The banking industry posted profits of $13.2 billion in the third quarter - one of its strongest showings ever - despite rising credit card losses and a big contribution to the Savings Association Insurance Fund.
The Federal Deposit Insurance Corp. said Friday that the one-time payment to rescue the thrift fund had slashed $650 million from the industry's after-tax income.
While it was the industry's third-best quarter ever, the nation's 9,586 commercial banks earned 4.8% less in the three months ended Sept. 30 than they had in the comparable period of 1995. Profits are on course, however, to top $50 billion in 1996, setting an earnings record for the fifth straight year.
"Commercial banks continued to enjoy extraordinary profitability in the third quarter," said FDIC Chairman Ricki Helfer.
Credit card lending remains the one "blemish" on the industry's performance, according to Ms. Helfer. The percentage of delinquent credit card loans jumped to 4.5% of the total in the third quarter, from 4.1% in the second quarter.
Indeed, chargeoffs of credit card loans accounted for almost two-thirds of the $3.8 billion the industry wrote off in the quarter. The annualized chargeoff rate for the quarter was 4.41% of credit card loans versus 0.23% for all other loans. Credit card chargeoffs are now at their highest rate since the fourth quarter of 1992, when they stood at 4.57%.
Credit card profits also have declined dramatically. Since the third quarter of 1994, the average return on assets for credit card lenders has plunged to 2.02%, from 4.25%, the FDIC noted.
Still, Ms. Helfer said, there is no cause for alarm. "We are getting anecdotal reports that credit card lenders have been tightening their standards since late summer," she said.
One indication: Issuers slashed total authorized credit limits from $65.8 billion in the second quarter to $53.4 billion.
Profits were boosted by net interest income, which hit a record $41.4 billion in the third quarter. That's up 5.2% from $39.4 billion the previous year. A shift from securities holdings to higher-yielding commercial and credit card loans led to the increase.
"Banks' fund costs remained stable while they switched to more profitable assets," Ms. Helfer explained.
The industry's assets climbed $61.4 billion, to $4.46 trillion. Commercial and industrial loans rose $13.3 billion, and real estate loans grew $12.3 billion. Credit card loans increased $13.3 billion; however, issuers held on to only $7.5 billion and securitized the rest.
Commercial banks' average capitalization reached its highest level since 1941, as equity capital rose to 8.31% of total assets at Sept. 30. Banks paid dividends totaling 81% of their earnings, up from 50% of earnings the year before.
The 1,961 savings institutions insured by the FDIC lost $55 million during the third quarter. Almost 65% of the institutions reported losses for the period.
Fueling the loss was the $3.5 billion special assessment to capitalize the thrift insurance fund. Without this one-time charge, net income would have been $2.2 billion.