Overview of the Industry 

Through the first three quarters of

2003, insured commercial banks 

and savings institutions were on a

record earnings pace, as a recovering

economy and favorable interest-rate

environment created conditions 

conducive to strong performance.

The 9,237 commercial banks and

savings institutions insured by the

FDIC earned $89.9 billion in the first

three quarters of 2003, a $9.6 billion

(12.0 percent) improvement over 

the same period of 2002. Lower

expenses for loan losses at large

banks were a major contributor to

the improvement in earnings. Strong

growth in consumer-related assets

led by mortgage refinancings helped

boost net interest income. Growth 

in noninterest revenues and higher

gains on sales of securities and

other assets also contributed to the

improvement in revenues. These

positive developments helped offset

narrower net interest margins.

Commercial banks earned $76.1 billion

in the first three quarters of the year,

up $7.6 billion (11.2 percent) from

the first three quarters of 2002. More

than half of all the 7,812 insured

commercial banks – 57.6 percent –

reported higher earnings, and only

5.4 percent were unprofitable, 

compared to 6.3 percent a year 

earlier. Their return on assets (ROA),

a basic yardstick of earnings 

performance, was 1.39 percent, up

from 1.37 percent in the same period

of 2002. Provisions for loan losses

were $8.9 billion (25.3 percent)

lower than in the first three quarters

of 2002, while noninterest income

was $10.1 billion (7.9 percent) higher.

Net interest income was only 

$1.9 billion (1.1 percent) higher, 

as commercial banks’ average net

interest margin fell to 3.81 percent,

from 4.11 percent in 2002. Gains 

on sales of securities were up by 

$1.1 billion (26.7 percent), as lower 

interest rates caused the values of 

fixed-rate securities to appreciate. 

Lower interest rates also stimulated 

demand for mortgage loans, particularly

loans to refinance existing mortgages.

Residential mortgage-related assets,

including 1- 4 family residential 

mortgage loans and mortgagebacked securities, increased by

$184 billion (9.9 percent) during the

first nine months of 2003, accounting for almost half (46.3 percent) of

the total growth in commercial bank

assets. After deteriorating for the

three previous years, banks’ assetquality indicators showed improvement in each of the first three quarters of 2003. Through the first nine

months of the year, net loan chargeoffs were $5.3 billion (16.0 percent)

lower than in the same period of

2002. Almost three-quarters of the

improvement ($3.8 billion, or 71.4

percent) consisted of lower losses

reported by large banks on loans to

commercial and industrial borrowers. 

The nation’s 1,425 insured savings

institutions also benefited from 

the strong demand for residential

mortgage loans. Thrifts’ earnings 

for the first three quarters of 2003

totaled $13.7 billion, an improvement

of $2.0 billion (16.8 percent) over the

same period in 2002. The average

ROA of 1.29 percent was well above

the 1.20 percent registered a year

earlier. More than half of all savings

institutions – 57.7 percent – reported

higher earnings for the first three

quarters. The main sources of the

earnings improvement were higher

noninterest income, which was 

$2.7 billion (32.3 percent) above the

level of a year earlier, and increased

gains on sales of securities and

other assets, which were up by 

$1.6 billion (41.1 percent). Net interest

income increased by only $602 million

(2.0 percent), as the average net

interest margin fell from 3.48 percent

to 3.29 percent. Loan-loss provisions

were $372 million (14.9 percent)

below the year-earlier level, while net

loan charge-offs were $566 million

(35.3 percent) higher. Noninterest

expenses were $2.1 billion (9.5 percent) higher than in the first three

quarters of 2002.

The FDIC administers two deposit

insurance funds – the 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

FDIC’s insurance funds.

104
105

Deposit insurance assessment rates

remained unchanged from 2002 for

both the BIF and the SAIF, ranging

from 0 to 27 cents annually per $100

of assessable deposits. Under the

assessment rate schedule, 92.0 percent of BIF-member institutions 

and 91.5 percent of SAIF-member

institutions were in the lowest riskassessment category and paid no

deposit insurance assessment for

the first semiannual period of 2004.

Deposits insured by the FDIC 

totaled $3.4 trillion at the end of

September 2003. Estimated insured

deposits rose by $27.8 billion

(0.8 percent) during the first three

quarters of the year, as total deposits

at FDIC-insured institutions increased

by $282.6 billion (5.1 percent), and

savings deposits at insured commercial banks grew by $223.9 billion

(11.0 percent).

During the first three quarters of

2003, deposits insured by the BIF

increased by $20.0 billion, or 

0.8 percent, to $2.55 trillion. The 

BIF balance was $33.5 billion at the

end of September, or 1.31 percent 

of estimated insured deposits. This

was up from the year-earlier reserve

ratio of 1.25 percent, as deposits

insured by BIF increased by 

$34.7 billion and the BIF fund 

balance increased by $2.1 billion.

The reserve ratio of the SAIF 

was 1.40 percent at the end of

September, up from 1.39 percent a

year earlier. The balance of the SAIF

surpassed the $12 billion level in

2003, and stood at $12.2 billion 

on September 30. Estimated SAIFinsured deposits totaled $868 billion

at the end of the third quarter, having

grown 0.9 percent during the first

nine months of the year. 

Continued strong growth in assets,

combined with the relatively slow

growth of insured deposits, meant

that insured institutions continued 

to rely increasingly on other funding

alternatives. Insured deposits funded

38.1 percent of industry assets at

the end of September, compared 

to 40.4 percent a year earlier. At the

end of 1991, insured deposits funded

60.2 percent of the total assets of

insured banks and savings institutions.