Perhaps the tale of their demise has been greatly exaggerated. After all, can a ‘struggling’ industry really earn billions of dollars?
The U.S. banking industry earned $14.5 billion during the third quarter, albeit declining from $21.6 billion the previous quarter but up from $2 billion the previous year, according to the Federal Deposit Insurance Corp. The decrease in loan loss reserves as a result of improving credit quality has been a key issue in this rebound. The FDIC said that absent a “$10.1 billion quarterly net loss at one large institution that had a $10.4 billion charge for goodwill impairment,” the industry’s third-quarter earnings “would have would have represented a three-year high,” and that 63% of banks and thrifts had reported year-over-year earnings improvement and that “fewer than one in five (18.9 percent) was unprofitable.” FIA Card Services, a subsidiary of Bank of America, reported the $10.1 billion third-quarter loss from a goodwill impairment charge.
Chase Bank, USA (a subsidiary of JPMorgan Chase (NYSE: JPM) reported a third-quarter provision for loan losses of $1.4 billion, declining from $2.5 billion a year earlier. The bank had the largest year-over-year increase in earnings, to $903.7 million during the third quarter, from a loss of $180.3 million a year earlier.The bank with the third-largest year-over-year earnings improvement was KeyBank, NA of Cleveland, which is a subsidiary of KeyCorp (NYSE: KEY). KeyBank reported third-quarter net income of $216.1 million, improving from a net loss of $344.9 million a year earlier. The bank’s provision for loan loss reserves declined to $94.2 million from $678 million a year earlier.
The FDIC said that for the second straight quarter, net charge-offs – loan losses less recoveries – declined from the previous quarter and year-over year. Third-quarter net charge-offs totaled $42.9 billion compared to $49.1 billion the previous quarter and $50.9 billion during the third quarter of 2009. The annualized ratio of net charge-offs to total loans and leases for the third quarter was 2.32%, declining from 2.64% in the second quarter and 2.71% in the third quarter of 2009. Overall asset quality improved from the previous quarter, as the ratio of noncurrent assets – including loans past due 90 days, nonaccrual loans and repossessed assets – to current assets was 3.25% as of September 30, declining from 3.31% in June, but still above the 3.07% noncurrent assets ratio in September 2009. The third quarter also brought the first real growth in industry assets since fourth quarter 2008, as interest-bearing assets increased by $154.8 billion, or 1.4%, from the previous quarter, as securities portfolios and trading assets grew. Loan balances declined for the eight-straight quarter, but only by 0.1% from the previous quarter.
The news is not all good though, and some weaknesses continue to exist in banks across the country. The FDIC said its “Problem List” of troubled banks increased to 860 from 829 the previous quarter, despite 41 bank and thrift failures during the third quarter and 30 others being merged into other institutions. The agency doesn’t disclose which institutions are on the Problem List.
