to see what has transpired over the years the last time those crazy cicada's showed up to party around this great country of ours. Enjoy their songs for now and know they won't be back for another 17Ys or so when we will check in again on the banking industry to see what else has changed besides their tune.