Red ink gone for banks

Arizona banks registered so-so results in the second quarter while profits surged 38 percent for banks across the U.S.

Nationally, banks and savings institutions insured by the Federal Deposit Insurance Corp. generated cumulative profits of $28.8 billion in the quarter, up from $20.9 billion one year earlier, with the number of "problem" banks falling for the first time since 2006.

The 20 mostly small banks chartered in Arizona also showed various signs of improvement, though on balance they neither made money nor lost it. But capital increased, net-interest spreads improved, loan charge-offs dropped and credit-loss provisions fell for Arizona's home-based banks - all good signs.

"We're seeing significant strength regarding a turn in the local economy," said Dale Gibbons, chief financial officer at Western Alliance Bancorporation.

Its Arizona subsidiary, Alliance Bank of Arizona, has been one of the stronger local performers, with a 76 percent rise in net income over the first half of 2011. "Credit demand has picked up, and asset quality has improved," Gibbons said.

Results for Arizona banks exclude those for Chase, Wells Fargo, Bank of America and other companies that operate here but are headquartered elsewhere.

Nationally, banks logged an eighth-straight quarter of rising earnings on a year-over-year basis, helped by lower provisions or charges for loan losses.

Across the U.S., 60 percent of banking institutions reported higher income compared with a year earlier.

Also, the percentage of money-losing banks fell, while the average return on assets rose.

But net operating revenue slid from a year earlier, indicating sluggish banking activity, and the amount of gains on securities sold by banks declined.

"Banks have continued to make gradual but steady progress in recovering from the financial-market turmoil and severe recession that unfolded from 2007 through 2009," the FDIC's acting chairman, Martin Gruenberg, said in a statement.

Asset quality showed improvement, with loans and leases at least 90 days past due falling for a fifth consecutive quarter.

Banks and thrifts charged off $28.8 billion in uncollectible loans during the quarter, down from $49.7 billion a year earlier.

The number of institutions on the FDIC's "problem list" fell to 865 from 888, and the assets held by these troubled banks dipped. It was the first drop in the number of problem banks, which the FDIC doesn't identify by name, in 19 quarters.

Twenty-two banks failed during the second quarter, down from 26 in the first quarter and the fewest since early 2009. The government's Deposit Insurance Fund now has a positive balance for the first time in two years.

Summit Bank of Prescott failed in July, and Legacy Bank of Scottsdale went under in January, but neither of those showed up in the second-quarter statistics.

Nationally, lending activity picked up in the second quarter, with loan portfolios growing for the first time in three years, the FDIC said. Lending was led by loans to commercial and industrial borrowers, to other banks and to car and truck buyers. Lending activity among Arizona-based banks generally was flat.

Customers parked more deposit money with banks, especially large ones.

Domestic deposits rose 2.9 percent during the quarter, and deposits in accounts with balances greater than $250,000 spiked 8.8 percent.

Large non-interest-bearing transaction accounts currently have temporarily unlimited deposit-insurance coverage, the FDIC said.

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Behind the curve

Indicators for Arizona-based banks continue to lag those for U.S. banks overall. In part, this is because big banks are leading the recovery, and Arizona's banks tend to be small. Here are selected results for the second quarter:

Aggregate profit

U.S. banks: $28.8 billion.

Ariz. banks: $0.

Second-quarter failures

U.S. banks: 22.

Ariz. banks: 0.

Unprofitable banks

U.S. banks: 15.2 percent.

Ariz. banks: 40 percent.

Lending

U.S. banks: +0.9 percent.

Ariz. banks: +0 percent.

Deposits

U.S. banks: +2.9 percent.

Ariz. banks: -2.3 percent.

Return on assets

U.S. banks: 0.85 percent.

Ariz. banks: 0.03 percent.

Source: FDIC

by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM




Red ink gone for banks