NEW YORK It is not just credit unions that have been reducing loan loss provisions; community banks have been doing the same.
“The good news is we are seeing the number of troubled loans at most banks fall off,” Lynn David, president of Community Bank Consulting Services, told American Banker, an affiliate of Credit Union Journal. “But banks are still losing ground on the net interest margin. The concern that I have is that we are not going to see a drastic increase in earnings even though credit quality is improving and banks are putting less into the loan-loss provision.”
Provisions at banks with $40 billion or less in assets fell, on average, 7% from the first quarter and almost 50% from a year earlier, to $1.8 million, according to American Banker analysis of more than 330 reporting banks and thrifts. On average, net income at those banks increased roughly 4% from the first quarter and nearly 14% from a year earlier.
Banks are shutting down special asset groups they had created during the downturn to deal with problem loans, said Paul Schaus, president and CEO of CCG Catalyst Consulting Group.
“We will continue to pick up efficiency gains here and there,” said C.K. Lee, a managing director in the financial institutions group at Commerce Street Capital. “Many [banks] are harvesting those windfalls now but that is not sustainable.”
Still, other credit metrics were mixed. Nonperforming assets tumbled 6% from March 30 and almost 21% from a year earlier, averaging $53.2 million. But net chargeoffs rose 2% from the first quarter, though they fell 41% from a year earlier, as banks stepped up efforts to sell foreclosed properties.
