Net income falls to $28.7 billion in Q3 at FDIC-insured institutionsMortgagePress.comcommercial banks, savings institutions, loan losses, asset-quality, non-interest income
Federal Deposit Insurance
Corporation (FDIC)-insured commercial banks and savings
institutions reported net income of $28.7 billion for the third
quarter of 2007, a decline of $9.4 billion (24.7 percent) from the
third quarter of 2006. A steep increase in provisions for loan
losses, as well as a decline in non-interest income, were chiefly
responsible for the year-over-year earnings decline. The last time
that banks earned less than $30 billion in a quarter was in the
first quarter of 2003.
"Industry performance was hurt by asset-quality problems and
volatility in financial markets during the third quarter. Almost
half of all insured institutions reported year-over-year declines
in earnings. Residential mortgage loans were the focal point of
asset-quality problems. But, delinquency and loss rates were up
across all major loan categories," said FDIC Chairman Sheila Bair.
"Because insured financial institutions entered this period of
uncertainty with strong earnings and capital, they are in a better
position both to absorb the current stresses and to provide much
needed credit as other sources withdraw. Going forward, the outlook
for the industry depends on the severity of the housing downturn
and the extent to which it spills over into the broader
Bair also noted that even as banks attempt to address weaknesses
in their residential mortgage portfolios, the non-current rate of
real estate construction loans increased sharply from its historic
lows. "A year ago, the federal banking regulators issued guidance
on sound risk management practices for institutions that had
significant concentrations of commercial real estate lending. The
rising level of troubled construction loans should serve to
reinforce the message contained in that guidance."
Bair said that the current conditions in the residential
mortgage market underlined the urgency of finding solutions to the
looming threat posed by the scheduled upward re-pricing of many
adjustable-rate mortgage loans to sub-prime borrowers. "I am
hopeful that lenders and servicers will see that it is in their own
best interest, as well as the interests of their investors and, of
course, the many homeowners who have remained current on their
mortgage payments, that they provide some relief from interest-rate
resets," she said.
Financial results for the third quarter were contained in the
FDIC's latest Quarterly Banking Profile, which was released on Nov.
28. The major findings were as follows.
Provisions for loan losses rose sharply
Insured banks and thrifts set aside $16.6 billion in loan-loss
provisions during the quarter, the most since the second quarter of
1987 and the second-largest quarterly loss provision ever reported
by the industry. Third-quarter loss provisions were $9.2 billion
(122.4 percent) more than the industry set aside in the third
quarter of 2006.
Asset-quality indicators continued to
The amount of loans and leases that were non-current (90 days or
more past due or in non-accrual status) grew for a sixth
consecutive quarter, rising by $16 billion (23.8 percent). Loans
secured by residential real estate accounted for more than half of
the growth. Non-current residential mortgage loans increased by
$7.5 billion (27.2 percent), and non-current home equity lines of
credit rose by $783 million (27.4 percent). Non-current real estate
construction and development loans rose by $3.6 billion (45.5
percent). At the end of September, the amount of loans and leases
that were non-current totaled $83 billion, the highest level since
the third quarter of 1992.
Commercial and industrial loan growth remained very
Loans to commercial and industrial (C&I) borrowers had record
growth for the second consecutive quarter. C&I loans increased
by $89.5 billion (6.9 percent), surpassing the previous record
increase of $51.2 billion registered in the second quarter. Total
assets also had a record quarterly increase during the third
quarter, rising by $446.3 billion (3.6 percent) and eclipsing the
previous quarterly record of $331.6 billion set in the first
quarter of 2006.
Non-interest income declined
Total non-interest income was $3.2 billion (5.1 percent) lower than
a year earlier, as trading revenue declined sharply at large banks.
Income from trading activities was $2.8 billion (60.3 percent)
below the level of a year ago. Sales of loans produced a net loss
of $139 million in the third quarter, compared to a $2.3-billion
net gain in the third quarter of 2006.
Retail deposit growth lagged behind growth in
Total deposits at institutions insured by the FDIC increased by
$146 billion (1.8 percent) during the quarter. While this growth
surpassed the levels of the second quarter and the third quarter of
2006, it nevertheless represented only one-third of the increase in
industry assets in the quarter. Deposits in domestic offices
increased by $49.2 billion (0.7 percent), while deposits in foreign
offices rose by $96.8 billion (7.2 percent). All of the growth in
domestic deposits came from time deposits (up $82.2 billion, or 3.3
For more information, visit www.fdic.gov.