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2003 FDIC Q. Banking Profile 1 (2003)

handle is hein.journals/fdicqubkp2003 and id is 1 raw text is: Quarterly Banking Profile Industry Earnings Of $29.4 Billion Set New Record Domestic Asset- Quality Indicators Improve For Second Quarter In A Row Net Interest Margins Continue To Narrow Asset Growth Remains Strong, Propelled By Mortgage Activity Net Income, ROA Reach New Highs An improving trend in troubled loans and low interest rates contributed to a favorable environment for bank and thrift earnings in the first quarter of 2003. Lower expenses for credit losses and sizable gains on sales of securities helped lift earnings of FDIC-insured institu- tions to record levels. Insured commercial banks and savings institutions earned $29.4 billion in the quarter, an increase of $4.0 billion (15.9 percent) over the first quarter of 2002. This is the largest quarterly earnings total ever reported by the industry, easily surpassing the previous record of $27.3 billion set in the third quarter of 2002. The industry's return on assets (ROA) also reached a record level, rising to 1.38 percent from 1.29 percent a year ago. The previous record ROA for a quarter was 1.37 percent, set in the second quarter of 2002. Almost two out of every three institutions (61.0 percent) reported higher earnings than a year ago, while slightly more than half (50.3 percent) reported improved ROAs. Only 538 institutions reported a net loss for the quarter, down from 669 in the first quarter of 2002. This is the lowest number of unprofitable institutions since 496 reported net losses in the first quarter of 1998. Lower Credit Costs, Higher Nonrecurring Gains Boost Profits Lower interest rates boosted the market values of fixed- rate securities, and insured institutions realized $3.7 bil- lion in gains on securities sales in the first quarter, compared to $1.3 billion in gains a year earlier. These and other nonrecurring gains accounted for 41.4 percent of the $4.0-billion increase in industry profits. A decline in provisions for loan losses also helped the industry's Chart 1 First Quarter Net Income Surpasses Previous Record $ Billions 40 Securities and Other Gains/ Losses, Net Net Operating Income 1 1 30 2294 22 224 21 2272 1 20 10 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 1999 2000 2001 2002 2003 bottom line. Loss provisions for domestic operations were $2.2 billion (19.9 percent) lower than a year ago, the second consecutive quarter that credit expenses have declined. In contrast, provisions for credit losses in international operations were up by $261 million (26.2 percent). Noninterest income growth slowed for the third consecutive quarter, but these revenues were still up by $3.5 billion (8.0 percent) compared to the first quarter of 2002. The increase was led by higher gains from loan sales and gains on derivatives contracts, but was limited by lower servicing income, which was below the year-earlier level for a fourth consecutive quarter. The large volume of mortgage refinancing activity con- tinues to produce accelerated pre-payments of older, higher-rate mortgages, which reduces the value of lenders' mortgage servicing assets. Market-sensitive rev- enues were generally weak. Trust income was $249 mil- lion (4.8 percent) lower than a year ago, investment A Publication of the Division of Insurance and Research Media inquiries: 202-898-6993 FDIE

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