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Twenty-Five Largest Banking Companies

Research Staff Study*

1st Quarter 2002

  • First quarter net income is boosted by lower loan loss provisions, higher noninterest and nonrecurring income.
  • Earnings improvement is broad-based, as 23 companies post Core ROA increases.
  • Growth of nonperforming assets and sluggish loan demand temper the positive developments.
  • Net Income of the 25 Largest Banking Companies. The chart depicts the  amount of net income (expressed in $Billions) earned by the Twenty-Five Largest Banking Companies during the most recent and previous four quarters.D Nonperforming Assets of the 25 Largest Banking Companies.  The chart depicts the  amount of  nonperforming assets (expressed in $Billions) held  by the Twenty Five Largest Banking  Companies during the most recent and  previous four quarters.D
    *Source: SNL Data Source *Source: SNL Data Source


    The FDIC has assembled information from public data releases compiled by SNL DataSource for the 25 Largest banking companies to obtain an early look at the performance of these firms. Highlights are summarized in the narrative below. In addition, attached tables contain financial data and a merger chronology for each of the 25 Largest. Summary indicators for the group are presented on page 13.

    This report only includes organizations primarily involved in commercial banking for which timely information is available. The bank subsidiaries of these 25 companies hold approximately 61 percent of the commercial banking industry's total assets. Excluded from this report are: foreign owned companies, some diversified financial service companies, thrift companies that concentrate on mortgage lending and nonbank financial services companies. Further details are presented on page 12.

    Positive results from most operating components spur earnings.

    The top 25 banking companies grew their earnings significantly in the first quarter of 2002 amid significant resurgence in U.S. economic activity. U.S. gross domestic product (GDP) increased at an annual rate of 5.8 percent during the first quarter. This followed weak GDP results in the fourth (1.7 percent increase) and third (1.3 percent decrease) quarters of last year.1 The fortunes of the country's 25 Largest banking companies also improved, although the profitability concerns facing a number of U.S. (and foreign) borrowers suggest that credit quality will continue to be an issue.

    Return on assets (ROA) of the 25 Largest increased by 43 basis points in the quarter to 1.39 percent, with net income reaching a record $16.2 billion. The group's previous net income high was $15.8 billion, attained in the first quarter of 2000.

    First quarter aggregate net income for the 25 Largest was $4.8 billion greater than the fourth quarter of 2001. Net income improved over fourth quarter results in 21 of the 25 companies. Net income was $3.3 billion higher than in the first quarter of 2001 and was up in 21 of the 25 companies relative to that period. The latter comparison is significant because last year's first quarter had the highest aggregate net income of any period in 2001.

    While net interest income fell slightly and gains on securities sales were lower, all other operating components contributed to the achievement of record net income. Loan loss provisions fell by $3.6 billion in the quarter (but rose by $1.7 billion vs. the first quarter of 2001). Nonrecurring expenses (mostly merger and restructuring charges) were down $1.8 billion (and by $1.6 billion from a year ago). Noninterest income increased by $1.7 billion (but was down by $500 million from a year ago). Nonrecurring revenue (mostly gains on sale of stock and branches) rose by $1.6 billion (and by $1.0 billion from a year ago). Noninterest expense dropped by $1.4 million (and by $1.6 billion from a year ago).

    The noninterest expense decrease was keyed by a $762 million decrease in intangibles amortization. This drop was primarily related to the adoption of SFAS 142 in the current fiscal year. This accounting rule no longer requires goodwill to be amortized each quarter. Instead, it obligates companies to test for impairment of goodwill and other intangibles once each fiscal year. The year 2002, the first fiscal year affected by this accounting change, has been designated a transitional year wherein the amount of initial impairments are to be recorded as extraordinary losses on a "net of tax" basis (and not as noninterest expense).2

    Net interest income and margins down slightly.

    The Federal Reserve cut its short-term interest rate targets 11 times during 2001. Consequently, the federal funds rate now stands at 1.75 percent, its lowest level in 40 years. Since the 25 Largest companies typically derive much of their funding from short-term liabilities, most were able to enjoy a lower cost of money while their earning asset yields remained fairly stable. This effect contributed to a 7 percent increase in net interest income in the last quarter of 2001.

    As short-term interest rates stabilized, net interest margin (NIM) for the group leveled off. In the quarter NIM decreased by 1 basis point and net interest income fell by less than one percent. Fifteen companies experienced a drop in net interest income and 12 companies reported a decline in NIM.

    Core income and core ROA results are strong.

    Profitability weakened last year as core ROA3 declined in each of the last three-quarters. Profitability improved in the most recent quarter as aggregate core ROA increased by 35 basis points to 1.35 percent. Both core income and core ROA rose at 23 of the 25 companies, with 11 enjoying an increase of 20 basis- points or more in the latter measure.

    Nonperforming assets continue their long-term rise, but at a decreasing rate.

    The 22 percent drop in net charge-offs in the first quarter to $6.9 billion for the group reflected the absence of the kind of large charges that were taken in the fourth quarter. For the 25 Largest, Enron and Argentina exposures caused $2.7 billion in write-offs in the fourth quarter, accounting for over 30 percent of net charge-offs incurred during that period.

    Notwithstanding the first quarter's charge-off respite, nonperforming assets (NPAs) continued their significant long-term rise, but at a decelerating rate. First quarter NPA growth of 5 percent followed an increase of 9 percent in the fourth quarter of 2001. The NPA volume of $37.1 billion has almost doubled since the beginning of 2000 (when it was $18.6 billion). The biggest one-quarter jump in NPAs (25 percent) occurred in the fourth quarter of 2000.

    The loss reserve-to-NPAs ratio for the group tells much the same story. At the end of the first quarter of 2000, the ratio was 202 percent and it now is 134 percent (down from 138 percent last quarter). As might be expected, the biggest drop in the ratio (24 percent) also occurred in the fourth quarter of 2000.

    First quarter loan-loss provisions declined by 10 percentage points more than the decrease in net charge-offs (-32 percent vs. -22 percent). However, aggregate first-quarter provisions still exceeded charge-offs by over $500 million, and loan-loss reserves of the 25 Largest increased by $1.1 billion (2.3 percent). The group's ratio of reserves to gross loans remained the same as last quarter's at 2.2 percent.

    Loan growth remains stagnant.

    Gross loans held for investment (HFI) by the group increased in the first quarter by an annualized 0.7 percent. However, aggregate gross loans HFI have fallen by 2.2 percent since the beginning of 2001. Weak commercial and industrial loan demand has been a major contributor to the decline. It has been reported that businesses have been reluctant to take on additional debt.4 This reluctance has been attributed to weaknesses in corporate profits, declining business investment and overcapacity in key industry sectors.5

    Capital ratios rise.

    Equity capital of the 25 Largest increased by $5.7 billion (1.6 percent) in the first quarter. This increase and a slight drop in assets resulted in a 16 basis point improvement in the group's equity capital ratio (from 7.81 percent to 7.97 percent). All three regulatory capital ratios showed robust gains, as well. The aggregate Tier 1 leverage ratio improved by 24 basis points to 7.55 percent. The Tier 1 risk-based capital (RBC) ratio increased by 25 basis points to 8.72 percent and the Total RBC ratio rose by 38 basis points to 12.41 percent. Of the 21 companies reporting early first quarter capital figures, 18 raised their leverage ratios and 17 increased each of their RBC ratios. Only two companies suffered declines in all three ratios.

    Market capitalization keeps pace with market indices.

    The first quarter earnings increase caused the aggregate return on equity (ROE) of the 25 Largest companies to increase by 526 basis points (from 12.40 to 17.66 percent).

    Market capitalization increased at 21 of the 25 companies (7 had increases of 10 percent or more). Aggregate market capitalization rose by 4.6 percent over the quarter, which is in line with other market indices. Over the quarter, the Dow Jones Industrial Average rose 3.8 percent, the S&P 500 decreased 0.1 percent and the SNL Securities Index of publicly traded banking companies was up by 5.2 percent.

    Stock price gains were seen at 21 companies in the last quarter, with six having increases of ten percent or more. Price losses occurred at four firms, with none of these dropping by more than four percent.

    Earnings-per-share figures for 14 of the 25 companies exceeded Wall Street's consensus expectations (by a combined 39 basis points); three fell short (by a combined six basis points) and eight came in as expected.

    No significant new merger activity takes place.

    The 25 Largest made only two whole-bank merger announcements in the first quarter and the targeted assets of both deals combined totaled only slightly more than $100 million.

    Previously announced deals that were completed during the first quarter of 2002 included those by Wells Fargo and BB&T Corporation. Wells Fargo completed its acquisition of 117 branches (located in seven states) of Marquette Financial Company. That sale, which concluded on February 1, included the majority of Marquette's retail bank holdings and equipment finance and brokerage businesses. The deal included a majority of Marquette's assets, reported to approximate $6.5 billion. According to Marquette, it was one of the largest privately owned financial services organizations in the U. S. at the time of the sale.

    Two other significant transactions were completed during the quarter, both of which involved BB&T Corporation. On March 8, BB&T completed its acquisition of Mid-America Bancorp for $410 million. Also, on March 20, BB&T finished its purchase of AREA Bancshares for $519 million. Both of the holding companies acquired are located in Kentucky.

    Notes to Users

    The Division of Research and Statistics prepared this report. In addition to providing data on individual companies, the aggregate results provide an early indication of the commercial banking industry's overall performance in the most recent quarter.

    The report is based on data from SNL Securities' DataSource6 , as well as information from public sources, including press releases and media accounts. We thank the late Jim McFadyen, originator of the 25 Largest and Geri Bonebrake, who provided design expertise.

    The report covers the 25 Largest banking companies for which timely quarterly results are available. Some large foreign-owned companies are excluded because comparable information on these companies generally is not available until later regulatory filings. Large banks owned by diversified financial services companies where non-banking business activities predominate are also excluded. Large thrift companies also are not covered by this report. Please see page eight for a list of large insured banks and thrifts that are not affiliated with in the 25 Largest banking companies.

    Comparison with Regulatory Data:
    This report contains consolidated information published by the largest bank holding companies, including their bank and nonbank subsidiaries. Thus, the 25 Largest reflects the combined activities of FDIC-insured banks and related subsidiaries, such as insurance companies and securities firms. Regulatory data - primarily Call Reports - does not include information on nonbank subsidiaries, unless they are owned directly by an FDIC-insured bank.

    Preliminary Data:
    The earnings announcements on which this report is based are preliminary, and companies have some flexibility as to content and format not available to them in later, more detailed regulatory filings with the SEC and the banking agencies.

    Prior Period Comparisons:
    Caution should be exercised when comparing results between different periods because acquisitions or accounting changes may distort comparability. Efforts have been made to adjust prior periods appropriately, when possible.

    Agency Disclaimers:
    Use of the information in this report is subject to the following disclaimers.

    The views expressed herein are those of the authors and may not reflect the official positions of the FDIC. The FDIC does not endorse any of the financial institutions discussed in this report for any purpose.

    The FDIC has taken reasonable measures to ensure that the information and data presented in this report is accurate and current. However, the FDIC makes no express or implied warranty regarding such information or data, and hereby expressly disclaims all legal liability and responsibility to persons or entities who use this report, based on their reliance on any information or data that is available in this report.

    The content of this report is not designed or intended to provide authoritative financial, accounting, investment, legal, regulatory or other professional advice which may be reasonably relied on by its readers. If expert assistance in these areas is required, the service of qualified professionals should be sought.

    Reference to any specific commercial product, process, or service by trade name, trademark, manufacture, or otherwise does not constitute an endorsement, a recommendation, or a favoring by the FDIC or the United States government.

    This general disclaimer is in addition to, and not in lieu of, any other disclaimers found in this report. In addition, the terms of this disclaimer extend to the FDIC, its directors, officers and employees.

    Chau Nguyen
    (202) 898-7373

    J.R. Bauer
    (202) 898-6813

    (202) 898-7222 (fax)


    Financial information appearing in this report was acquired from SNL Securities, Inc., Charlottesville, Virginia. The following definitions are listed in the order in which they appear in this report.

    Nonperforming assets
    The sum of nonaccrual, renegotiated and loans and leases acquired through foreclosure. (Delinquent loans and leases still accruing are excluded.)

    Net charge-offs
    Total loans and leases removed from the balance sheet due to their uncollectability minus amounts recovered on loans and leases previously charged-off.

    Return on assets
    Annualized net income (including gains or losses on securities and extraordinary items) expressed as a percentage of average total assets.

    Core ROA
    Annualized income before income taxes and extraordinary items minus the after-tax portion (the assumed tax rate is 35 percent) of gains on sale of investment securities and nonrecurring income items as a percentage of average total assets.

    Return on equity
    Annualized net income (including gains or losses on securities and extraordinary items) as a percentage of average total equity capital.

    Net interest margin
    The annualized difference between taxable-equivalent interest and dividends earned on interest-bearing assets and interest paid to depositors and other creditors, expressed as a percentage of average interest-bearing assets.

    Efficiency ratio
    Noninterest expense minus foreclosed property expense minus amortization of intangibles, expressed as a percentage of the sum of net interest income plus noninterest income. This ratio measures the proportion of net operating revenues absorbed by overhead expenses -- the lower the ratio the greater the operating efficiency of the institution.

    Loan growth rate
    The annualized change in total loans and leases (net of unearned income and gross of reserves) from the previous quarter, expressed as a percentage of total loans and leases at the end of the previous quarter.

    NPAs / assets
    Nonperforming assets expressed as a percentage of total assets for the current quarter.

    NCOs / average loans
    Annualized net charge-offs expressed as a percentage of average total loans and leases.

    Tier 1 capital*
    Common equity capital, plus noncumulative perpetual preferred stock, plus minority interests in consolidated subsidiaries, minus goodwill and other ineligible intangible assets. (The amount of eligible intangible assets included in Tier 1 capital is limited in accordance with supervisory capital regulations.)

    Tier 1 leverage ratio
    Tier 1 capital expressed as a percentage of average tangible assets (total assets minus intangible assets).

    Risk-based assets*
    This figure is derived from the amounts of both on-balance and off-balance assets that institutions report in the various risk-weight buckets (0%, 20%, 50%, 100% or 200%) of call report Schedule RC-R. The consolidated amount is the product of the sums in the various categories multiplied by their respective risk weights.

    Tier 1 RBC ratio
    Tier 1 capital expressed as a percentage of risk-based assets.

    Tier 2 capital*
    The sum of allowable subordinated debt and limited life instruments (discounted by their years to maturity), plus cumulative preferred stock, plus mandatory convertible debt, plus loan reserves (limited to 1.25% of gross risk-weighted assets). (Tier 2 capital cannot exceed Tier 1 capital.)

    Tier 3 capital*
    The amount of regulatory capital required to offset market risk of the company.

    Total RBC ratio
    The sum of Tier 1, Tier 2 and Tier 3 capital expressed as a percentage of risk-based assets.

    Market cap. ($ millions)
    The market value of the company's stock, derived by multiplying the stock price by the number of shares outstanding at the end of the period.

    *Denotes items which do not appear in the 25 Largest but are parts of some of the report's ratios.

    Index to Tables

    Ranking by consolidated company assets

    Ranking by bank & thrift subsidiary assets

    Business segments

    Banks and thrifts excluded

    Data table for the 25 Largest
    This is a table of the source data for the 25 Largest.


    * This document is based on publicly available information provided by the companies it covers. It is intended for informational purposes only. It does not represent official policy or supervisory guidance from the FDIC.

    1 "U.S. Economy Surged at 5.8% Rate in the First Quarter." The Associated Press. April 26, 2002.

    2 Subsequent annual review of intangibles impairment may require additional noninterest expense recognition. Periodic amortization of intangibles other than goodwill will continue to be made on a quarterly basis.

    3 SNL Securities opines that this item, which excludes nonrecurring revenue and expense, is an approximate measure of sustainable return on average assets. A detailed definition can be found in the Glossary.

    4 "1Q Earnings: Lower Fund [sic] Costs Offset Lending Weakness." American Banker. April 24, 2002.

    5 Connor, John. "Subprime U.S. Consumer Lending Cited As Leading FDIC Concern." Dow Jones Newswires. April 15, 2002.

    6 Data excerpted from SNL DataSource is subject to copyright and trade secret protection and may not be reproduced or redistributed without license from SNL Securities LC.

    Last Updated 05/07/2002

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