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/   Spotlight

Digital Insight proves that digital bankers actually drive increase engagement and profitability with their financial institution.

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Intuit 2020 Report: The Future of Financial Services

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/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Platform Shift in the Making

February 13, 2013
/   Insights

What does the banking industry as a whole have to do with Amazon, Microsoft and Apple? Just about nothing—and down the road, it may turn into a major problem (if it isn’t already). Consider...

Financial Literacy Month: How are you celebrating?

March 22, 2013
/   Insights

With April approaching, it’s almost time to kick off Financial Literacy Month! Strongly supported by the United States Congress and the Financial Literacy and Education Commission, Financial Literacy Month aims to promote the importance...

As an industry, we just made more money than ever before. But it would be wise to see the good news in context.

Late in January, the Federal Deposit Insurance Corp announced that profits at commercial banks and savings institutions collectively reported aggregate net income of $40.3 billion in the fourth quarter of 2013—a record by any measure.  The $5.8 billion recorded marks 16.9 percent spike over the same quarter last year. This is the 17th time in 18 quarters that there have been increased profits. That’s a steady drumbeat of positive numbers since the third quarter of 2009, barely a year a year after the dark days of bank bailouts dominated the headlines. For 2013 overall, the industry took in $155 billion, a 10% jump over 2012 and a lot higher than the $148 billion of 2006, the previous record.

Man Looking at CalendarAnd there’s more. The FDIC insures 6,812 institutions, and more than half of them, 53% had year-over-year growth for the quarter. On the flip side, the 12.2% booking losses is better than the 15% that had a losing quarter in 2012. In fact, the number of banks on the ‘problem list’ was down to 467 at year-end 2013, the lowest number since the financial crisis. In fact, it was 888 in early 2011.

Of course, there is nuance in these numbers. The FDIC notes that a big part of the bottom-line boost can be attributed to an $8.1 billion decline in loan-loss provisions. More specifically, 20% of the profits came from putting away less money to cover future losses—more a sign of accounting maneuvers than good business. On a related note, there was significantly less mortgage activity and lower trading revenue, leading to a year-over-year decline in net operating revenue.

Looking at the big picture, here’s one major takeaway. While lending rose generally, primary mortgage loans fell by $51 billion for the year. That’s a bad sign for economic recovery, and it’s got the critics out: At its annual meeting in January, JPMorgan Chase executives got asked why, since its faring so much better, the company isn’t doing more to help borrowers. In the wake of the FDIC report, expect this question to come up a lot more often, particularly since the mortgage market is expected to fall even faster this year.

To get a (perhaps unfair) sense of the dichotomy, here’s a curious factoid: The FDIC is stepping up its legal efforts against institutions during the financial crisis half a decade ago. Cornerstone Research reports that the agency filed 40 director and officer lawsuits in 2013, the same year that had such stellar results. That’s a 54% jump over the 26 suits filed in 2012.

Much of the litigation revolves around the surge in bank failures in 2009 and 2010. In fact, of the 140 financial institutions that failed in 2009 alone, 64 have settled claims or been taken to court. How all these cases play out could provide an indication of the pressure the industry will face in the days ahead.

Of course, it might be safe to assume that while these banks failed in 2009 and 2010, some of their woes go back further, perhaps to the days when the mortgage market was exploding. Yet here we are again, facing criticism for not giving out enough mortgages.

The news of a boosted bottom line is a good thing, but it’s no more than a start. The financial services industry can never be insulated from the economy at large—it’s too large, too integral and too important. The fact that profits have risen so sharply means there will be more pressure to generate similar cheer for everyone else.

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Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.