FBR Releases Mixed Third-Quarter Bank Earnings

""FBR Capital Markets & Co."":www.fbr.com/ has released its third-quarter report on bank earnings, and the results, which showed loan growth among some asset divisions, also indicated that the underlying fundamentals may not be in sync with the full impact such mitigating factors had on valuations during the quarter. Showing sensitivity to debt issues abroad and the current yield curve, findings for 3Q were mixed but pointed in a potentially positive direction for the final quarter of the year.

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For large financial institutions, lending was up and net interest margins were down as anticipated. However, net interest income was slightly on the uptick, due to asset performance and deposit repricing that served to offset asset yield declines.

In total, 24 banks reported results within FBR's survey, and broad-spectrum numbers for 3Q showed a 1.2 percent boost in total loans, representing a reversal of downward trends seen previously in the year. The 4 percent rise in commercial and industrial loans provided much of the lift within the sector, and the improvement was especially strong for regional lenders.

Across the board, FBR found that total loan balances had their strongest recent quarter, competition for loans increased, net interest margins contracted by an average of 6 basis points, credit trends displayed slow improvement, and mortgage banking was slightly weaker than expected due many of the positive moves coming into play toward the end of 3Q. FBR also noted some concern regarding loan competition related to rates,

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stating that it ""makes us uneasy as this is not a good environment to grow loans, and price competition only makes things worse.""

Targeted data for net interest margins demonstrated that 20 of the 24 financial institutions recorded drops. The four outliers included ""F.N.B. Corporation"":www.fnbcorporation.com/, ""First Horizon"":www.firsthorizon.com/, ""Fifth Third Bank"":www.53.com/, and ""Comerica Incorporated"":www.comerica.com/, each of which showed upward motion. FBR pointed out that ""earning asset growth is mitigating the impact of margin compression and is allowing net interest incomes to increase.""

Loan growth was noted for 18 of 24 companies responding to the survey, with ""Astoria Financial"":www.astoriafederal.com/, ""Bank of America Corp."":https://www.bankofamerica.com/, Comerica, ""Huntington Bancshares"":https://www.huntington.com/, ""TCF Financial"":www.tcfbank.com/, and ""Washington Federal"":washingtonfederal.com/ accounting for the six banks recording losses. Of the numbers, FBR wrote, ""Commercial and industrial is still the main driver of loan growth, yet we are beginning to see green shoots in the residential and indirect auto portfolios. Demand remains weak, which means that banks have to gain market share in order to grow loan portfolios.""

FBR predicts a good fourth-quarter for 2011, based on statistics indicating a 35 percent growth in mortgage banking activity during 3Q. Crediting lowered interest rates and the resulting refinancing activity with facilitating the current quarterly results.

Commenting on possible areas of interest during the final quarter of 2011, FBR said in a company statement, ""We believe that relatively soft mortgage banking income was due to the activity occurring primarily near the end of the quarter. As a result, a considerable amount of the revenue recognition should spill into 4Q11 and low rates will likely keep activity elevated. This should bode well for banks with larger mortgage banking operations.""

FBR, a registered broker-dealer with the Securities and Exchange Commission, releases its findings quarterly. Research analysts including Paul. J. Miller, Jr., CFA; Bob Ramsey, CFA; and Scott Valentin are primarily responsible for examining the data contained in FBR's reports.