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2006 FDIC Q. Banking Profile 1 (2006)

handle is hein.journals/fdicqubkp2006 and id is 1 raw text is: Quarterly Banking Profile FIRS -URE 2006 Noninterest Income Growth Lifts Profits To Quarterly Record Industry Earnings Of $37.3 Billion Surpass Previous Record By $2.7 Billion Rising Interest Rates Continue To Put Pressure On Margins Credit- Card Charge- Offs Fall Sharply From Fourth- Quarter Level Commercial Loan Growth Picks Up Momentum Results at Large Banks Contribute to Record Earnings for the Industry Increased income from trading and securitization activities helped insured commercial banks and savings institutions post record-high net income of $37.3 billion in the first quarter of 2006, eclipsing the previous record of $34.6 bil- lion set in the third quarter of 2005. In addition to the improvement in noninterest income, earnings benefited from lower expenses for loan tosses, especially among cred- it-card lenders, and from increased net interest income pro- duced by strong loan growth. Earnings were $3.2 billion (9.5 percent) higher than in the first quarter of 2005, when noninterest revenues at large institutions were not as strong. Total noninterest income was up by $5.7 billion (10.3 percent). Income from trading activities was $1.4 billion (32.4 percent) higher than a year earlier, income from securitization activities was up by $1.1 billion (19.4 percent), and income from investment banking was $407 million (16.3 percent) higher. Net interest income was $5.0 billion (6.5 percent) above the level of a year ago. Loan-loss provisions were $234 million (3.8 percent) tower, in response to a sharp reduction in tosses on consumer Chart 1 $ Billion 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 n. o - Quarterly Earnings Surpass $37 Billion * Securities and Other Gains/Losses, Net l Net Operating Income 34.0 139.5 30.2 30.4 31 01 253 27.2 27.3II 25.31 U ~ LI 1 2 3 4 1 2 3 2002 2003 4 1 2 3 2004 32.7 -I ' 4 1 2 3 4 1 2006 loans. The improvement in earnings was limited by lower gains on sates of securities and other assets, which were $174 million (20.6 percent) less than a year earlier, and by increased noninterest expenses, which were up by $6.8 bil- lion (8.8 percent). Salary and benefit expenses rose by $3.7 billion (10.5 percent), led by increases at large banks that have had recent mergers. The average return on assets (ROA) was 1.35 percent, slightly above the 1.34 percent the industry registered in the first quarter of 2005. More than half of all institutions (52 percent) reported an ROA of 1 percent or higher for the quarter. A slightly higher proportion - 56.3 percent - had higher quarterly earn- ings than a year earlier, but only 47.7 percent reported higher quarterly ROAs. Most Institutions See Margins Decline The industry's average net interest margin declined by three basis points during the first quarter, to 3.46 percent from 3.49 percent in the fourth quarter of 2005. Almost two out of every three institutions (64.8 percent) saw their margins decline in the first quarter. A combination of ris- ing short-term interest rates, a flat yield curve, and a grow- Chart 2 Noninterest Income Was the Main Factor in Earnings Improvement 1st Quarter 2005to 1st Quarter 2006($ Billion) 7 Positive Factors $6.8 Negative Factors 6 $5.7 4 -$0.2 -$0.2 Increase in Increase in D cline in Loan Increase in Decline in Gains -1 Noninterest Net Interest Loss Provision Noninterest on Securities Income Income Expense Sales F~ivii~ DEPoSIT INSURANCE CC) RFO RATION Am FDIC-INsuP~ IN~FflUTIONS 37.3 34, 34.7 FEDEP,4L DEroSfT1ZVSURANCE CORPOR47YON ALL FDIC - IzvsuRED LvsT=o Ns

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