Real estate, mortgages squeeze bank earnings

A lower-earnings theme could be found in the third quarter at a handful of banks with significant operations in the Boise area.

Residential real estate sluggishness and problems in the mortgage market took a toll. Idaho leaders of big banks that have a major presence here but are based elsewhere have said conditions statewide and in the Boise area compare favorably to those found in many parts of the country.

Minneapolis-based U.S. Bancorp said third-quarter net income fell to $1.176 billion compared to $1.203 billion a year earlier. Revenue rose 3 percent to $3.536 billion.
President and CEO Richard K. Davis said in a statement that U.S. Bancorp’s net interest margin was equal to that of the previous quarter. Higher operating expenses and an expected increase in credit costs offset strong fee-based revenue growth in some segments compared to a year earlier. Credit-quality statistics and the overall balance sheet were favorable, but total non-performing assets increased due to stress in the residential and homebuilding industries.
Wells Fargo reported $2.28 billion in net income for the third quarter, up from $2.19 billion a year earlier. Revenue increased to $9.85 billion, from $8.93 billion.
San Francisco-based Wells increased its cross-selling of additional products and services to existing clients, President and CEO John Stumpf said in a statement. A strong balance sheet and good capital ratios, combined with conservative risk management, helped the bank perform in an environment wherein credit markets were severely disrupted, he said.
Wells officials said acquisition of Greater Bay Bancorp increased assets, and that a number of business segments grew. Deposits rose 13 percent. Mortgage loan origination and mortgage-backed securities activity declined. Compared to the second quarter, nearly half of the increase in net credit losses was concentrated in the home equity portfolio.
KeyCorp’s net income from continuing operations totaled $224 million, down 26.5 percent from a year earlier. Wire reports said total net income fell 33 percent including losses from discontinued operations related to former subprime mortgage subsidiary Champion Mortgage. Revenue dropped 9 percent to $1.15 billion.
Fixed-income market volatility dragged third quarter results, KeyCorp Chairman and CE0 Henry L. Meyer III said in a statement. While fixed-income markets remain under some pressure as heading into the fourth quarter, officials with Cleveland-based Key believe most of the financial impact on its held-for-sale portfolios has passed, and that improved results from these portfolios are likely over the rest of the year, he said.
Key’s nonperforming assets rose by $241 million from a year earlier. Meyer said the increase was due primarily to deteriorating market conditions in the residential real estate segment of the bank’s Real Estate Capital line of business, principally in Florida and California.
Business activity outside the fixed income markets remained solid during the quarter, he said. Key experienced good growth in loans and core deposits, and saw growth in its institutional asset management business and related fee income. Operating costs declined from a year earlier and from a quarter earlier.
Cascade Bancorp said total assets increased to $2.4 billion in the third quarter, from $2.24 billion a year earlier. Net income dropped to $10 million, from $10.5 million.
Bend, Ore.-based Cascade (dba Bank of the Cascades) said in a statement it posted 9 percent gains in loans, and in customer relationship deposits – excluding wholesale or brokered deposits as well as certificates of deposit greater than $100,000. An increase in non-performing assets mainly consisted of residential construction credits in the Boise-area market, which has experienced some slowing in residential home sales, the bank said.
Cascade President and CEO Patricia Moss said the bank does not have exposure to subprime mortgage issues because it did not originate the mortgages or purchase these assets for its loan or investment portfolios. The company has strong capital and reserves as it manages through the real estate downturn, and is optimistic that it is well positioned to capitalize on growth opportunities once the cycle has run its course, she said.
Idaho Bancorp’s 11 percent decrease in net income for the third quarter reflected slower-than-expected loan growth, net interest margin compression and significant softening of residential real estate sales in the Treasure Valley, the Boise bank (dba Idaho Banking Co.) said in a statement. Assets increased 4 percent from a year earlier. The bank had no non-performing assets as of Sept. 30.
President and CEO Mike Johnston said in a statement the intensely competitive banking market in the Treasure Valley has made it difficult for the bank to achieve desired growth in the loan and deposit portfolios while maintaining reasonable pricing and spreads. Idaho Bancorp anticipates the fourth quarter to be equally challenging, he said.
Idaho Independent Bank Chairman and CEO Jack Gustavel said third-quarter net income dropped to $2.7 million, from $2.9 million a year earlier. Assets at Sept. 30 increased 10.4 percent from a year earlier.
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