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2001 Annual Report |
Overview of the Industry and the Deposit Insurance Funds |
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Commercial banks reported $74.3 billion in net income in 2001, a 4.7 percent increase from the $71.0 billion they earned in 2000. The record earnings were made possible by $4.5 billion in gains on sales of securities, as lower interest rates caused the values of banks fixed-rate securities to appreciate. If these gains and other nonrecurring items are omitted, commercial banks earnings would have been $1.1 billion lower than in 2000. The main source of weakness in operating earnings was record expenses for loan losses. Banks set aside $43.1 billion in provisions for loan losses in 2001, an increase of $13.1 billion (43.6 percent) from the previous year. The average return on assets (ROA), a fundamental yardstick of earnings performance, declined to 1.16 percent from 1.19 percent in 2000, as the industry registered its ninth consecutive year with an ROA above the benchmark 1 percent level. Fewer than half of all insured commercial banks44.1 percentreported higher ROAs in 2001. As was the case in 2000, commercial and industrial (C&I) loans at large banks remained the focus of asset-quality concerns in 2001. Total loan losses for the year were $36.5 billion, up $11.6 billion (47.1 percent) from 2000. Banks charged off $14.6 billion in C&I loans during 2001, an increase of $6.4 billion (77.6 percent) from the previous years total.
Insured savings institutions also benefited from lower interest rates in 2001. Net income rose to a record $13.3 billion, from $10.7 billion in 2000. Sales of securities yielded gains of $4.2 billion, a $3.4 billion improvement over the previous year. The widening spread between short-term and longer-term interest rates helped boost the industrys net interest margin to 3.23 percent, from 2.96 percent in 2000. Lower interest rates also stimulated mortgage refinancing activity in 2001, helping thrifts grow their assets by 6.7 percent. As a result, net interest income increased by $4.8 billion (15.2 percent) in 2001. The industrys ROA of 1.08 percent was the highest since 1946. The improvement in earnings was limited by slow growth in noninterest income, which was only 3 percent higher than in 2000, by a 12.5 percent ($3.3 billion) increase in noninterest expenses, and by a $770 million (37.9 percent) jump in loan-loss provisions. The performance gap between large and small savings institutions persisted in 2001. The average ROA at savings institutions with less than $100 million in assets was only 0.64 percent, and one out of every six of these small thrifts posted a net loss for the year. The FDIC administers two deposit insurance fundsthe Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)and manages the FSLIC Resolution Fund (FRF), which fulfills the obligations of the former Federal Savings and Loan Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC). The following summarizes the condition of the FDICs insurance funds. Deposit insurance assessment rates remained unchanged from 2000 for both the BIF and the SAIF, ranging from 0 to 27 cents annually per $100 of assessable deposits. Under the assessment rate schedule, 92.3 percent of BIF-member institutions and 90.3 percent of SAIF-member institutions were in the lowest risk-assessment category and paid no deposit insurance assessments for the first semiannual period of 2002.
Deposits insured by the FDIC moved past $3.2 trillion in 2001, as the number of insured institutions fell below the 9,700 mark for the first time. Insured deposits rose by 1 percent during the fourth quarter bringing the growth rate for the full year to 5.1 percent. This was slower than the 6.5 percent increase for 2000; however, the annual growth rate for 2001 was still the second-fastest in the past 15 years. Insured deposits of the 9,631 FDIC member institutions rose by $156 billion in 2001, including a $40 billion increase (24 percent) in insured brokered deposits. About 30 percent of the increase in insured deposits was attributable to institutions whose brokerage affiliates sweep cash management account balances into FDIC-insured deposit accounts. During 2001, deposits insured by BIF increased 4.7 percent, to $2.4 trillion. The BIF balance was $30.4 billion at year-end 2001, or 1.26 percent of estimated insured deposits. This was down from the year-end 2000 reserve ratio of 1.35 percent as deposits insured by BIF increased by $108 billion and the BIF fund balance decreased by $536 million. The reserve ratio of SAIF was 1.36 percent at year-end 2001, down from 1.43 percent at year-end 2000. The balance of the SAIF was $10.9 billion on December 31, 2001. SAIF-insured deposits were $802 billion at year-end 2001, having grown 6.2 percent for the year. This was the highest growth rate of insured deposits since the inception of SAIF in 1989.
Despite the relatively rapid growth of insured deposits, insured institutions continued to rely increasingly on other funding alternatives. Insured deposits as a percentage of domestic liabilities continued a steady, ten-year decline, falling to 50.9 percent at the end of 2001, compared to 51.7 percent at the end of 2000. At year-end 2001 the ratio was 46 percent for institutions with total assets greater than $1 billion, and 73 percent for smaller institutions. During 2001, four FDIC-insured institutions failed. Three of those institutions, with combined assets of $54 million, were insured by the BIF. The other institution, with assets of $2.2 billion, was insured by the SAIF. Losses for the four failures are estimated at $445 million. In 2000, there were seven failures of insured institutions, with total assets of $408 million and estimated losses of $40 million. The contingent liability for anticipated failures of BIF- and SAIF-insured institutions as of December 31, 2001, was $1.9 billion and $233 million, respectively. |
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Last Updated 11/20/2002 |
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