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Saturday, December 22, 2012

USA Banks Loan Charge-Offs Increase


The USA Banks Loan Charge-Off Rate of +1.18% for the quarter ended September 30, 2012 is the first increase after 10 consecutive quarterly decreases (from QE 3-31-10 thru QE 6-30-12). The financial crisis losses have been mostly worked off - at least the worthless credits the regulators have identified and ordered written-off.

Total Loans increased by +1.4% from the prior QE June 30, 2012. 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, Loan Charge-Offs should continue to level off at a relatively lower rate or even decease further as loan underwriting standards are more conservative. The Net Charge-Off Rate is still high compared to historical rates.

USA Banks Net Charge-Off Rate by Quarter The USA Banks Net Charge-Off Rate increased to 1.18% for quarter ended September 30, 2012, which is the first increase since the QE December 31, 2009 at 2.89%. The Net Charge-Off Rate peaked at that quarter, during the USA financial system crisis.



USA Banks Net Charge-Off Rate by Segment For the 9 months ended September 30, 2012, the annualized Net Charge-Off Rates by segments were:
All institutions +1.15%
Credit card banks +3.94%
International banks +1.53%
Agricultural banks +0.22%
Commercial lenders +0.75%
Mortgage lenders +0.78%
Consumer lenders +1.45%
Other specialized (< $1 billion total assets) +0.33%
All other (< $1 billion total assets) +0.41%
All other (> $1 billion total assets) +0.98%

Loan Losses Decline Across Most Loan Categories (FDIC Quarterly Banking Profile, December 4, 2012) For the ninth quarter in a row, net charge-offs (NCOs) were lower than a year earlier. Banks charged off $22.3 billion (net) during the quarter, $4.4 billion (16.5 percent) less than in third quarter 2011. The largest NCO declines occurred in credit cards (down $2.8 billion, or 30.4 percent), and in real estate construction loans (down $1.4 billion, or 61 percent). Charge-offs declined in all major loan categories except 1-4 family residential real estate loans, where NCOs were $1.3 billion (15.5 percent) higher than a year earlier. This increase was the result of new accounting and reporting guidelines applicable to national banks and federal savings associations concerning the reporting of restructured loans.

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