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Ten Largest Thrift Companies
Research Staff Study*
1st Quarter 2002
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
Prior Period Comparisons:
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.
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.
Return on assets
Return on equity
Net interest margin
Loan growth rate
NPAs / assets
NCOs / average loans
Tier 1 capital**
Tier 1 leverage ratio
Tier 1 RBC ratio
Tier 2 capital**
Tier 3 capital**
Total RBC ratio
Market cap. ($ millions)
* 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
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