Banks Face Quality Questions

Credit quality has become "much more of a hot button to investors," says Chris Marinac, managing director and research director at FIG Partners, a broker-dealer that specializes in the financial services sector. He expects banks to start boosting loan-reserve accounts rather than continue to draw them down.

"You should be seeing the banks changing their behavior on reserving and becoming much more conservative," says Marinac. If that doesn't happen, he says bankers will have a lot of explaining to do.

With just a couple of regional banks -- M&T Bank(MTB Quote) and Regions Financial(RF Quote) -- out of the gate with their earnings reports, it's hard to tell if credit problems have really begun to hamper earnings.

Regions says credit quality improved in the third quarter. Nonperforming assets fell by 29% from a year earlier to $312 million. Net charge-offs at the big southeastern lender fell by $7 million from the second quarter and by $13 million from the year earlier quarter to $24 million, the company says.

Credit quality showed small signs of disturbance at Buffalo, N.Y.-based M&T. The company says nonperforming loans in the third quarter rose 8% from a year ago and 15% from the second quarter, to $179 million, primarily from the addition of $26 million worth of loans related to a single automobile-dealer relationship. However, net charge-offs fell by $5 million, to $17 million.