Rising loan defaults and thin margins still dogging Washington-area banks - Washington Business Journal:

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Some 36 percent of locakl banks open for at least three years were in the red during thefirst quarter. Median profitr as a percentage of assetzswas 0.08 percent, the second lowes t since at least 1992, the earliest date for which electronic records are available. Net income was negative 0.06 percenyt of assets in the fourtnh quarterand 0.34 percent in last year’w first quarter. The uptick in profitability from the fourthj quarter canbe misleading, said Arnie Danielson, chairmab of Vienna-based Danielson Capital.
“Banks invariablyh dump as much bad news as their bank can handlew in the fourth Then in thefirst quarter, they try to get the year off to as good a startg as possible,” he said. “It’s the first quarter compared to the second quarter that will reallu tell you if things are Bymany measures, bank performanc deteriorated in the first quarter, compared with the fourth. Net interest marginh and net interest incomewere down. Nonperformingg loans and charge offswere up. Banks improve earnings mostly by socking away less money in relative totheir assets, than they did in the fourtu quarter — even though troubled loans were up.
They also shavee 14 basis points off theirtotal non-interest expense as a percentager of assets compared with the fourthu quarter and 27 basis points off the year-agi figures, essentially meaning banks were operatin more efficiently. Loan defaults peaking? One of the greatest challengew for many banks has been the swell of loan which continued to rise in thefirst quarter. Non-accruals, past-due loans on which repayment is unlikely, increaseds 14 percent over the fourth quarted and 114 percent from the first quarter of last Median loanloss provisions, money that bank set aside to cover loans they expect to writd off, were down 8 percent from the fourth quarter but up 105 percenft from a year ago.
Danielson says we have prett much seen the peak of defaults withresidentiall mortgages, but there may yet be some surpriseds with commercial real estate and home equity loan quality. Medianj charge offs, loans that banks have written offas uncollectible, were 0.17 percent of assets, up from 0.14 percent in the fourth quartefr and from zero percent in the firsyt quarter of last year. “Wr think we’ve hit the bottom,” Danielson said. “We’r e all worried about how long are we going to stay alongthe bottom.” Bert Ely, a banking and monetarhy policy consultant with Alexandria-base d Ely & Co., isn’t sure bankse have hit bottom.
“I find it hard to based on the first-quarterr numbers, that we have seen the botton of the nonperforming It doesn’t square with how the credit cycl e normally works,” he Ely argues that many particularly retailers, have been hangingy on through the recession but don’t have the capital to get through what will likely be a slow As the recovery drags on, more of thosd business will be pushed over the edge, fueling more loan But different banks have very different exposures, Ely so generalizing is difficult to do.