Fourth Quarter1989 

FDIC 

Division of Research 

&Statistics 

Don Inscoe 

(202) 898-3940 

Ross Waldrop 

(202) 898-3951 

The FDIC 

uarte r 1Y-_______L._W_il_lia_m_S_eid_m_a_n,_C_ha_irm_a_n 

anking Profile 

COMMERCIAL BANKING PERFORMANCE - FOURTH QUARTER 1989 

• Domestic Credit Woes Sharply Reduce Fourth-Quarter Earnings 

• Loan Losses Reach Record Levels For Fourth Quarter, Full Year 

• Large Banks Hurt By International, Domestic Loan Problems 

• Weak Real Estate And Consumer Markets Erode Profits Of Many Banks 

• Number Of "Problem" Banks Declines As Small Banks Show 

Continued Improvement 

• Southwest Accounts For Four-Fifths Of 1989 Failures 

• Merger Activity Continues To Propel Industry Consolidation 

Commercial banks earned $2. 7 billion in the 

fourth quarter of 1989, less than half the amount 

earned in the fourth quarter of 1988. Industry 

earnings totaled $16.3 billion for 1989, a year 

that saw record first-half profits followed by two 

of the worst quarters of the eighties. Unlike the 

previous quarter, in which provisions for international loan losses were mainly responsible for 

a net loss, the smaller-than-normal profit in the 

fourth quarter was the result of provisioning for 

domestic credit losses. Both quarters were especially difficultfor large banks in the Northeastern U.S. Five of the ten largest banks in the U.S. 

reported full-year losses stemming primarily 

from higher reserving against losses on loans to 

developing countries (LDCs). One-quarter of all 

Chart A - Quarterly Net Income of 

FDIC-Insured Banks 

1985-1989 $ BIiiions 

8 

4 

4

( ) ~ Ne! ape;a.ing Income 

(B) l1liJ Forst ~ blic Effect 

I 1 : I t ! 112> - ....2_3_4""'1_2 _3_______4 --~2_3_4,.....,.1-2""'3_4_ 

1985 1986 1988 1989 

U.S. banks with assets over $1 O billion also had 

net losses for the year, as many regional banks 

experienced problems in their real estate loan 

portfolios. Smaller banks, particularly those in 

the Southwestern U.S., continued to show a 

recovery in profitability. 

The large fourth-quarter loss provisions did not 

provide a major boost to loss reserves, as banks' 

net charge-offs of $9.2 billion absorbed almost 

Chart B - Quarterly Domestic and 

International Loss Provisioning 

&Hions 1985-1989 

$:JO,--~---...-----..-----..------, 

21 .3 

20 

12.6 

10 

(HJ) □ Foreign Promion 

- DotrMstic Prcwision 

(20) I-'-+-'---'---'---'-+'---'------'-+'----------+-'-......... __.._ ............. 41 23 4 123 41 23 4 12 3 4 

' 85 '86 ' 87 '88 ' 89 

all of the $1 O billion set aside for losses. After 

growing by $7.8 billion in the third quarter, the 

industry's reserve cushion for future losses grew 

by only $274 million during the fourth quarter. 

Both the quarterly and full-year net charge-off 

For assistance contact: Section508@fdic.gov
4.0 

Chart C - Quarterly Net Interest Margins The combination of lower earnings and higher 

Net lnlerest Margin (%) 1983-1989 5.0 ~-~-~--~-~--~-~--~ 

4.5 , , , 

1 2341234123412341 23412341 234 

1983 1984 1985 1986 1987 1988 1989 

rates for the banking industry were the highest 

since banks began reporting the data in 1948. 

The high level of charge-offs in the fourth quarter 

hardly made a dent in commercial banks' nonperforming assets, which were reduced by only 

$428 million. 

Net interest margins were generally narrower 

than 1988 levels in the fourth quarter. This was 

especially true of banks with international operations, whose fourth-quarter 1988 margins were 

increased by the restoration of interest payments 

on delinquent Brazilian loans. For the full year, 

margins widened from a year earlier among 

smaller banks, and narrowed at the largest 

Chart D - Annual ROA of Money-Center, 

Regional and All Other Banks 

1985-1989 ROA% 

0.88% 

0.72% 0.5 

-0.5 

-1 ...____.....,____________.____..., 

1985 1986 1987 1988 1989 •11 Money Center Banks: CitiBank, Chase Manhattan, Chemical, Bankers Trust, 

Morgan Guaranty, Manufacturers Hanover, First National Bank of Boston, 

Bank of New Yor1<, Republic National Bank, First Nat'L Chicago, Continental Bank. 

banks. The banking industry's aggregate net 

interest margin for 1989 was unchanged from 

last year. 

dividend payments meant that internal capital 

generation contributed relatively little to industry 

net worth in 1989. The only asset size group 

whose equity-to-assets ratio declined during the 

year was banks with $1 o billion or more in assets. This decline, most of which came in the 

third quarter amid large LDC loss provisions, 

was sufficient to cause a slight decline in the 

equity-to-assets ratio of the entire industry in 

1989. 

The $30.3 billion that banks set aside in provisions for loan losses in 1989 fell short of 1987's 

record total of$37.5 billion, but still had a tremendous impact on bank earnings. Large commercial banks set aside a total of $1 Obillion for future 

Chart E - Noncurrent Loan Rates at Year-end 

1982-1989 

3 

2 

•includes loans to foreign governments, depository institutions and lease receivables. 

losses on their foreign operations in 1989; provisions for domestic losses totaled $20.3 billion. 

Net income of banks with assets greater than 

$1 Obillion declined by 88 percent in 1989, while 

earnings of banks with under $1 billion in assets 

increased by almost 18 percent. Industry profitability, as measured by return on assets, fell to 

0.52 percent for all of 1989, the second-lowest 

level of the 1980s after the 0.12 percent of 1987. 

Foreign loans remained the most troubled loan 

category in 1989, with the highest noncurrent 

and net charge-off rates. The noncurrent rate 

declined from an even higher level at the end of 

1988, due mainly to net charge-offs of more than 

$7.5 billion in foreign loans during the year. 

Noncurrent real estate loans were up sharply in 

1989, more than doubling at banks in the Northeast Region. Other real estate acquired through 

2 
3 

0.5 

Chart F - Annual Net Charge-off Rates 

% ofAi,g. Loans 1982-1989

' 83 '84 ' 85 ' 86 ' 87 '88 ' 89 

•includes loans to foreign governments, depository Institutions and lease receivables. 

foreclosure increased by $2.4 billion in 1989, to 

$13.1 billion at year-end. Real estate loans remained the main engine of commercial bank 

asset growth, providing more than half of the 

$168 billion net increase in assets in 1989. Commercial loan quality improved slightly, though not 

in all regions. Growth was sluggish in 1989, 

especially during the fourth quarter, when commercial and industrial loans grew at about a one 

percent annual rate. Consumer loan delinquency rates ended the year at 3.61 percent, 44 

basis points higher than the 3.17 percent of a 

year ago. Consumer loans increased by 5.5 

percent in 1989, down from 7.7 percent in 1988. 

Credit card plans accounted for the bulk of consumer loan growth. Credit card loans grew by 12 

percent in 1989, while other installment loans 

increased by 4 percent. 

Foreign loans had the highest net loss rate of any 

loan category in 1989. Net losses on real estate 

loans increased in 1989, but were not the main 

source of industry charge-offs outside the Southwest and a few other states. Consumer loan net 

charge-off rates were up, although the net loss 

rate on credit cards was about the same as in 

1988. The charge-off rate on consumer loans 

has risen in each of the last five years, and now 

stands at 1.6 percent, well above the net loss 

rates on real estate and commercial loans. Commercial and industrial loans' net charge-off percentage declined for the third consecutive year. 

Loss Rates on real estate loans were below the 

national average in many Northeast Region 

states, even though the loss rate for the Region's 

banks more than doubled in 1989. The percentage of real estate loans that were noncurrent at 

banks in the Northeast more than doubled also, 

to well above the national average. The prospect 

of future losses on many of these noncurrent 

loans motivated sizable additions to domestic 

loss reserves by many of the Region's banks. 

Southwest Region banks continue to labor under 

the nation's heaviest burden of real estate troubles, with a net charge-off rate on real estate 

loans almost four times the national average. In 

contrast, banks in the West Region, with some 

notable exceptions in Arizona, enjoyed strong 

real estate loan demand and an improved noncurrent rate in 1989. Southeast Region banks 

Chart G - Noncurrent Real Estate Loan Rates by State 

December 31, 1989 

HAWAll- 0.55 

Noncurrent Real Estate Loan Percentage: 

D 2% or Less [J Between 2% and 3% I 3% or Higher 

3 
Chart H - Structural Changes Among 

FDIC-Insured Commercial Banks 

1980-1989 

saw a strong increase in real estate loans also, 

but noncurrent and net charge-off rates rose. 

Commercial bank performance indicators followed the recent pattern of improvement, or in 

many cases recovery, in the Western half of the 

U.S. in 1989, contrasted with an erosion of 

aggregate performance indicators in the East. 

While this erosion is in large part a reflection of 

recent problems at many large Eastern banks, 

the high percentages of unprofitable banks operating in the Southeast and especially the 

Northeast Regions indicate that many smaller 

banks are experiencing earnings difficulties as 

well. For Southwest Region banks, there were a 

few hopeful signs in 1989. Nonperforming assets did not increase, even though net chargeoffs were lower than in 1988. The percentage of 

banks with full-year earnings losses fell for the 

second consecutive year. The Southwest 

Region still had the highest failure rate of any 

region; 167 of the 206 banks failing or receiving 

assistance during the year were in the Southwest. 

Chart I - Number of "Problem" Banks 

By Region at Year-end 

1988 and 1989 Number of Banks 

800 J----------------' 

200 I----------

NE SE C Ml/',/ SW w 

Forty-four commercial banks failed or received 

assistance during the fourth quarter, bringing the 

total for 1989 to 206 failures, fifteen fewer than 

in 1988. More significantly, the average size of 

failed and assisted banks in 1989 was almost 

half the average size of 1988 failures. The percentage of banks on the FDIC's "Problem" list 

continued to decline, reaching its lowest level 

since 1985. The "Problem" list shrank by over 

300 banks in 1989, to 1,093 at year-end. The 

pace of new charters and failures both leveled 

off in 1989 at roughly the same rate. Merger 

activity continued to drive consolidation in the 

commercial banking industry. At the end of 1989, 

there were slightly more than 12,700 FDICinsured commercial banks, down from a high of 

14,496 at the end of 1984. In the past two years, 

approximately 1,000 banks have disappeared 

from the industry as a result of mergers and 

buyouts, while 427 banks have failed . The number of banking offices continues to increase, as 

consolidation of the industry converts banks into 

branches and as competition intensifies in consumer lending. New bank charters fell to 192, the 

lowest number since 1978. 

For 1990, the earnings outlook is favorable for 

money-center institutions, since their loan-loss 

provisioning is likely to be considerably lower. 

LDC debt will continue to be a wild card. 

Regional banks in different areas of the country 

will have to absorb higher losses on real estate 

credits. Smaller banks as a group should see 

better earnings. The failure rate is expected to 

decline further in 1990, as the number of "problem" banks continues to shrink. If economic conditions deteriorate, loans to highly leveraged 

commercial borrowers could add to credit 

losses, and recovery of the banking sector in the 

Southwest would be dealt a setback. 

Chart J - Number of Failed Banks 

By Region 

1988 and 1989 Number of Banks

180-------------.......---- 1001-:--------------,,llll!i,(~id---~ 

IJI 1988 140 .. , 

~ 1989 120---=~----------' 

SW w 

4 
Table I. Selected Indicators, FDIC-Insured Commercial Banks 

1989 1988 1987 1986 1985 1984 

Return on assets ........... . .... . . .. ..... . . . ...... 0.52% 0.82% 0.12% 0.63% 0.70% 0.64% 

Return on equity .. ... .... ... .. .... ...... '' .. ... ... 8.13 13.31 2.00 9.99 11 .31 10.48 

Equity capital to assets .. .. . ... . . .... . . . . . .. .. ...... 6.23 6.28 6.04 6.19 6.20 6.14 

Primary capital ratio ... . ..........••••.. .. . . ..... . .. 7.93 7.85 7.70 7.55 6.91 6.98 

Nonperforming assets to assets .. .. .. . . ..... . .. . . . ... 2.27 2.14 2.46 1.95 1.87 1.60 

Net charge-offs to loans . . .. ... . . ...... ..... .... .. . . 1.12 1.00 0.92 0.99 0.84 0.75 

Asset growth rate ..... .. ..... .... .. . .. ...... . ..... 5.37 5.68 2.03 7.71 8.86 7.11 

Net operating income growth ...... .•.. ..... .........-35.97 1666.92 -85.27 -20.65 6.30 3.40 

Percentage of unprofitable banks ... . .... . . . .......... 11 .58 14.59 17.66 20.66 17.09 14.05 

Number of problem banks .... .. .. . . ....... .. .... ... 1,093 1,394 1,559 1,457 1,098 00) 

Number of failed/assisted banks . .. . .. .. .. ..... .. . . ... 206 221 201 144 118 78 

Table II. Aggregate Condition and Income Data, FDIC-Insured Commercial Banks 

(dollar figures in millions) 

Preliminary 

4th Qtr 3rd Qtr 4th Qtr %Change 

1989 1989 1988 88:4-89:4 

Number of banks reporting ...... . ... . . ....... ... . . .. . . . ...... . .. . 12,706 12,824 13,122 -3.2 

Total employees (full-time equivalent) . . . . . . ....... . .... . .... . .... . . . 1,514,182 1,527,994 1,527,130 -0.8 

COND/TTON DATA 

Total assets . ..... . . . .......... . .... . .. .. . .. .. .... ............ . $3,299,028 $3,223,117 $3,130,882 5.4 

Real estate loans ... .. ... .................. ... ..... . ....... . 761 ,543 743,550 675,073 12.8 

Commercial & industrial loans ........ . . . . .. . •..... ........ . . . 618,376 616,855 600,317 3.0 

Loans to individuals ........ . ............... ... .......... . .. . 400,585 388,099 377,965 5.5 

Farm loans ... .. . . . ..... ... . .. . .. ..... .. ....•.............. 31,134 31,001 30,223 3.1 

Other loans and leases ........ . ............. . . . . . .......... . 245,479 244,406 248,768 -1 .3 

Total loans and leases . ........ . ............. .. ............. . 2,057,117 2,024,711 1,932,347 6.5 

LESS: Reserve for losses . . ............. .. .. . . .. ............ . 53,176 52,902 46,681 13.9 

Net loans and leases . .......... . .. . . . ... . .... . . . .... ... ...... . 2,003,941 1,971,009 1,885,666 6.3 

Temporary investments ........... . ... . . .. .. ... .. . ..... .. ..... . 481,487 464,585 466,551 3.2 

Securities over 1 year ...... .... ........ . ... . .. . .............. . 402,640 400,198 382,384 5.3 

All other assets . . ................. . ........ . . . ............ . . . 410,961 386,526 396,200 3.7 

Total liabilities and capital .. . . . .... ......... . .. ... . . . . ........ . .. . 3,299,028 3,223,117 3,130,882 5.4 

Noninterest-bearing deposits ........... ....... .•. •.. ..... . .. .... 483,531 441 ,771 479,447 0.8 

Interest-bearing deposits ... . ................. ... •...... . . . ..... 2,064,487 2,025,395 1,952,242 5.8 

Other borrowed funds ..... . .. .. ...... .... .. . ..••.. .. . ... . .. .. . 418,382 424,088 300,927 9.8 

Subordinated debt .................................... . .. . ... . 19,648 19,076 17,298 13.6 

All other liabilities . ...................... .. .................. . 107,434 108,500 104,445 2.9 

Equity capital . . .. ...... . .. . .. ... . .. . . . ... . . ................. . 205,547 204,207 196,524 4.6 

Primary capital ..... . . .. .......... . ..... . . .. . . .... . ............ . 261,446 260,568 246,633 6.0 

Nonperforming assets ............ ... .. ... . . . . . .. . ... . . ......... . 74,890 75,318 67,120 11.6 

Loan commitments and letters of credit .......... . ... . ...... . .... . . 875,m 858,207 839,401 4.3 

Domestic office assets ................. . . . . . . .. ..... . ... . ... . .. . 2,896,491 2,812,066 2,726,256 6.2 

Foreign office assets .. . .......... .. . . .. ... . . . . .... .. ....... .... . 402,537 411,051 404,626 -0.5 

Domestic office deposits . . .................... . ..... . ........ . .. . 2,236,263 2,143,736 2,1 16,609 5.6 

Foreign office deposits . . .. ..... . ............... ... ............. . 311,755 323,430 315,079 -1 .0 

Earning assets ..... . . . ..................... . ....•... .. .. . .. . .. . 2,888,067 2,836,592 2,734,602 5.6 

Volatile liabilities .... . ....................... . ...... .. ......... . 1,126,691 1,144,860 1,074,182 4.9 

Preliminary Preliminary 

INCOME DATA Full Year Full Year 4th Qtr 4th Qtr 

1989 1988 %Change 1989 1988 % Change 

Total interest income . ............. .. .. .... $317,313 $272,286 $16.5 $84,202 $76,631 9.9 

Total interest expense 205,098 165,032 24.3 55,093 46,315 18.9 ··· ······ ····· ... . ... Net interest income ............ . . . ...... 112,215 107,254 4.6 29,108 30,316 -4.0 

Provision for loan losses ............ . .... .. 30,300 17,155 76.6 9,965 5,836 70.8 

Total noninterest income ... . ............... 51 ,076 44,940 13.7 14,318 11,820 21.1 

Total noninterest expense ........... .... ... 107,985 101 ,313 6.6 29,292 27,543 6.3 

Applicable income taxes ...... ........ ..... 9,811 9,995 -1 .8 1,786 2,627 -32.0 

Net operating income . .. .......... . . . .... 15,194 23,730 -36.0 2,383 6,129 -61 .1 

Securities gains, net . . . . ....... .. . .... . .... 799 200 185.1 278 -233 NIM 

Extraordinary gains, net . . . .... ........ . .... 327 832 -fiJ.7 20 241 -91 .6 

Net income ... . ........... . ... .. . .... .. 16,321 24,843 -34.3 2,681 6,137 -56.3 

Net charge-offs ........................... 22,163 18,626 19.0 9,200 5,849 57.3 

Net additions to capital stock .... ... ........ 1,458 3,185 -54.2 -61 532 NIM 

Cash dividends on capital stock ....... .... .. 13,990 13,220 5.8 4,076 4,325 -5.8 

• N/M-Not meaningful 

5 
Table Ill. Full Year 1989 Bank Data (Dollar figures in billions, ratios in %) 

Asset Size Distribution Geographic Distribution 

EAST WEST Less $100 Million Greater 

than $100 to $1-10 than $10 Northeast Southeast Central Midwest Southwest West 

All Banks Million $1 Billion Billion Billion Region Region Region Region Region Region 

FULL YEAR Preliminary 

(The way it is .. . ) 

Number of banks reporting .. ............ 12,706 9,720 2,608 334 44 1,087 1,962 2,836 3,016 2,325 1,480 

Total assets . . ...... .. . . . . .. . .. . .. ... . $3,299.03 $365.49 $624.95 $1,056.37 $1,252.22 $1,292.92 $483.94 $533.23 $ 214.21 $267.39 $507.33 

Total deposits .............. .. . .. . ... . . 2,548.02 324.98 536.02 791.90 895.12 934.30 381.42 426.74 171.88 225.14 408.53 

Net income (in millions/ . . .. . . . .•.•.. .... .. 16,321 2,829 5,459 6,687 1,345 231 4,131 5,147 2,074 -151 4,887 

Percentage of banks losing money ...... . 11.6% 12.8% 7.1% 10.5% 25.0% 14.9% 13.5% 4.3% 4.7% 23.4% 16.0% 

Percentage of banks with earnings gains .. 64.4% 63.0% 70.3% 61.7% 38.6% 60.0% 63.5% 67.9% 61.9% 62.1% 70.5% 

Performance Ratios 

Yield on earning assets . . . . ... . .. . ... .. . 11 .44% 10.53% 10.85% 11.07% 12.35% 12.35% 10.80% 10.65% 10.97% 10.18% 11.43% 

Cost of funding earning assets . . ... .. . ... 7.40 6.00 6.26 6.77 8.96 8.72 6.61 6.69 6.50 6.66 6.25 

Net interest margin ... . . . . . .... .. . .. ... 4.05 4.53 4.59 4.30 3.40 3.62 4.20 3.96 4.46 3.52 5.18 

Net noninterest expense to earning assets . 2.05 2.79 2.58 2.19 1.44 1.73 2.36 1.98 2.10 2.16 2.58 

Net operating cash flow to assets .. .. .... 1.75 1.58 1.82 1.87 1.66 1.65 1.63 1.77 2.12 1.15 2.24 

Net operating income to assets ... .. . .... 0.48 0.77 0.91 0.64 0.06 -0.01 0.87 1.02 0.97 -0.11 0.92 

Return on assets .. . .. . ............ ... 0.52 0.81 0.92 0.67 0.11 0.02 0.90 1.00 1.01 -0.06 1.01 

Return on equity .. . . .. . . . . . ... . ...... . 8.13 8.82 12.19 10.65 2.20 0.32 12.85 14.62 13.11 -1.01 16.38 

Net charge-0ffs to loans and leases ...... 1.12 0.73 0.73 1.05 1.46 1.31 0.59 0.90 1.21 1.91 1.01 

Loan loss provision to net charge-Offs .. . .. 136.71 118.39 120.06 135.60 143.67 168.74 131.33 82.53 98.18 121.84 114.57 

Condition Ratios 

Loss allowance to: 

Loans and leases .. ... . . .... ..•.. .. . . 2.58% 1.65% 1.57% 1.94% 3.88% 3.51% 1.38% 1.71% 1.83% 2.89% 2.39% 

Noncunrent loans and leases .... .. ..... 85.96 78.89 78.53 86.17 88.32 87.09 92.63 100.72 99.95 54.94 89.46 

Nonperforming assets to assets .... . .... 2.27 1.75 1.66 1.82 3.11 2.79 1.21 1.18 1.40 4.40 2.34 

Equity capital ratio ... . ... . . .. . . .. . .... 6.23 8.95 7.50 6.15 4.87 5.59 6.96 6.86 7.61 5.57 6.27 

Primary capital ratio .. . . .. . . .. . ......... 7.93 9.89 8.48 7.46 7.48 7.92 7.86 7.91 8.75 7.12 8.08 

Net loans and leases to deposits . . .. .. ... 78.65 58.27 69.96 85.96 84.78 85.22 78.30 73.45 71 .28 56.19 84.83 

Growth Rates (year-to-year) 

Assets ..... . . ... .. . . . ......... . ..... . 5.4% 6.4% 9.4% 9.9% 5.8% 4.0% 10.0% 5.3% 1.9% 2.2% 8.0% 

Equity capital . . .... . ...... . ... . ....... 4.6 5.5 10.4 9.1 1.0 - 1.9 10.4 7.0 4.2 0.6 14.8 

Net interest income ........ .. .. . ... . ... 4.6 8.8 12.3 10.5 0.1 0.3 7.0 6.5 3.1 -0.2 12.5 

Net income .. ... .. . . .. . . ... . .. . . . ..... -34.3 21.9 15.5 -13.8 -88.1 -98.1 1.3 -0.7 14.2 N/M 32.8 

Nonperforming assets ........ .... . . ... . 11.6 2.9 20.0 36.7 7.9 23.4 30.5 8.3 -5.7 -1.0 -4.9 

Net charge-Offs . ..... . ...... . . .. .. . .... 19.0 -1.3 17.7 11.9 39.0 66.0 3.6 32.5 -4.4 -24.3 -11 .5 

Loan loss provision . . ..•. ... .... . ...... 76.6 -3.2 16.4 57.9 210.9 208.1 26.3 31.7 1.6 -11.8 24.6 

PRIOR FULL YEARS 

(The way it was ... ) 

Return on assets ....... ... . . ..... 1988 0.82% 0.64% 0.75% 0.79% 0.95% 0.98% 0.98% 1.07% 0.90% -0.73% 0.83% 

........... . ..... 1986 0.63 0.46 0.66 0.76 0.57 0.78 1.02 0.88 0.73 -0.39 0.34 

.. ......... . .. . .. 1984 0.64 0.77 0.89 0.78 0.35 0.69 0.98 0.49 0.78 0.65 0.42 

Equity capital ratio . . . . . ... . . ..... 1988 6.28 8.73 7.23 6.15 5.10 5.93 6.93 6.75 7.44 5.65 5.90 

.... . ............ 1986 6.19 8.35 6.97 5.95 5.14 5.81 6.57 6.79 7.12 6.39 5.67 

. . . . ... . ... . ..... 1984 6.14 8.53 7.06 5.71 4.84 5.53 6.65 6.68 7.38 6.86 5.57 

Nonperforming assets to assets .... 1988 2.14 1.92 1.72 1.53 2.96 2.35 1.02 1.15 1.52 4.55 2.66 

. . . .. . . ... ..... . . 1986 1.95 2.24 1.89 1.44 2.30 1.55 0.96 1.30 2.01 4.10 2.98 

. . . .. ... .. . . . .... 1984 1.60 0.70 0.86 1.41 2.60 1.65 0.66 1.29 1.13 1.57 2.64 

Net charge-0ffs to loans and leases .1988 1.00 0.88 0.78 1.06 1.08 0.82 0.63 0.73 1.33 2.39 1.27 

... . . .. . . .... . .. . 1986 0.99 1.57 1.08 0.79 0.92 0.62 0.62 0.70 2.14 2.12 1.25 

. . ...... . . . .. . ... 1984 0.75 0.92 0.63 0.65 0.81 0.39 0.43 1.14 1.07 1.13 0.94 

REGIONS: Northeast - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New Yor1<, Pennsylvania, 

Puerto Rico, Rhode Island, Vermont 

Southeast - Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia 

Central - Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin 

Midwest - Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota 

Southwest - Ar1<ansas, Louisiana, New Mexico, Oklahoma, Texas 

West - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming 

6 
Table IV. Fourth Quarter 1989 Bank Data (Dollar figures in billions, ratios in %) 

Asset Size Distribution Geographic Distribution 

EAST WEST Less $100 Million Greater 

than $100 to $1 -10 than $10 Northea5t Southea5t Central Midwest Southwest West 

All Banks Million $1 Billion Billion Billion Region Region Region Region Region Region 

FOURTH QUARTER Preliminary 

(The way it is . .. ) 

Number of banks reporting ..... ... . . . ... 12,700 9,720 2,608 334 44 1,087 1,962 2,836 3,016 2,325 1,480 

Net income . .. . . ..... .. . .. . ........... $2,681 $439 $1,175 $577 $490 -$659 $888 $1,191 $370 -$348 $1,239 

Percentage of banks losing money ... . ... 19.8% 22.2% 10.7% 18.0% 27.3% 22.8% 21 .6% 10.8% 16.4% 30.5% 22.2% 

Percentage of banks with earnings gains .. 53.3% 52.4% 56.8% 53.3% 38.6% 43.4% 51.5% 55.2% 52.4% 54.4% 59.0% 

Perfonnance Ratios (annualized) 

Yield on earning assets .. .. ... .. . .... .. . 11.83% 10.61% 10.97% 11.03% 13.37% 13.24% 10.85% 10.67% 11.03% 10.43% 11.51 % 

Cost of funding earning assets ... . . ... . .. 7.74 6.11 6.38 6.74 9.85 9.50 6.68 6.69 6.55 6.96 6.32 

Net interest margin ..... .. .. ..... .. .... 4.09 4.50 4.59 4.29 3.52 3.74 4.16 3.98 4.48 3.47 5.19 

Net noninterest expense to earning assets . 2.10 3.04 2.59 2.26 1.42 1.81 2.38 2.04 2.37 1.95 2.62 

Net operating cash flow to assets . . ... .. . 1.74 1.32 1.81 1.80 1.77 1.68 1.59 1.73 1.89 1.29 2.21 

Net operating income to assets . . .. . ..... 0.29 0.45 0.76 0.19 0.10 -0.25 0.70 0.99 0.65 -0.59 0.85 

Return on assets .... . ... . .... . . .. . . . .. 0.33 0.49 o.n 0.22 0.16 -0.21 0.75 0.90 0.70 -0.53 0.99 

Return on equity . .... . .. . .. .. ..... . . .. 5.26 5.37 10.11 3.56 3.27 -3.67 10.66 13.10 9.13 -9.32 15.81 

Net charge-Offs to loans and leases .. . . . . . 1.81 1.11 1.00 1.41 2.70 2.39 0.85 1.61 1.49 3.24 1.07 

Loan loss provision to net charge-0ffs ..... 108.31 102.28 109.48 147.73 90.56 121.56 125.77 46.74 98.26 113.92 110.85 

Growth Rates (year-to-year) 

Net interest income . .. . . ... . .. .. . .. ... . -4.0 4.6 7.9 3.7 -14.5 -11.6 5.1 3.4 1.6 -12.3 0.5 

Net income . . ............. . . . ......... -56.3 35.2 23.4 -67.9 -85.5 N/M -5.1 -8.6 69.9 N/M 36.8 

Net charge-0ffs .... . . . . . .. .. ... .. . .. .. . 57.3 -2.4 31 .4 26.1 117.2 126.0 21.4 102.0 8.5 20.5 -25.3 

Loan loss provision ...... .. .. . . . .. . .... 70.8 -14.8 9.9 76.7 146.7 170.3 36.9 8.9 8.6 18.1 -5.1 

PRIOR FOURTH QUARTERS 

(The way it was . .. ) 

Return on assets .. .... . ..... . .... 1988 0.79% 0.30% 0.54% 0.78% 1.08% 1.04% 0.87% 1.04% 0.42% -0.72% 0.79% 

....... . ..... .. .. 1986 0.48 -0.14 0.27 0.72 0.62 0.76 0.85 0.72 0.59 -1.31 0.37 

. ... . .. . . . ....... 1984 0.59 0.21 0.74 0.81 0.49 0.76 0.85 0.70 0.46 0.27 0.19 

Net charge-0ffs to loans and leases . 1988 1.23 1.33 1.00 1.16 1.36 1.11 0.77 0.85 1.42 2.52 1.61 

.. . ........ . . . . .. 1986 1.30 2.51 1.71 0.95 1.01 0.75 0.92 0.99 2.53 3.47 1.40 

............ .. .. . 1984 0.99 1.75 0.99 0.84 0.82 0.56 0.70 0.92 1.87 1.61 1.37 

NOTES TO USERS 

COMPUTATION METHODOLOGY FOR PERFORMANCE AND CONDITION RATIOS 

All income figures used in calculating performance ratios represent amounts tor that period, annualized (multiplied by the number of periods in a yeary. 

All asset and liability figures used in calculating performance ratios represent average amounts for the period (beginning-of-period amount plus end-of-period amount plus any 

periods in between, divided by the total number of periods). 

All asset and liability figures used in calculating the condition ratios represent amounts as of the end of the quarter. 

DEFINITIONS 

"Problem" Banks-Federal regulators assign to each financial institution a uniform composite rating, based upon an evaluation of financial and operational criteria The rating 

is based on a scale of 1 to 5 in ascending order of supervisory concern. " Problem" banks are those institutions with financial , operational or managerial weaknesses that threaten 

their continued financial viability. Depending upon the degree of risk and supervisory concern, they are rated either "4" or "5". 

Earning Assets-all loans and other investments that earn interest, dividend or fee income. 

Yleld on Earning Assets-total interest, dividend and tee income earned on loans and investments as a percentage of average earning assets. 

Cost of Funding Earning Assets-total interest expense paid on deposits and other borrowed money as a percentage of average earning assets. 

Net Interest Margin-the difference between the yield on earning assets and the cost of funding them, i.e., the profit margin a bank earns on its loans and investments. 

Net Nonlnterest Expense-total noninterest expense, excluding the expense of providing tor loan losses, less total noninterest income. A measure of banks' overhead costs. 

Net OperaUng Income-income after taxes and before gains (or losses) from securities transactions and from nonrecurring items. The profit earned on banks' regular banking business. 

Net Operating Cash Flow-pre-tax net operating income before the provision for loan and lease losses; a measurement of banks' cash flow, net of interest and overhead expenses, 

from regular operations. Previously referred to as "adjusted net operating income". 

Return on Assets-net income (including securities transactions and nonrecurring items) as a percentage of average total assets. The basic yardstick of bank profitability. 

Return on Equity-net income as a percentage of average total equity capital. 

Net Charge-offs-total loans and leases charged off (removed from balance sheet because of uncollectibility) during the quarter, less amounts recovered on loans and leases 

previously charged off. 

Nonperforming Assets-the sum of loans past-due 90 days or more, loans in nonaccrual status, and noninvestment real estate owned other than bank premises. 

Noncunent Loans & Leases-the sum of loans past-due 90 days or more and loans in nonaccrual status. 

Primary Capital-total equity capital plus the allowance for loan and lease losses plus minority interests in consolidated subsidiaries plus qualifying mandatory convertible debt 

(cannot exceed 20 percent of total primary capital), less intangible assets except purchased mortgage servicing rights. 

Net Loans and Leases-total loans and leases less unearned income and the allowance for loan and lease losses. 

Temporary Investments-the sum of interest-bearing balances due from depository institutions, federal funds sold and resold , trading-account assets and investment securities 

with remaining maturities of one year or less. 

Volatile Liabilities-the sum of large denomination time deposits, foreign office deposits, federal funds purchased, and other borrowed money. 

Requests for copies of and subscriptions to the FDIC Quarter1y Banking Profile should be made through the FDIC's Office of 

Corporate Communications, 550 17th Street N.W., Washington, D.C. 20429; telephone (202) 898-6996. 

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