Insured institutions earned $424 million in net operating income in the latest quarter even after a special assessment of $5.5 billion to bolster the DIF, but one-time losses and other items totaling $4.1 billion pulled the industry results into negative territory. Loan-loss provisions were $66.9 billion, an increase of $16.5 billion (32.8%) over the second quarter of 2008. Noninterest expenses were $1.7 billion (1.7%) higher, primarily due to increased FDIC deposit insurance premiums. An increase in noninterest income (up $6.5 billion or 10.6%) helped stem industry losses.
Both the quarterly net charge-off rate and the percentage of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) reached the highest levels registered in the 26 years that insured institutions have reported these data. Insured institutions charged off a record $48.9 billion in uncollectible loans during the quarter, up from $26.4 billion a year earlier, and noncurrent loans and leases increased by $40.4 billion during the second quarter. At the end of June, noncurrent loans and leases totaled $332 billion, or 4.35% of the industry’s total loans and leases.
The number of insured institutions on the “Problem List” (institutions at risk of failing) increased to 416 from 305 at the end of the first quarter. Total assets of “problem” institutions increased from $220.0 billion to $299.8 billion, the highest level since Dec. 31, 1993. This is the largest number of institutions on the list since June 30, 1994, when 434 institutions earned the dubious distinction.
The DIF reserve balance was $42.4 billion at the end of the quarter. After subtracting $32 billion set aside for contingent loss reserves, the DIF balance was $10.4 billion compared with $45.2 billion a year earlier. The reserve ratio stood at 0.22%. FDIC Chairman Sheila Bair noted that the DIF held $22 billion in cash and U.S. Treasury securities at the end of the quarter and has the ability to borrow $500 billion from the Treasury. “A decline in the fund balance does not diminish our ability to protect insured depositors,” she said.
More details about bank earnings and the DIF are available in the Quarterly Banking Profile and the Chief Financial Officer’s (CFO) Report to the Board at www.fdic.gov.
In the second quarter, the nation’s thrift industry posted its first overall profit since the third quarter of 2007, according to the Office of Thrift Supervision. While the industry nudged slightly into positive territory with $4 million in earnings in the second quarter, troubled assets as a percentage of all industry assets continued to rise, reflecting the nation’s weak job market; the number of problem thrifts continued to rise as well.
Loan-loss provisions of $4.7 billion, though lower than recent quarters, were still the sixth highest on record. Special assessments by the FDIC to bolster the DIF dragged down earnings a further $325 million.
Capital remained solid, with 96.2% of all thrifts, holding 95.9% of industry assets, exceeding “well-capitalized” regulatory standards. Profitability, as measured by return on average assets, was zero percent in the second quarter, an improvement from −0.53% in the previous quarter and −1.43% in the second quarter a year ago. But the number of problem thrifts—those with composite examination ratings of 4 or 5 (with 1 being the best rating on a scale of 1 to 5)—was 40, up from 31 in the previous quarter.
More details, as well as charts and selected indicators, are available at www.ots.treas.gov.
The federal banking and thrift regulatory agencies issued proposed regulatory capital rule related to FASB’s adoption of Statement no. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 , and Statement no. 167, Amendments to FASB Interpretation No. 46(R) . Beginning in 2010, these accounting standards will change substantively how banking organizations account for many items, including securitized assets, that are currently excluded from these organizations’ balance sheets.
The Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision issued the joint proposal to better align regulatory capital requirements with the actual risks of certain exposures. Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The proposed regulation, Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modifications to Generally Accepted Accounting Principles; Consolidation of Asset-Backed Commercial Paper Programs; and Other Related Issues, was published in the Federal Register on Sept. 15.
The proposal is available at tinyurl.com/n9np83. The comment period ended Oct. 15.