Quarterly Banking Report Released by FDIC

The FDIC has just released its quarterly report on banking.   This report is the third quarter summary of financial results for all FDIC-insured institutions.  The income aspect of the report summarized the banking story of 2008.  The quarterly review concluded that Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $1.7 billion in the third quarter of 2008.  It seems almost surprising with all the bad news in banking and finance this year that there was an aggregate net income.  The change form last year is a little more enlightening.   The third quarter income of $1.7 billion is a decline of $27.0 billion (94 percent) from the $28.7 billion that the industry earned in the third quarter of 2007.  The report interjects that this figure, with the exception of the fourth quarter of last year, is the lowest for the industry since the fourth quarter of 1990.

The FDIC included data on loan loss provisions which was cited as the primary reason for the drop in the banking industry profits.  Loss provisions totaled $50.5 billion, compared to $16.8 billion in the third quarter of 2007.  The latest loss provisions absorbed a third of the industry’s net operating revenue.

Losses on the sales of securities and other assets contributed heavily to the total net income losses.  The industry reported $7.6 billion in losses on sales of securities and other assets in the third quarter, compared to $77 million in gains a year earlier.

Charge-offs and noncurrent loans were reported as cause for concern regarding additional industry write downs in coming quarters.  Insured institutions charged off $27.9 billion in troubled loans in the third quarter.  The annualized net charge-off rate of 1.42 percent was the highest quarterly average since 1991.  The amount of noncurrent loans and leases (90 days or more past due or in nonaccrual status) increased by $21.4 billion (13.1 percent) during the third quarter.  At the end of the quarter, 2.31 percent of all loans and leases were noncurrent, the highest level for the industry since the third quarter of 1993.

Nine FDIC-insured institutions failed in the third quarter, the most since the third quarter of 1993. The failures included Washington Mutual Bank, with assets of $307 billion. The FDIC added that the “problem list” of banks grew during the quarter from 117 to 171 institutions, the largest number since the end of 1995.  Total assets of problem institutions increased from $78.3 billion to $115.6 billion.

On the positive side, well-capitalized institutions held $1.25 trillion in total capital at September 30th, including $235 billion above the threshold for well-capitalized status.

And though the FDIC indicated some concern for smaller banks with this comment, community banks — those with total assets of under $1 billion — are beginning to exhibit stresses similar to those facing the industry as a whole.  There was a bright note for those consumers seeking higher savings accounts and CD rates as the FDIC adds that capital levels and reliance on retail deposits remain higher at these banks than the industry average.  Community banks in need of deposits along with the larger banks need for customers should keep a level of healthy competition on bank rates that will benefit the savvy investor.

This entry was posted on Tuesday, November 25th, 2008 at 12:20 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.