Each depositor insured to at least $250,000 per insured bank

Research Staff Study^*

1st Quarter 2002

DSource: SNL Data Source

DSource: SNL Data Source

Introduction

The FDIC has assembled information from public data releases compiled by SNL DataSource for the 10 largest thrift companies to obtain an early look at the performance of these firms. Highlights are summarized in the narrative below. In addition, attached tables contain financial data for each of the 10 largest thrifts. Summary indicators for the group are presented on page 9.

This report covers organizations consisting primarily of thrift charters, for which timely information is available. The thrift subsidiaries of these 10 companies hold approximately 42 percent of the savings institution industry's total assets. Excluded from this report are: thrifts owned by bank holding companies that are primarily commercial bank operations, thrifts owned by financial service companies, and thrifts owned by manufacturers. Thrifts include savings banks and savings and loan associations. These institutions have traditionally specialized in home mortgage lending.

Earnings improved over fourth quarter and a year ago.

Earnings of the 10 largest thrift companies increased by $830 million in the first quarter, to $1.8 billion from $982 million in the fourth quarter. The weighted average return on assets (ROA) for these companies was 1.32 percent, up from 0.78 percent last quarter and 1.05 percent a year ago. There were 8 companies that reported improved profitability from the fourth quarter, and 2 that showed declines. The core ROA¹ - which excludes securities gains and extraordinary items - swung more dramatically, rising 57 basis points to 1.39 percent. There were 9 companies that reported improved core profitability. Gains on the sales of securities swung from $498 million in the fourth quarter of 2001 to losses of $212 million in the first quarter of this year.

Earnings rebounded sharply from the previous quarter. Write-downs of mortgage-servicing rights at several companies and charges for the elimination of a business line at one institution depressed fourth-quarter earnings. All but one company reported increases in earnings during the first quarter. Earnings were also 47 percent higher than a year ago, when these thrifts earned $1.2 billion. All 10 companies reported higher earnings than a year ago and operations acquired over the past year contributed to this increase.

Net interest margins rise modestly.

Favorable interest rates led to a 6 basis point improvement in net interest margins and helped produce the $412-million increase in net interest income. A slight majority, 6 thrifts, showed higher margins in the first quarter compared to the fourth quarter of 2001. The group's weighted-average net interest margin improved from 3.40 percent to 3.46 percent during the first quarter. Of the 4 companies that reported declines in net interest margins, none had a drop of more than 8 basis points. Net interest income improved 10 percent over fourth-quarter results. Growth in average earning assets, which increased 9 percent or $40 billion, contributed significantly to this improvement.

Noninterest income returned to normal levels after heavy charges taken in the fourth quarter.

Half of the companies reported improvement in noninterest income this quarter. Noninterest income increased by $1.1 billion from the previous quarter, in which a few institutions took large charges for revaluing mortgage-servicing rights. As interest rates fell, the accelerating pace of home mortgage refinancing reduced the value of mortgage-servicing rights. These assets lost value quickly because the balance of mortgages serviced declined faster than expected. While hedging activities helped some institutions buffer losses on mortgage-servicing rights, hedging gains were not always reported in noninterest income, thus increasing the volatility in this item.

Noninterest expenses increased just 5 percent.

Operating expenses rose modestly, by $128 million (5 percent), to $2.6 billion for the first quarter, even though most thrifts eliminated charges for goodwill amortization based on the adoption of the Statement of Financial Accounting Standard (SFAS) 142 for the current fiscal year. This accounting rule no longer requires goodwill to be amortized each quarter. Instead, it obligates companies to test for impairment of goodwill and other intangibles once each fiscal year. The year 2002, the first year affected by this accounting change, has been designated a transitional year wherein the amount of initial impairments are to be recorded as extraordinary losses on a "net of tax" basis (and not as noninterest expense)². Noninterest expenses rose at only 3 companies. They reported a rise of $204 million, while the overall total rose by $128 million, to $2.6 billion. There were 7 companies that reported a decline in noninterest expenses, primarily because of the adoption of SFAS 142. The efficiency ratio, which measures the proportion of revenues taken by operating expenses, improved by 10 percentage points, from 53.50 percent to 43.50 percent. The improvement in net interest income and noninterest income, and the absence of large restructuring charges, all contributed to the better efficiency ratio.

Asset quality declined slightly.

Nonperforming assets increased $399 million (10 percent) in the first quarter to 0.80 percent of assets, up from 0.78 percent last quarter. Half of the largest thrifts reported increases in nonperforming assets. The same proportion also reported higher net charge-offs. Net charge-offs rose $12 million (7 percent) in the first quarter to $185 million, or 0.24 percent of average loans, up from 0.23 percent. A year ago the net charge-off rate was 0.15 percent for these companies. Loan-loss provisions of $269 million exceeded net charge-offs, contributing to a $236-million (8-percent) increase in reserves. However, the increase in nonperforming assets outpaced the increase in reserves by $163 million, which may lead to higher provisions in the future if the economy does not continue to improve.

Assets for the group increased by $33.5 billion (7 percent) to $543.8 billion, primarily because Washington Mutual Inc. completed its acquisition of Dime Bancorp, Inc., with $28 billion in assets. There were 6 companies that reported asset growth. Deposits grew at 8 companies, and total deposits for the group increased by $25.2 billion (10 percent) to $283.4 billion. Equity capital rose $4.6 billion (14 percent) in the first quarter.

A large charter conversion is expected in 2002.

Standard Federal Bank, with $23.5 billion in assets, merged into an affiliate commercial bank, Michigan National Bank, during the fourth quarter to form Standard Federal Bank National Association. Charter One Financial still intends to convert to a commercial bank charter in the second quarter of 2002. Early in the fourth quarter, Charter One Financial purchased the branches of Superior Federal Bank, a conservatorship created by the FDIC from Superior Bank FSB, which failed in the third quarter of 2001.

Stock prices rose for all of the 10 largest thrifts.

The market capitalization of all 10 companies rose during the first quarter, by $8.3 billion (13 percent), to $69.9 billion. With the overall economy showing signs of improvement, and with interest rates at low levels, the near-term prospects for these thrifts appear favorable.

Notes to Readers

Purpose:
The Division of Research and Statistics prepared this report. In addition to providing details on the performance of individual companies, the aggregate results provide an early indication of the savings institution industry's overall performance in the most recent quarter.

Sources:
The report is based on publicly available information obtained via SNL Securities' DataSource³ , as well as press releases and media accounts. Geri Bonebrake provided design expertise and Chau Nguyen assisted with technical details.

Coverage:
The report covers the 10 largest thrift companies for which timely quarterly results are available. FDIC-insured savings institutions operated by these companies comprise 42 percent of the savings institution industry's total assets. Large savings institutions owned by bank holding companies that are primarily commercial bank operations are not covered here -- see the Twenty-Five Largest Banking Companies' report. Large savings institutions owned by companies with large commercial operations as their primary focus were also excluded from this report. Large thrifts owned by financial services companies where brokerage or insurance activities predominate were also excluded. Any large privately held thrift was excluded because earnings reports were not available.

Preliminary Data:
The earnings announcements on which this report is based are preliminary, and companies have some flexibility as to content and format not available to them in later, more detailed regulatory filings with the SEC and the banking agencies.

Prior Period Comparisons:
Caution should be exercised when comparing results between different time periods because acquisitions or accounting changes may distort comparability. Efforts have been made to adjust prior periods appropriately, when possible.

Agency Disclaimer:
Use of the information in this report is subject to the following disclaimers.

The views expressed herein are those of the authors and may not reflect the official positions of the FDIC. The FDIC does not endorse any of the financial institutions discussed in this report for any purpose.

The FDIC has taken reasonable measures to ensure that the information and data presented in this report is accurate and current. However, the FDIC makes no express or implied warranty regarding such information or data, and hereby expressly disclaims all legal liability and responsibility to persons or entities who use this report, based on their reliance on any information or data that is available in this report.

The content of this report is not designed or intended to provide authoritative financial, accounting, investment, legal, regulatory or other professional advice which may be reasonably relied on by its readers. If expert assistance in these areas is required, the service of qualified professionals should be sought.

Reference to any specific commercial product, process, or service by trade name, trademark, manufacture, or otherwise does not constitute an endorsement, a recommendation, or a favoring by the FDIC or the United States government.

This general disclaimer is in addition to, and not in lieu of, any other disclaimers found in this report. In addition, the terms of this disclaimer extend to the FDIC, its directors, officers and employees.

Contact:
Tim Critchfield
Phone: (202) 898-8557
Fax: (202) 898-7222
TCritchfield@fdic.gov

Glossary

Financial information appearing in this report was acquired from SNL Securities, Inc ., Charlottesville, Virginia. The following definitions are listed in the order in which they appear in this report.

Nonperforming assets
The sum of nonaccrual, renegotiated and loans and leases acquired through foreclosure. (Delinquent loans and leases still accruing are excluded.)

Net charge-offs
Total loans and leases removed from the balance sheet due to their uncollectability minus amounts recovered on loans and leases previously charged-off.

Return on assets
Annualized net income (including gains or losses on securities and extraordinary items) expressed as a percentage of average total assets.

Core ROA
Annualized income before income taxes and extraordinary items minus the after-tax portion (the assumed tax rate is 35 percent) of gains on sale of investment securities and nonrecurring income items as a percentage of average total assets.

Return on equity
Annualized net income (including gains or losses on securities and extraordinary items) as a percentage of average total equity capital.

Net interest margin
The annualized difference between taxable-equivalent interest and dividends earned on interest-bearing assets and interest paid to depositors and other creditors, expressed as a percentage of average interest-bearing assets.

Efficiency ratio
Noninterest expense minus foreclosed property expense minus amortization of intangibles, expressed as a percentage of the sum of net interest income plus noninterest income. This ratio measures the proportion of net operating revenues absorbed by overhead expenses -- the lower the ratio the greater the operating efficiency of the institution.

Loan growth rate
The annualized change in total loans and leases (net of unearned income and gross of reserves) from the previous quarter, expressed as a percentage of total loans and leases at the end of the previous quarter.

NPAs / assets
Nonperforming assets expressed as a percentage of total assets for the current quarter.

NCOs / average loans
Annualized net charge-offs expressed as a percentage of average total loans and leases.

Tier 1 capital^**
Common equity capital, plus noncumulative perpetual preferred stock, plus minority interests in consolidated subsidiaries, minus goodwill and other ineligible intangible assets. (The amount of eligible intangible assets included in Tier 1 capital is limited in accordance with supervisory capital regulations.)

Tier 1 leverage ratio
Tier 1 capital expressed as a percentage of average tangible assets (total assets minus intangible assets).

Risk-based assets^**
This figure is derived from the amounts of both on-balance and off-balance assets that institutions report in the various risk-weight buckets (0%, 20%, 50%, 100% or 200%) of call report Schedule RC-R. The consolidated amount is the product of the sums in the various categories multiplied by their respective risk weights.

Tier 1 RBC ratio
Tier 1 capital expressed as a percentage of risk-based assets.

Tier 2 capital^**
The sum of allowable subordinated debt and limited life instruments (discounted by their years to maturity), plus cumulative preferred stock, plus mandatory convertible debt, plus loan reserves (limited to 1.25% of gross risk-weighted assets). (Tier 2 capital cannot exceed Tier 1 capital.)

Tier 3 capital^**
The amount of regulatory capital required to offset market risk of the company.

Total RBC ratio
The sum of Tier 1, Tier 2 and Tier 3 capital expressed as a percentage of risk-based assets.

Market cap. ($ millions)
The market value of the company's stock, derived by multiplying the stock price by the number of shares outstanding at the end of the period.

Footnotes

^* This document is based on publicly available information provided by the companies it covers. It is intended for informational purposes only. It does not represent official policy or supervisory guidance from the FDIC.

^** Denotes items which do not appear in the Top Ten Thrift Companies, but are parts of some of the report's ratios.

¹ SNL Securities opines that this item, which excludes nonrecurring revenue and expense, is an approximate measure of sustainable return on average assets. A detailed definition can be found in the Glossary .

² Subsequent annual review of intangible impairment may require additional noninterest expense recognition. Periodic amortization of intangibles other than goodwill will continue to be made on a quarterly basis.

³ Data excerpted from SNL DataSource is subject to copyright and trade secret protection and may not be reproduced or redistributed without license from SNL Securities LC.

Index to Tables

Ranking by total assets

FDIC-Insured thrifts excluded

Table of Data