The FDIC announced today that insured commercial banks
posted record earnings for a second consecutive quarter. In the
second three months of 1997, the industry earned $14.6 billion,
an increase of $154 million over the previous quarterly earnings
record of $14.5 billion set in the first quarter of 1997.
Higher net interest income, supported by strong loan growth,
made the largest contribution to the improvement in industry
profits. Overall asset quality showed continued improvement
during the second quarter, but losses on credit card loans rose
to record high levels.
The FDIC also reported that insured savings institutions
earned $2.4 billion in the second quarter, matching first quarter
results but falling 8.2 percent from the $2.6 billion earned by
the industry in the second quarter of 1996. The decline reflects
higher income tax payments in 1997.
For the third consecutive quarter, no insured commercial
banks or savings institutions failed.
Second-quarter and first-half 1997 financial results for
9,308 FDIC-insured commercial banks and 1,852 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.
The record $14.6 billion in second-quarter profits was
achieved despite lower earnings from credit-card operations.
Commercial banks that specialize in credit-card lending reported
an earnings decline of $334 million from first-quarter levels.
Commercial banks' average return on assets (ROA) -- a basic
yardstick of industry performance -- was 1.24 percent in the
second quarter, compared to 1.25 percent in the previous three
months and 1.27 percent in the year-earlier period.
Net interest income totaled $43.4 billion in the second
quarter, up $1.3 billion from the first quarter. Noninterest
income of $25.3 billion was $674 million higher than in the first
quarter, but this increase was offset by a $694 million increase
in provisions for loan losses. Noninterest expenses in the second
quarter totaled $41.4 billion, an increase of $1.0 billion from
the first quarter.
Industry earnings were also adversely affected by higher
loan-loss provisions and significant one-time expenses at several
large banks that specialize in credit-card lending. Profits at
these institutions, which together account for two-thirds of all
credit-card loans held by commercial banks, were $334 million
lower than in the first quarter. About one-third of the earnings
decline at these banks was attributable to higher loan-loss
provisions, reflecting rising charge-off rates on credit-card
loans. The remainder of the decline was due to accounting
adjustments and other nonrecurring expenses.
Asset-quality indicators improved for most loan categories
in the second quarter. An exception was credit-card loans, where
net charge-offs rose to record levels. The annualized net charge-off rate on banks' credit-card loans rose to 5.22 percent in the
second quarter, up from 4.92 percent in the first quarter and
4.48 percent in the second quarter of 1996. This is the highest
quarterly charge-off rate on credit-card loans in the 14 years
that banks have reported this information. The previous record
high was 4.97 percent, in the second quarter of 1992. Losses on
credit-card loans accounted for two-thirds of all loan charge-offs taken by banks during the second quarter.
Commercial bank assets grew by $129.4 billion in the second
quarter, to $4.8 trillion at mid-year. Almost 72 percent of the
increase in assets in the second quarter consisted of growth in
loans and leases. Lending growth was led by commercial and
industrial loans, which increased by $23 billion; by one- to
four-family residential mortgage loans, which rose by $19.0
billion; and by credit-card loans, which increased by $9.4
In the first half of 1997, commercial banks posted profits
of $29.1 billion -- the most the industry has ever earned in a
six-month period. The industry's first-half earnings represent a
14.2 percent increase over the same period in 1996. Average ROA
for the first half of 1997 was 1.25 percent, compared to 1.18
percent a year earlier.
Insured savings institutions earned $2.4 billion in the
second quarter, for an annualized ROA of 0.95 percent. While
virtually identical to the previous quarter's results, the
performance failed to match that of the year-earlier period when
the industry earned $2.6 billion and posted an ROA of 1.03
percent. In 1996's second quarter, a number of large savings
institutions used deferred tax assets to limit their income
taxes. Taxes in the second quarter of 1997 were $295 million
higher than a year earlier, which accounts for the $214-million
drop in industry earnings.
A record $20 billion in assets was transferred from the
thrift industry to the commercial banking industry in the second
quarter of 1997 due to mergers and charter conversions. However,
total assets of insured savings institutions still increased by
The Insurance Funds
Rising investment income and a third consecutive quarter
without failures of insured institutions helped both the Bank
Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF) continue to grow in the second quarter.
Despite virtually no income from deposit insurance premiums,
the BIF increased by $347 million, to $27.4 billion. The SAIF
increased by $124 million, to $9.1 billion. The BIF now has $1.35
in reserves for every $100 of deposits it insures, while the SAIF
has reserves of $1.32 per $100.
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 11,191 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.