Driven by a sharp increase in loan loss provisions, earnings at federally insured banks tumbled.
Third quarter net income at commercial banks and savings institutions insured by the Federal Deposit Insurance Corp. was $28.7 billion, according to the agency's Quarterly Banking Profile released today. Earnings fell from $36.7 billion during the second quarter and $38.1 billion a year earlier.
The report indicated profits were down at almost half of FDIC-insured companies.
The decline was driven by $16.6 billion in loan loss provisions -- more than double the level in the third quarter 2006 and the highest since 1987. Third quarter charge-offs were $10.7 billion, with residential mortgage charge-offs up steeply at larger institutions.
"Industry performance was hurt by asset-quality problems and volatility in financial markets during the third quarter," FDIC Chairman Sheila Bair said in an announcement. "Residential mortgage loans were the focal point of asset-quality problems."
Total assets of $12.7 trillion included $2.2 trillion in residential real estate loans and $0.6 trillion in home equity lines. Advances from the Federal Home Loan Banks ended the period at $0.8 trillion.
Delinquency of between 30 and 89 days ended the third quarter at 1.71 percent for loans secured by one-to-four unit properties while home equity delinquency was 0.91 percent. Residential loans delinquent at least 90 days were 1.57 percent and HELs were 0.62 percent.
"Today's news from the FDIC confirms what we've known -- banks are adjusting to the economic stress in the housing market and are taking the necessary steps to put the losses behind them," American Bankers Association Chief Economist James Chessen said in another announcement. "This will be an ongoing process, but because the health of the industry has been so strong for so long, banks have the capital and reserves to weather this storm."
Among 690 institutions that reported residential originations, there was $90.9 billion in retail first mortgage production and $1.4 billion in retail second mortgage fundings, supplemental data indicate. Wholesale first mortgage originations were $179.6 billion while wholesale second lien volume was $2.6 billion.
The biggest retail originator was Wells Fargo Bank N.A., with $23.3 billion in third quarter volume, followed by JPMorgan Chase Bank N.A., with $16.8 billion and Bank of America N.A., with $6.9 billion. Among wholesale originators, Wells Fargo was biggest, with $54.2 billion, followed by Citibank N.A., which funded $21.2 billion and WF NB South Central, at $20.6 billion.
The number of insured institutions reporting fell to 8,560 from 8,615 the prior period. The decline reflects 42 new charters, 93 merged charters and one failure. Problem banks rose for the fourth consecutive quarter to 65, though the assets of problem institutions were lower.
Banks reported around 2.2 million full-time equivalent employees in the latest period.
"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 economy," the FDIC's Bair added.