![handle is hein.journals/fdicqubkp2005 and id is 1 raw text is:
Quarterly Banking Profile
Lower Expenses Lift Industry Profits To New Record
Narrower Net Interest Margins Contribute To Decline In Net Interest Income
Asset Quality Indicators Continue To Move In A Positive Direction
Growth In Mortgage Assets Remains Strong
Capital Levels Stay Near Historic Highs
Expense Reductions Outweigh Weakness in Revenues
A combination of reduced expenses for bad loans and the
absence of significant merger-related expenses helped the
net income of insured commercial banks and savings insti-
tutions climb to a record $34.3 billion in the first quarter.
Compared to the fourth quarter of 2004, when the industry
earned $31.6 billion, noninterest expenses and provisions
for loan tosses were $5.1 billion (5.8 percent) tower. The
decline in costs more than made up for the lack of signifi-
cant revenue growth in the quarter. Noninterest income
was only $36 million (0.1 percent) higher than in the
fourth quarter, while net interest income declined by $435
million (0.6 percent). Gains on sates of securities and other
assets, which accounted for 4.2 percent of the industry's
pretax earnings last year, contributed only $802 million, or
1.6 percent of pretax earnings, in the first quarter. The
average return on assets (ROA) in the first quarter was
1.35 percent, slightly below the 1.38 percent average in the
first quarter of 2004. Almost two out of every three banks
and thrifts (60.9 percent) reported higher net income than
in the first quarter of 2004. More than half (53.0 percent)
reported ROAs of 1 percent or higher, and a similar pro-
Chart 1
Higher Net Operating Income Lifts Profits
to New Record
30]
2001 2002
2003 2004 2005
portion (52.5 percent) reported improved ROAs compared
to a year earlier.
Expenses for Bad Loans Continue to Dedine
Noninterest expenses totaled $77.6 billion in the first quar-
ter, a decline of $3.5 billion (4.3 percent) from the fourth
quarter. Some of this decline represented seasonal factors;
noninterest expenses tend to reach a peak in the Last quar-
ter of each year, and declines in the first quarter are com-
mon. But this was the largest such decline in six years,
with one banking company accounting for more than a
quarter (29.1 percent) of the drop. Loan-loss provisions
also tend to reach a seasonal peak in the fourth quarter of
each year, then fall in the next quarter, but the decline in
provisions in the first quarter represented the continuation
of an improving trend that has been underway for two and
a half years. Banks and thrifts set aside $6.2 billion in pro-
visions for loan tosses during the first quarter, the lowest
quarterly total since the third quarter of 1999. The indus-
try's provisions were $1.6 billion (20.9 percent) less than in
the fourth quarter of 2004, and were $1.4 billion (18.3 per-
cent) below the level of the first quarter of 2004.
Chart 2
Industry's Margin Dips to 15-Year Low
; Million
Assets <$100 Million
4.33
4.17 .14
3.67A M i
Assets >$100 Million 3.53
3.0
1 2 3 4 1
2001
2 3 4 1 2 3 4 1 2 3 4 1
2002 2003 2004 2005
4.5 1
F~ivii~ DEPoSIT INSURANCE CC) RFO RATION Am FDIC-INsuP~ IN~FflUTIONS
FEDEP,4L DEPoSfTINSURANCE CORPOR4770N
ALL FDIC - IzvsuRED LvsT=o Ns](ViewImageLocal?handle=hein.journals/fdicqubkp2005&div=1&collection=&method=preview&ext=.png&size=3)
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