Press Conference Statement
Federal Deposit Insurance Corporation
on the release of the
Quarterly Banking Profile
December 13, 1996
The numbers, charts and graphs that you have before you
this morning show that commercial banks continued to enjoy
extraordinary profitability in the third quarter. Despite a one-time
$1 billion special assessment that was part of the Savings
Association Insurance Fund (SAIF) capitalization, as this chart
shows (Chart #1), commercial banks registered their third-highest
quarterly profits ever. That special assessment -- which translates
into a reduction of approximately $650 million in after-tax net
income -- accounted for virtually all of the decline in the banking
industry's earnings for the quarter. Even with that special
assessment, commercial bank earnings remain on track to surpass
$50 billion in annual earnings for the first time at year end.
Commercial banks earned $13.2 billion in the third quarter,
for an average return on assets (ROA) of 1.19 percent, annualized.
Almost three quarters of all commercial banks reported ROAs
above one percent. Average ROA -- a basic yardstick of
profitability -- has exceeded one percent for the commercial
banking industry as a whole for fifteen consecutive quarters.
More than half of all commercial banks reported higher
earnings in the third quarter of 1996 compared to the third quarter
The percentage of loans that were noncurrent at the end of
the quarter fell to an all-time low of 1.11 percent, at least for the 15
years banks have been reporting this data. Noncurrent means that
payments were 90 days or more past due.
Bank earnings in the third quarter of this year were
supported by record net interest income of $41.4 billion, a 5.2
percent increase from the third quarter of last year. Net interest
margins widened for the second consecutive quarter, as average
asset yields rose and average funding costs remained stable. The
increase in asset yields came as banks reduced their securities
holdings and increased their loans, especially higher-yielding
credit-card loans and loans to commercial borrowers.
The only blemish on the banking industry's performance is
in credit card lending.
Bank credit card loans continued to increase rapidly. They
grew more than $13.3 billion in the third quarter -- about the same
amount as commercial and industrial loans grew -- although not as
rapidly as they have grown in the recent past. Credit card loans
and C&I loans had the two largest increases of any categories of
loans at commercial banks.
As this chart shows, (Chart #2) while improvements in
asset quality were evident in (one), commercial and industrial
lending, (two), commercial real estate lending; and (three), other
loan categories in the third quarter, deterioration continued to be
concentrated in consumer loans, and especially in credit card loans.
Charge-off rates on loans to individuals have risen sharply from
1.79 percent in the third quarter of 1995 to 2.29 percent in the third
quarter of 1996.
As this chart (Chart #3) shows, net charge-offs of credit-card
loans accounted for almost two-thirds of all loans charged-off
in the third quarter. The annualized charge-off rate on those loans
in the third quarter was 4.41 percent.
As you can see from this chart (Chart #4), the percentage of
delinquent credit card loans increased even as charge-offs
increased, from 4.1 percent in the second quarter to 4.5 percent in
the third. The rising trend in credit-card delinquencies began two
years ago, and delinquency rates are approaching the peak levels
registered in 1991.
In addition, as you can see from this chart (Chart 5), the
profitability of credit card lending has declined dramatically for the
specialized credit card lenders that we track. Their average ROA
peaked at 4.25 percent in the third quarter of 1994 and stood at
2.02 percent in the third quarter of this year. That compares,
however, to the average ROA of 1.19 percent for the industry as a
whole -- including all banking activities.
Another characteristic of credit-card lending that is
somewhat worrisome is the apparent correlation -- at least since
1990 -- between credit card loss rates and personal bankruptcy
filings -- a correlation that is clear from this chart (Chart #6),
which we have been showing since June. Indeed, this chart shows
that, in the third quarter, personal bankruptcies increased at a faster
pace than credit card charge-offs.
Despite these concerns, the outlook for banking remains
bright. During the third quarter, 46 new bank charters were issued,
bringing the total of new bank charters during the three quarters of
1996 to 105, which exceeds the 102 new bank charters issued
during all of 1995. Mergers absorbed 146 banks during the third
quarter, and two banks failed. The number of banks on the FDIC's
"Problem List" declined from 99 banks with $8 billion in assets at
the end of the second quarter to 89 banks with $7 billion in assets
at the end of September. This is the smallest number for problem
assets since March, 1992.
The best news during the third quarter for all FDIC-insured
institutions was the capitalization of the SAIF, as this chart shows
(Chart #7). The remarkable recovery of both the SAIF and the
Bank Insurance Fund is a reflection of the enormous improvement
over the last five years in the health of the banking and thrift
industries that support them, as well as of the continuing strength
of the economy. The thrift industry's contribution to the SAIF
capitalization cost an entire quarter's earnings, and caused net
losses at about 60 percent of all savings institutions in the third
quarter. Still, more than 96 percent of all savings institutions
continue to meet the highest regulatory capital standards -- and the
banking industry enjoys its highest capital level since 1941.
Now that the fund is capitalized, SAIF insurance premiums
are expected to decline from an average of 23.4 basis points for
every $100 of insured deposits to an average of seven basis points
next year. As a result, institutions with SAIF-insured deposits will
save approximately $875 million per year on deposit insurance
costs, based on their current level of SAIF deposits. With the
SAIF and the Bank Insurance Fund both fully capitalized, we all
can now turn our attention to the issues of industry structure and
competitiveness, which need to be addressed, as well as the
ultimate merger of the two insurance funds.
With me today are Don Inscoe, the manager of the FDIC
Statistics Branch, and Ross Waldrop, Tim Critchfield and Jim
McFadyen, the FDIC analysts who put together the Quarterly
The FDIC made the Quarterly Banking Profile available on
the Internet two years ago. Our Web site -- www.fdic.gov -- now
provides many of the same data as the QBP for each one of the
11,547 insured banks and thrifts through the FDIC's new
Institution Directory, or "I.D." system. Since we unveiled this new
Internet service only two days ago, we have recorded more than
18,000 "hits" from almost 1,400 users at this new site. My four
colleagues here -- as well as the entire Division of Research and
Statistics -- headed by Roger Watson -- who is here, too -- deserve
great commendation for this outstanding effort of making more
information available to the public on the financial institutions that
the FDIC insures.