Helped by continued growth in net interest income,
commercial banks earned just over $12 billion in the first three
months of 1996, according to preliminary data from the FDIC.
The earnings report marks the third consecutive quarter that
industry profits have topped $12 billion and represents an 8.2
percent increase over the $11.1 billion banks earned in the year-
In addition, the agency reported that FDIC-insured savings
banks and savings and loan associations had record quarterly
earnings of $2.5 billion, surpassing the previous high of $2.4
billion set in the first quarter of 1993. The latest record was made
possible by one-time gains from branch sales and securities
First-quarter performance results for 9,841 FDIC-insured
commercial banks and 2,004 FDIC-insured savings institutions are
contained in the agency's latest Quarterly Banking Profile, which is
based on quarterly income and condition reports filed by insured
banks and savings institutions. The latest Profile analyzes trends
in banking performance during the first three months of this year.
Average return on assets (ROA) -- a basic yardstick of
profitability -- stood at 1.12 percent for the first three months of
the year, up slightly from the 1.10 percent recorded a year earlier.
It was the 13th consecutive quarter that banks earned more than $1
for each $100 in average assets.
Strong profitability was evident throughout the industry.
About seven out of 10 banks had a first-quarter ROA above one
percent and a similar proportion showed higher earnings than a
The main source of earnings strength was higher net
interest income, reflecting a significant addition of loans and other
interest-earning assets in the past 12 months. Higher noninterest
revenues, particularly fee income and earnings from trading
activities, also helped raise industry profits. Earnings in the first
quarter would have been higher if not for rising provisions for
future loan losses (up $917 million, or 34 percent) and increased
overhead expenses associated with recent mergers.
Total assets of commercial banks declined $4.3 billion in
the first quarter, due to seasonal factors. Loans increased by only
$29.3 billion, the smallest quarterly increase in two years. Growth
in loans to commercial borrowers remained fairly strong, but credit
card loans declined $13 billion due to seasonal pay-downs of card
balances and the securitization of credit card receivables at several
large credit card banks.
Although banks experienced an increase in noncurrent
loans (those 90 days or more past due or no longer accruing
interest income), levels still are running near historic lows. The
FDIC said that noncurrent loans grew by $659 million -- only the
second quarterly increase in the last five years. However, in the
last two quarters the percentage of loans that were noncurrent
(1.18 percent at the end of the first quarter, 1.17 percent at the end
of 1995) were the two lowest in the 14 years that banks have
reported noncurrent loan amounts.
The number of commercial banks declined by 100 during
the quarter, to 9,841. Although 29 new banks were chartered in the
first quarter, 131 institutions were absorbed in mergers and one
was lost through a failure. At the end of the quarter, 127 banks
with $13 billion in assets were on the FDIC's "problem list," down
from 144 institutions with $17 billion in assets three months
FDIC-insured savings institutions recorded net income of
$2.5 billion, up $817 million or 47 percent from a year ago.
Industry ROA for the first quarter was 1.01 percent, or $1.01 for
each $100 of assets, the first time savings institutions have earned
more than $1 on assets. If the one-time gains from branch sales and
securities transactions are excluded, ROA would have come in at
about 0.83 percent -- a small improvement from recent quarters.
Much of the improvement in profitability came at savings
institutions with more than $1 billion in assets. These thrifts
increased their net interest margins (the difference between the
rates they earn on their investments and the rates they pay for their
funds) and limited their overhead. Almost four out of every five
thrifts with assets above $1 billion reported higher earnings than a
year ago, while fewer than half of the smaller savings institutions
reported earnings gains.
There were 2,004 savings institutions at the end of the first
quarter, down 26 from the beginning of the year. The quarter
marked the third consecutive three-month period without a thrift
failure. The number of problem institutions fell to 42, a decrease
of seven from year-end 1995.
The Insurance Funds
Bank Insurance Fund (BIF) reserves moved up slightly, to
$1.31 for each $100 of insured deposits from $1.30 at the end of
1995. The Savings Association Insurance Fund's (SAIF) reserves
increased to 51 cents for each $100 of insured deposits, up from 47
cents three months earlier. However, the SAIF remains well below
the $1.25 level mandated by law. As a result, SAIF premiums
remain at 23 cents for each $100 of assessable deposits, compared
to about a third of a penny per $100 for BIF members. In fact, the
nation's largest thrift is expected to pay SAIF premiums in 1996
that nearly equal the total amount of premiums paid by all BIF
The BIF assessment base declined by $5 billion during the
quarter, to $2.474 trillion. Deposits held by SAIF members
declined by $7.5 billion in the first quarter, to $526 billion.
Congress created the Federal Deposit Insurance Corporation in
1933 to restore public confidence in the nation's banking system.
The FDIC insures deposits at the nation's 12,000 banks and
savings associations and it promotes the safety and soundness of
these institutions by identifying, monitoring and addressing risks
to which they are exposed.
The Quarterly Banking Profile is available on the Internet via the
World Wide Web at www.fdic.gov, through Gopher at
gopher.fdic.gov, or by fax (use the phone attached to your fax
machine, dial 1-800-642-0003 and follow the voice prompts to
request document No. 226). It can also be obtained through the
FDIC's Public Information Center, 801 17th St. NW, Room 100,
Washington, DC, ((703) 562-2200).