Delinquencies and Charge-Offs Soar in Q2, Says FDIC

The Federal Deposit Insurance Corporation said Wednesday that profits were down in the second quarter at federally insured banks due to increasing delinquencies, primarily in the residential mortgage sector. 

In its most recent Quarterly Banking Profile, the FDIC reported that noncurrent loans, those 90 days or more past due, increased 10.6 percent from the first quarter to $66.9 billion. The increase was also up 36 percent over the total from the second quarter of 2006. It was the largest quarterly increase of delinquent loans since 1990 and the largest increase year-over-year since 1991. Residential mortgage loans accounted for nearly 49 percent of the increase. Delinquent home loans totaled $27.5 billion in the quarter.

Loans that were 30 days to 89 days past due totaled $74.4 billion in the quarter, a 35 percent increase from the second quarter of 2006.

Charge-offs among the 8,615 banks that contributed to the report also increased significantly, once again led by residential mortgage charge-offs. Banks reported total net charge-offs of $9.2 billion, up more than 51 percent from the same period a year ago. The residential mortgage charge-off total increased 144.3 percent when compared to the second quarter of 2006.

Total net credit card charge-offs increased 12.1 percent to $3.64 billion. Charge-offs of “consumer loans other than credit cards” – which does not include real estate or auto loans – increased nearly 61 percent.

The banks reported a total of $36.7 billion in net income, down 3.4 percent from the second quarter of 2006, but up 2.1 percent from the first quarter of this year. It was the fourth-highest quarterly net income total ever, despite the year-over-year decline, the FDIC reported. The agency acknowledged the recent success in profits at banks with a warning that times may get tougher.

“The tremendous golden age of banking for U.S. financial institutions has ended, at least temporarily,” said FDIC Chairman Sheila Bair at a news conference Wednesday.

The largest banks in the U.S. are taking action to curtail further problems among their smaller peers. On Wednesday, the four largest banks – Citigroup, Bank of America, JPMorgan Chase, and Wachovia – each borrowed $500 million using the Federal Reserve’s newly-lowered discount window. The move was seen as a show of support for the Fed and an encouragement to smaller banks that may need to tap federal money to continue operations until delinquencies level off. The use of the Fed’s discount window has traditionally been seen as a sign of weakness.