The FDIC announced today that commercial banks
earned record profits of $52.4 billion in 1996 -- the
first time industry earnings surpassed the $50 billion
mark. Strong growth in noninterest income, such as
fees and service charges, was a key element in the
higher commercial bank earnings in 1996. Wide net
interest margins also contributed significantly to
profits during the year. However, consumer loan
delinquencies increased during the second half of 1996,
and charge-offs rose dramatically.
The FDIC also reported that savings institutions
recorded $7 billion in net income for the year, a $611-million
decline from 1995. This earnings reduction was
due to the industry's $3.5-billion, one-time payment in
the third quarter to capitalize the Savings Association
Insurance Fund (SAIF). The assessment reduced thrifts'
after-tax earnings by $2.2 billion.
Only six FDIC-insured institutions -- five
commercial banks and one savings institution -- failed
in 1996. That is the lowest number of insured bank and
thrift failures since 1972, when two FDIC-insured
commercial banks and three savings institutions were
Fourth-quarter and full-year results for 9,528
FDIC-insured commercial banks and 1,924 FDIC-insured
savings institutions are contained in the agency's
Quarterly Banking Profile, which is based on quarterly
reports of income and condition filed by FDIC-insured
banks and savings institutions. Highlights follow.
Insured commercial banks reported fourth-quarter
earnings of $13.7 billion, the industry's third-highest
quarterly total ever. Three of the four best quarterly
earnings totals in the industry's history came during
For the full year, the industry's earnings of
$52.4 billion were $3.6 billion (7.5 percent) above the
previous record of $48.7 billion, set in 1995.
Commercial bank profits would have been higher in 1996
if not for their $1 billion third-quarter payment to
help capitalize the SAIF, which meant a $650 million
reduction in after-tax net income.
Commercial banks' average return on assets (ROA) -- a
basic yardstick of industry performance -- was 1.19
percent in 1996. That is just shy of the record 1.20
percent in 1993, and an increase over the 1.17 percent
in 1995. Noninterest income of $93.6 billion was $11.1
billion (13.5 percent) higher than in 1995. Net
interest income of $162.8 billion represented an $8.6-billion
(5.6 percent) increase over 1995.
Commercial bank profits also would have been
higher in 1996 if not for a $3.6-billion rise in
provisions for loan losses. Actual net loan losses in
1996 totaled $15.5 billion, an increase of $3.3 billion
(27.2 percent) over total net loan charge-offs in 1995.
The increase in loan losses was attributable to
rising charge-offs on banks' credit-card loans and
other loans to consumers. Nearly two-thirds of the net
charge-offs at commercial banks in 1996 were in credit-card
loans. For the full year, commercial banks
charged-off 2.29 percent of their loans to individuals,
compared to 1.73 percent in 1995. Credit cards alone
had a charge-off rate of 4.37 percent for 1996, up from
3.40 percent in 1995. Credit-card charge-offs amounted
to an annualized rate of 4.72 percent of total credit-card
loans in the fourth quarter of 1996.
The industry's growth rate slowed for the second
consecutive year. Total assets of commercial banks
increased by 6.2 percent, after growing 7.5 percent and
8.2 percent in 1995 and 1994, respectively. Loans
accounted for an increasing share of asset growth --
especially loans to commercial and industrial borrowers
and for home mortgages. As banks' loans increased,
their securities holdings declined by $10.2 billion.
There were 82 commercial banks with $5.1 billion
in assets on the FDIC's "problem list" at year-end
1996. That represents a net decline of 62 institutions
and $11.7 billion in assets during the year.
Insured savings institutions earned $2.2 billion
in the fourth quarter of 1996, a 21 percent ($375
million) increase from the fourth quarter of 1995.
Those earnings also represent a $2.3-billion
improvement over the third quarter of 1996, when the
one-time special assessment against SAIF-insured
deposits and extraordinary losses caused a $56-million
net loss for the industry. For the full year, thrift
earnings totaled $7 billion, down from $7.6 billion in
There were 35 savings institutions with just over
$7 billion on the "problem list" at year-end 1996.
That is a net decline of 14 institutions and $7 billion
The Insurance Funds
With the enactment of the Deposit Insurance Funds
Act of 1996 on September 30, the SAIF became fully capitalized
as of October 1. The $4.5 billion special assessment
authorized by that law brought the SAIF's reserves on
October 1 to $1.27 for each $100 of insured deposits
(slightly above the statutory target of $1.25 per
$100), compared to 55 cents per $100 at the end of
June. Based on unaudited information, the SAIF reserve
ratio increased to 1.30 percent on December 31.
The Bank Insurance Fund (BIF), which has been
fully capitalized since May of 1995, had unaudited
reserves of $1.34 for every $100 of insured deposits as
of December 31, 1996. That represents a slight
increase from $1.32 per $100 on September 30.
Prior to the capitalization of the SAIF fund in
September, institutions were paying higher deposit
insurance premiums for SAIF-assessable deposits than
for BIF-assessable deposits. However, on December 11,
1996, the FDIC Board of Directors voted to reduce SAIF
deposit insurance premiums to the same level as those
for BIF deposits, effective January 1, 1997. Rates
for both funds now range from 0 to 27 cents for each
$100 of assessable deposits.
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 11,452 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.
FDIC press releases and other information are available on the Internet via
the World Wide Web at www.fdic.gov or through Gopher at gopher.fdic.gov, and
may also be obtained through the FDIC's Public Information Center (800-276-
6003 or (703) 562-2200).