REPORTS RECORD EARNINGS
FOR COMMERCIAL BANKS THIRD-BEST EVER
FOR SAVINGS INSTITUTIONS IN THE FIRST QUARTER
FOR IMMEDIATE RELEASE PR-35-99 (6-18-99)
Media Contact: David Barr (202) 898-6992
FDIC-insured commercial banks earned a record $18.0 billion
in the first quarter of 1999. The quarter was marked by an absence
of major merger-related restructuring expenses at large banks,
which had depressed industry earnings in recent periods. Large
bank earnings also were boosted by improvements in international
operations and a record quarter for trading income.
"The banking industry in the first quarter of this year continued
to be a money creating machine in more ways than one," said Donna
Tanoue, FDIC Chairman.
She added: "Even though it was a banner quarter for the industry,
large banks and small, it is no time for bank supervisors to be
complacent. We continue to monitor emerging risks that could affect
institutions, and will address problems as they arise."
First-quarter results for the 8,721 commercial banks and 1,669
savings institutions that are insured by the FDIC are contained
in the agency's latest Quarterly Banking Profile, which is based
on quarterly reports of condition and income filed by FDIC-insured
institutions. The latest Profile analyzes trends in bank and thrift
performance during the first quarter of 1999. Highlights follow.
The net income of $18.0 billion at insured commercial banks
was $2.1 billion (12.9 percent) higher than in the first quarter
of 1998. Bank profits also were $1.9 billion (11.6 percent) above
the previous quarterly record of $16.1 billion set in the second
quarter of 1998.
The average return on assets (ROA), a fundamental yardstick
of earnings performance, rose to 1.32 percent from 1.26 percent
a year ago. This matches the industry's record high set in the
third quarter of 1995. More than half of all commercial banks
(59 percent) reported an ROA of one percent or higher for the
first quarter. The average return on equity (ROE) in the first
quarter was 15.41 percent, compared to 15.02 percent in the first
quarter of 1998.
The improvement in earnings was led by some of the largest banks,
whose previous quarterly earnings had been limited by merger-related
restructuring expenses, weak overseas results, and below-average
trading revenues. Net income from international operations was
$582 million (33.1 percent) higher than a year ago, and income
from trading activities set a quarterly record of $3.6 billion,
a $939 million (35.4 percent) improvement compared to the first
quarter of 1998.
The average ROA at banks with more than $10 billion in assets
was 1.24 percent, up from 1.11 percent a year ago. Many smaller
banks had lower ROAs than a year ago because of declining net
interest margins (the difference between the average yield on
their interest-earning assets and the average cost of funding
those assets). Smaller banks are more dependent on this differential
than larger banks, which obtain more of their revenues from fees,
service charges and other noninterest income. A majority of banks
with less than $100 million in assets saw the dollar amount of
their earnings decline compared to a year ago. The average ROA
at banks with less than $100 million in assets declined to 1.10
percent from 1.19 percent a year ago.
Banks charged off $5.0 billion in bad loans during the quarter,
an increase of $341 million (7.3 percent) over the first quarter
of 1998. The annualized net charge-off rate on all loans and leases
was 0.62 percent, the same as a year ago. Charge-offs on commercial
and industrial loans were up sharply (up $429 million, or 73.6
percent), while charge-offs on credit-card loans were $171 million
(6.0 percent) lower. Noncurrent loans -- loans that are 90 days
or more past due or in nonaccrual status -- rose by $978 million
during the first quarter, to 0.99 percent of total loans. Over
the last 12 months, noncurrent loans increased by $2.7 billion
(9.2 percent). Commercial and industrial loans accounted for much
of this increase. Noncurrent commercial and industrial loans increased
by $1.3 billion in the first quarter, and are $2.2 billion (28.3
percent) higher than a year ago. No other loan categories experienced
comparable increases in charge-offs or noncurrent loans.
Total assets of commercial banks registered a seasonal decline
of $34.1 billion during the first quarter. Commercial and industrial
loans increased by $23.0 billion, the largest growth of any loan
category. Banks increased their holdings of U.S. Treasury securities
by $13.0 billion, while their holdings of mortgage-backed securities
declined by $14.4 billion. During the 12 months that ended March
31, commercial bank assets increased by 5.9 percent, loans and
leases grew by 7.5 percent, and banks' securities portfolios increased
by 9.9 percent.
The number of insured commercial banks reporting financial results
declined from 8,774 to 8,721 during the quarter. There were 64
new charters, while 114 banks were absorbed by mergers and one
bank failed. The number of commercial banks on the FDIC"s "Problem
List" declined from 69 to 64 during the quarter, and "problem"
bank assets fell from $5.4 billion to $4.7 billion.
Insured savings institutions reported $2.7 billion in net income
for the first quarter, the third-highest quarterly total in the
industry's history, and a 3.8 percent improvement compared to
the first quarter of 1998. The higher earnings were made possible
by record low expenses for credit losses and strong growth in
The average ROA for the first quarter was 0.98 percent, slightly
below the 1.01 percent average of a year ago, as industry assets
were 6.7 percent higher. The decline in profitability was caused
by lower net interest margins. The average net interest margin
was 10 basis points lower than a year ago. As was the case with
commercial banks, profitability of smaller thrifts lost ground
in comparison to the rest of the industry. The average ROA at
thrifts with less than $100 million in assets declined to 0.65
percent for the first quarter, compared to 0.79 percent a year
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 10,390 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
World Wide Web at www.fdic.gov,)
by fax (dial 1-804-642-0003 on your fax machine and follow the
voice prompts to request Document No. 261), or by mail or messenger
(from the FDIC's Public Information Center, 801 17th Street, NW,
Washington, DC 20434, telephone 800-276-6003 or (703) 562-2200).