Banks and Thrifts Report Record Earnings in First Quarter
Commercial loan growth picks up momentum, asset quality indicators remain strong
FOR IMMEDIATE RELEASE
May 25, 2006
Commercial banks and savings institutions insured by the Federal Deposit
Insurance Corporation (FDIC) reported a record quarterly net income of $37.3
billion for the first three months of 2006, eclipsing the previous quarterly
high of $34.6 billion set in the third quarter of 2005. First-quarter profits
represented a 9.5 percent improvement over the industry's results a
year earlier. Loan growth remained robust, with particular strength in commercial
lending. Asset quality continued to be very good, with net charge-offs and
noncurrent levels improving in consumer loan portfolios.
"The banking industry continues to meet strong credit demand in a growing
U.S. economy," said FDIC Acting Chairman Martin Gruenberg. "Regulators
are working with the industry to ensure that effective risk-management practices
will help keep the industry financially strong."
Preliminary financial results for the first quarter are contained in the FDIC's
latest Quarterly Banking Profile, which was released today. Among the major findings:
On March 31, the FDIC's Bank Insurance Fund (BIF) and Savings Association
Insurance Fund (SAIF) were merged to form the Deposit Insurance Fund (DIF). As
of that date, the reserve ratio of the new fund was 1.23 percent, compared to
1.25 percent at the end of 2005 and 1.29 percent on March 31, 2005. The declining
trend in the reserve ratio has been caused by strong growth in insured deposits
in response to higher interest rates on deposit accounts.
- Improved performance by larger institutions boosted the industry's bottom
Increased trading revenue and income from securitization activities accounted
for almost one-quarter of the industry's improvement in net operating revenue.
Trading income was $1.4 billion (32.4 percent) higher than in the first quarter
of 2005, while securitization income was up by $1.1 billion (19.4 percent).
Loans for real estate construction and commercial borrowers showed growing
Real estate construction and land development loans increased by 7.7 percent
($34.5 billion) during the first quarter and were up by 34.6 percent ($124.2
billion) in the 12 months ended March 31. These are the highest growth rates
of any major loan category. Loans to commercial and industrial (C&I) borrowers
had a record quarterly increase of $47.5 billion (4.4 percent).
- Asset-quality indicators registered improvement. Charge-off rates on consumer
loans declined in the first quarter, ending a two-quarter increase in consumer
loan losses associated with new federal bankruptcy rules that took effect in
October 2005. Net charge-offs of credit card loans declined to $2.9 billion,
while net charge-offs of other loans to individuals fell to $1.3 billion -- both
five-year lows. Overall, asset-quality indicators remained quite favorable, and
no other loan categories exhibited significant activity in noncurrent loans or
- Rising short-term interest rates have put downward pressure on net
interest margins.A growing reliance on short-term funding sources has meant that bank and thrift
funding costs have risen more rapidly than the yields on their investments when
short-term interest rates increased. This development was evident in their net
interest margins during the first quarter. Almost two-thirds of all insured institutions
saw their net interest margins decline during the quarter. The industry's
net interest margin fell to a 15-year low of 3.46 percent in the first quarter,
down from 3.49 percent in the fourth quarter of 2005.
There has not been a failure of an FDIC-insured institution in more than seven
quarters -- since June 25, 2004. This is the longest interval without an insured
institution failure in the FDIC's 73-year history.
The complete report is available at http://www2.fdic.gov/qbp/index.asp on the
FDIC Web site.
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Congress created the Federal Deposit Insurance Corporation in 1933
to restore public confidence in the nation's banking system. The FDIC
at the nation's 8,790 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 FDIC receives no federal tax dollars – insured
financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at
www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html)
and may also be obtained through the FDIC's Public Information Center
(877-275-3342 or 703-562-2200). PR-52-2006