Tuesday, August 23, 2011

USA Banks Net Charge-Offs Decrease (Chart) *Continued improvement in latest quarter reported*

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FDIC Quarterly Banking Profile

Trend in Loan Losses Remains Favorable (FDIC, August 23, 2011) Net loan charge-offs (NCOs) declined year-over-year for a fourth consecutive quarter, as the pace of improvement in loan losses continued to gain momentum. The $20.9 billion (42.1 percent) decline was the largest since the recovery in credit quality began. NCOs were lower across all major loan categories. The largest decline was in credit card NCOs, which were $9.6 billion (51.6 percent) lower than in second quarter 2010. Real estate construction loan NCOs were $2.9 billion (55.3 percent) less than a year earlier, while commercial and industrial loan (C&I) NCOs fell by $2.7 billion (50.9 percent). Half of all institutions (50.3 percent) reported year-over-year declines in NCOs, while 41.3 percent reported increases.

USA Banks Net Charge-Off Rate The USA Banks Net Charge-Off Rate decreased to 1.58% for quarter ended June 30, 2011, which was the lowest since the QE September 30, 2008 at 1.42%. The Net Charge-Off Rate peaked at 2.89% for the QE December 31, 2008, during the USA financial system crisis.

Conclusion The USA Banks Net Charge-Off Rate of +1.58% for the three months ended June 30, 2011 indicates the substandard loans on the books continue to be worked off. Total Loans increased by +0.9% from the prior QE March 31, 2011. However, banks are more risk-averse than before the 2008 USA financial system crisis and the Great Recession that officially ended the QE June 30, 2009. Therefore, Net Charge-Offs should continue to decline as loan underwriting standards are more conservative. The Net Charge-Off Rate is still high compared to historical rates. The various types of banks included within this banking system Net Charge-Off Rate: credit card, international, agricultural, commercial lenders, mortgage lenders, consumer lenders, other specialized, and all other.
For the 3 months ended June 30, 2011, the Net Charge-Off Rates for these banking segments were:
Credit card banks +5.58%
International banks +1.43%
Agricultural banks +0.37%
Commercial lenders +1.27%
Mortgage lenders +1.04%
Consumer lenders +1.79%
Other specialized (< $1 billion total assets) +0.42%
All other (< $1 billion total assets) +0.47%
All other (> $1 billion total assets) +1.24%

About the FDIC

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 7,575 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.

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