Bank Rhode Island last week posted a 39-percent year-over-year gain in its earnings for the third quarter, one of the few banks with local connections to report improved profits for the three-month period.
Providence-based Bancorp Rhode Island Inc., BankRI’s parent company, reported $2.3 million in net income for third quarter, a $635,000 increase over the same period in 2006. Diluted earnings per share were 46 cents, up from 33 cents a year before.
The latest earnings were boosted by $254,000 in pretax gains on the sale of securities, which were partially offset by $137,000 in pretax interest expense write-offs when the company redeemed $5 million of subordinated deferrable interest debentures, the company said.
The profit increase was also due, in part, to the fact that in the third quarter of 2006, the company restructured its investment portfolio, resulting in $858,000 in pretax losses in that period. That was partially offset by $228,000 in additional pretax income for that period because the Federal Home Loan Bank of Boston amended its dividend schedule.
BankRI did achieve growth in total deposits, increasing 3 percent to $1.02 billion in the third quarter of 2007 from $987.6 million in the same period last year. The commercial loan portfolio also kept growing, to $554.9 million, an increase of $46.4 million, or 9 percent, from the third quarter of 2006.
Those increases helped offset a narrowing of the bank’s net interest margin, which shrank to 2.91 percent in the third quarter from 3.08 percent a year ago.
Two key performance ratios, return on assets and return on equity, showed improvement in the third quarter, according to BankRI’s financial statements.
The return on assets – the amount of money a bank earned for each $100 in assets – increased from 0.45 percent in September 2006 to 0.61 percent this past quarter. And the return on equity improved from 6.1 percent in the third quarter of 2006 to 7.79 percent for the third quarter this year.
In a conference call following the earnings release last Thursday, President and CEO Merrill W. Sherman also announced that the bank has abandoned plans to add a branch in Narragansett, saying “it was a different world” when it was proposed a few years ago.
Sherman credited BankRI’s efforts to grow its commercial loans and to maintain its core deposit portfolio for the bank’s earnings increase, the third quarter in a row that the company has recorded a gain.
Indeed, several banks with local connections have reported poor third-quarter results in recent weeks, as financial institutions struggle with a weakening lending situation.
The most obvious sign of the market’s deterioration were increases by most banks in their provisions for loan losses, which subsequently cut deeply into profits for the period.
However, Sherman said she was “comfortable with the credit quality” of the bank’s loan portfolio. The bank had a loan-loss set-aside of $240,000 for the third quarter, a decrease from the $400,000 provision made in the third quarter of 2006.
BankRI’s situation was in sharp contrast to other banks with local connections that reported third-quarter earnings in recent weeks.
Philadelphia-based Sovereign Bancorp Inc. saw its third-quarter earnings drop 68.4 percent to $58.2 million, as it set aside $162 million for credit losses, up $51 million from the second quarter.
And Webster Financial Corp., of Waterbury, Conn., missed Wall Street earnings estimates by a wide margin as it increased its loan-loss provision by $11 million in the third quarter, up from just $4.25 million in the previous quarter.
While Webster reported a net income of $35 million, or 64 cents a share, analysts on average were expecting earnings of 78 cents a share.
Even financial giant Bank of America wasn’t immune. The bank reported a 32-percent drop in profits, from $5.42 billion in the third quarter of 2006 to $3.7 billion in the past quarter.
Days later, last Wednesday, the bank said it plans to eliminate 3,000 jobs, and that the head of its corporate and investment banking unit, Gene Taylor, would be stepping down.
Meanwhile, Somerset-based Slade’s Ferry Bancorp said that its third-quarter profit had shrunk 20.2 percent to $832,000. That was, in part, because of a $170,000 loan-loss set-aside. The bank, which is being purchased by Independent Bank Corp. of Rockland, Mass., made no such provision in the year-ago period.
The growth of loan-loss provisions continues a trend from the second quarter, in which banks nationwide increased their set-asides to $11.4 billion, $.4.9 billion more than industry provision in the second quarter of 2006, according to the Federal Deposit Insurance Corporation’s Quarterly Banking Profile.
Still, the FDIC said the $36.7 billion in net income in the second quarter was the fourth-best quarterly earnings ever reported.
Bank of America Corp. reported a 31.72-percent decline in third-quarter profit to $3.70 billion from the same year-ago period. Earnings per diluted share fell to 82 cents for the quarter just ended from $1.18 per diluted share a year ago.
The company cited a $1.33 billion decline in earnings in its Global Corporate and Investment Banking segment, due to the recent turmoil in the global financial markets. On the other hand, the Global Wealth and Investment Management segment showed an increase of 16.76 percent in net income to $599 million, as well as a jump in assets under management of 37.31 percent to $709.9 billion.
Interest income for the quarter edged up to $8.99 billion from $8.89 billion in the year-ago quarter, although the net interest yield narrowed by 12 basis points to 2.61 percent.
Total assets rose to $1.58 trillion on Sept. 30 from $1.46 trillion a year earlier. Loans and leases totaled $793.54 billion up from the year-ago $669.15 billion.
Bank of America said it increased its provision for credit losses by $865 million to $2.03 billion, to guard against post-bankruptcy reform losses from consumer and small business loans, as well as “growth and seasoning in various portfolios and stress in several portfolios driven by the weakened U.S. housing market.”
Sovereign Bancorp Inc., the parent company of Sovereign Bank, posted a third-quarter profit of $58.2 million or 11 cents per diluted share, a 68.4-percent decline from the year-ago profit of $184 million or 11 cents per share.
Total revenue (interest and dividend income plus non-interest income) amounted to $1.29 billion, a decrease of 10.3 percent compared with the 2006 third quarter, Sovereign said.
Total assets at the end of the quarter were $86.6 billion, up from the $82.7 billion at the end of the second quarter but down from the $90.4 billion on Sept. 30, 2006.
Total deposits were $50.1 billion at quarter’s end, edging up from the $49.8 billion at the end of the previous quarter but declining from the $52.8 billion at the end of the year-ago quarter.
Net interest income, excluding the provision for credit losses, increased to $456.76 million from $453.38 million in the second quarter, although it lagged the $491.787 million of the year-ago period.
The company raised its provision for credit losses to $162.5 million, from $51.0 million in the second quarter and $45.0 million in the third quarter of 2006, mainly to cover losses on home-equity loans and protect against an anticipated increase in losses from its indirect auto-lending portfolio.
The net interest margin edged up to 2.74 percent in the third quarter from 2.71 percent in the second quarter and 2.64 percent in the third quarter of 2006.
And the return on average assets declined to 0.28 percent from the previous quarter’s 0.72 percent and the third quarter of 2006’s 0.81 percent.
Webster Financial Corp., parent of Webster Bank, posted a third-quarter profit of $35.0 million, nearly four times the net income the company reported a year ago. Earnings per diluted share totaled 64 cents, compared with 17 cents in the third quarter of 2006.
Third-quarter revenue for the financial services company totaled $311.8 million, an increase of 16.72 percent from the same period in 2006.
Results for the quarter were affected by extraordinary charges in both years. Non-interest income in the 2006 third quarter absorbed a $48.88 million write-down on securities, while the 2007 period saw an increase in provision for credit losses of $12.25 million, for a total of $15.25 million.
Interest income fell 3.35 percent compared with a year ago to $251.63 million. “Interest-earning assets have been lower in 2007 compared to a year ago, as a result of Webster’s balance sheet repositioning actions, with the third quarter of 2007 being 7 percent lower than the third quarter of 2006,” the company said. The net interest margin improved, however, to 3.38 percent from 3.01 percent in the third quarter of 2006.
Total assets shrank to $16.85 billion on Sept. 30 from $18.14 billion a year ago, primarily because of balance-sheet repositioning in the fourth quarter of 2006 and first quarter of 2007, the company said. Total loans decreased 5 percent to $12.42 billion, led by a $1.2 billion decline in residential mortgages.
Slade’s Ferry Bancorp, the parent of Slades Bank, posted $832,000 in net income for the third quarter, a 20.2-percent decrease from the 2006 period. On a per-diluted-share basis, earnings were 21 cents per share in period ended Sept. 30, compared with 25 cents per share in the third quarter of 2006.
Third-quarter total interest and dividend income increased 3.5 percent to $9.0 million, lifted by growth in commercial lending, the bank said. Net interest and dividend income declined 4.7 percent to $4.4 million, however, as the company’s interest expense increased 12.9 percent from the year-ago period to $4.5 million.
The company set aside $170,000 against possible loan losses, citing “growth and change in the composition of the loan portfolio, as well as a slight deterioration of credit quality.” It had made no such provision in the year-ago period.
Third-quarter non-interest income increased 49.9 percent to $1.1 million, as the gain on sales from securities surged to $377,000 from $19,000 in the year-ago period. The company cited the use of cash from its investment sales and maturities to support loan growth.
Compared with Dec. 31, total assets edged up 0.23 percent to $609.2 million on Sept. 30, as net loans increased 5.4 percent to $445.1 million, deposits shrank 5.7 percent to $399.8 million and the bank’s FHLB advances increased 21.2 percent to $144.3 million. •
