Magazine article Economic Trends

FDIC-Insured Commercial Banks

Magazine article Economic Trends

FDIC-Insured Commercial Banks

Article excerpt

In 2003:IIQ, FDIC-insured commercial banks' net operating income improved slightly from the previous quarter and recovered strongly from its dip in 2002:IVQ. Compared to the second quarter of last year, it was up 5.0%. Net income (net operating income plus securities gains and losses) also improved, increasing 9.2% from a year ago. Lower credit losses and substantial gains on securities sales fuelled overcall earnings growth.

Commercial banks' total interest income, $85 billion, was unchanged from the previous quarter. Falling interest rates made this figure significantly lower than the $113 billion reported in 2000:IVQ. Total noninterest income continued to grow, rising 7.9% from a year ago, another sign that the earnings pressures affecting banks during the 2001 recession are finally abating.

Overall earnings (interest plus dividends earned on interest-bearing assets minus interest paid to depositors and creditors, expressed as a percentage of average earning assets) improved, even though the net interest margin declined from 4.09% in 2002 to 3.85% in 2003:IIQ.

Low interest rates are one cause of shrinking margins, but strong asset growth is just a important. FDIC-insured commercial banks' assets grew an annualized 11.7% in 2003:11Q, the best showing in almost a decade. But even with near-record asset growth, depository institutions' 1.4% return on assets was the highest since 1989. At 15.3%, return on equity was also at its highest level since 1999.

In 2003:IIQ, FDIC-insured commercial banks' net loans and leases fell slightly to 56. …

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