__ 

Fourth Quarter 1988 

'IC 

,ice of Research 

·. ·'4i· Statistics 

John Quinn 

(202) 898-3940 

Ross Waldrop 

(202) 898-3951 

The FDIC 

uarter1)'.: _______L_. W_illi_am_Se_id_m_an_,_C_ha_ir_m_an

anking Rofile 

COMMERCIAL BANKING PERFORMANCE -FOURTH QUARTER 1988 

• U.S. Banks Rebound from 1987 Low with Best Profitability of Decade

• Earnings Records: $25.3 Billion in 1988, $6.7 Billion in Quarter

• Lower Loan Loss Expense Gives Major Boost to Earnings

• Industry Improves Reserve Coverage of Problem Loans

• Number of Unprofitable Banks Drops Sharply

• Banking Industry's Equity Capital Level Reaches New High

• FDIC Handles Record Number of Bank Failures in 1988

In a sharp rebound from record low results 

in 1987, commercial banks earned a record 

$25.3 billion in 1988. The previous record was 

the $18.1 billion earned in 1985. Improved industry profitability was reflected in a return 

on assets of 0.84 percent, the highest level 

since 1973. Aggregate return on equity was 

13.61 percent, the highest since 1980, and 

the third highest ever for FDIC-insured commercial banks. Improvement was seen 

across the board, as the percentage of banks 

that were unprofitable fell to 13.9 percent of 

the industry from 17.7 percent in 1987 and 

19.8 percent in 1986. 

Chart A 

Returns on Assets and Equity 

of Insured Commercial Banks 

ROA% 1938-1988 ROE% 

1.0 15

..................... ··········=·-········ .......... =....... '----+------ . 

.

6 

·

r,,, ·--r······· ··········r-- !I :: 9 

• " ········· + ···w; i J Ji'·

3 

· 

2 ,___...,_.__�____......,_�___.--�---t--1: . 

Fourth quarter net income of $6.7 billion was 

also a record, $800 million over third quarter 

1988, the previous high. This is the first time 

that the banking sector has enjoyed consecutive record-setting quarters. The 

previous high for a fourth quarter was $3.5 

billion. 

Chart B 

Quarterly Net Income 

of FDIC-Insured Commercial Banks 

$ Billions 1984-1988*

8,--- - -----------

- --··· -_

8 s.3 5.8 

-2 

-4 

-6 

-8 

-10 

-12�-----�--_-_10_ .6 _ _ 

1 2 34 1 2 34 1 2 34 123 4 1 2 3 4

1984 1985 1986 1987 1988 

[mNet Operating Income •securities and Other Gains OFirst Repubhc Ellec1 

• 1988 first and second quarter amounts are adjusted for 

effect of First Republic failures. See Note page 4 . 

The year's impressive results were attributable to several special factors. After 

setting aside sizable reserves for troubled 

loans to developing nations during 1987, 

large banks reduced their provision for loan 

losses by 78.5 percent·in 1988. The industry's 

For assistance contact: Section508@fdic.gov
5.0 

4.5 

4.0 

3.5 

aggregate loan loss expense was $20.9 

billion less in 1988 than in 1987, explaining 

a good deal of the improvement in net income. At the same time, the extent to which 

banks' loan loss reserves covered noncurrent 

loans and leases improved from 78.0 percent 

at the end of 1987 to 82.6 percent at the end 

of 1988. 

Under an agreement reached earlier in the 

year, banks issued new credits permitting 

Brazil to resume interest payments on its 

U.S. bank debt. This enabled banks to book 

nearly $3 billion of accumulated interest during the fourth quarter. As a result, net interest income of the largest banks was 26.7 

percent higher in the fourth quarter than in 

the same quarter in 1987. Net interest 

margins widened considerably, approaching 

small-bank levels. 

Chart C 

Quarterly Net Interest Margins 

1983-1988 

Net Interest Margin (%) 

billion reduction in nonperforming assets 

from third-quarter levels. 

While the large amount of assistance provided to resolve bank insolvencies in 1988 improved the industry's balance sheet, it had 

the opposite effect on the FDIC's balance 

sheet. For the first time in its history, the 

FDIC experienced a full-year operating loss. 

Costs associated with the resolution of banking problems, especially those in Texas, 

caused the deposit insurance fund to decline 

by slightly more than $4 billion. 

Chart D 

U.S. Commercial Banking Industry 

"Loss Cushion" 

% Bank Assets 1976-1988 

10 

: I I 

Banks < $100 Million 

1234 1234 1234 1234 1234 1234 

1983 1984 1985 1986 1987 1988 

One other element of the improved picture 

of commercial banking performance was the 

FDIC's resolution of a record number of insolvency cases during 1988. The FDIC handled 221 bank failure and assistance transactions, removing some of commercial banking's most unprofitable institutions from 

industry totals. The closing of the banks of 

First Republicbank Corporation in July 

resulted in the removal of $2.3 billion in prefailure losses from industry aggregates, and 

a $1.4 billion net addition of equity capital. 

Also, under the terms of the failure transaction, the FDIC provided guarantees covering 

approximately $5 billion of that company's 

bad assets during the fourth quarter. This explains more than half of the industry's $8.9 

'76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 

l���j Loan Loss Reserves j::\:1 Equity Capital 

Wli Subordinated Debt -FDIC Fund

Equity capital increased $16.5 billion during 

1988, a rise of 8.9 percent. $3.3 billion of that 

came in the fourth quarter, as banks ended 

the year with an aggregate equity capital 

balance of $196.5 billion. As large banks continued to increase their off-balance sheet activities, total assets in the banking system 

grew only 4.0 percent over the year, rising to 

$3.12 trillion from $3.0 trillion at the end of 

1987. This placed the industry's aggregate 

equity-to-assets ratio at 6.30 percent, the 

highest level since banks began reporting on 

a fully consolidated basis in 1976. For the 

first time in thirteen years, net loan chargeoffs exceeded the provision for loan losses, 

resulting in a 6.9 percent re-.ctuction in loanloss reserves. This combination of rising 

equity capital and declining 'loss reserves in 

1988 is the opposite of what occurred at the 

largest banks in 1987. 

2 
l I I 

The nation's largest banks enjoyed the 

greatest improvement in profitability, both in 

the fourth quarter and for the full year, due 

especially to reduced loan-loss provisioning 

and the addition of Brazilian interest income. 

Large banks also continued to meet with 

success in efforts to curb overhead expense 

growth. Higher profits enabled money-center 

banks to bolster equity capital while sharply increasing dividend payments. Banks in 

the largest size group were the only ones to 

· register a decline in nonperforming assets;

however, lower than usual loss provisioning

and increased net charge-offs meant that

their reserve coverage of noncurrent loans

fell in 1988.

Chart E 

Noncurrent Loan Rates 

% of Loans 1982-1988 

7 ,------,---.,.------r--..,.------i---, 

!"'

\/

'',,,,,,,, C : : ,�"'

,.,,

... 1' y 

4 ·················· ············;· ··················· ·················+···At�... ��······· . Total ""'-"'-� ,.._,,�,,�,,. �.

: :,:,,;,,;,:;,

;:,,,"'�"�i:!::::tl ""' E

,:::: 

! I

1 /////;,,r.,·rJ ... -···••"••••• •;•,r,r ..,✓///. ///./.�,:'/.'/./.'.(:,:';,(.,(.,(.(.(.,:':(../_,';((.(.,(.(.(:,(.-(__ ,,,,,,,,,,/,,,,,,/_,,,,,,;,,,,,,,, . I � l 

onsumer j C

o�-�--�-�--�-�--�

'82 '83 '84 '85 '86 '

87 '88 

With the FDIC already having handled the 

major problems in the Southwest, the most 

significant on-going problem facing the 

banking sector remains troubled loans to 

developing nations. Banks have established 

sizable reserves against these credits, and 

most have taken steps to reduce their absolute and relative exposure. Still, large 

banks did not add to their reserves against 

these credits during 1988, in spite of further 

slippage in secondary market prices on 

these loans. Although Brazil brought its debt 

payments current during 1988, the long-term 

outlook remains clouded. Many debtor countries continue to confront economic and 

social problems that limit their ability to 

maintain interest payments. Higher interest 

rates or a slowdown in world economic 

growth would further strain the ability of 

these countries to meet their payments 

obligations. 

Domestic credits are also vulnerable to 

economic slowdown or a run-up in interest 

rates. Hor:1e equity lines of credit, only 

recently introduced, and variable-rate 

mortgag�s have not been tested in a high 

rate environment. A continued rise in the 

prime lending rate, to which many of these 

loans are tied, could provide such a test during 1989. 

Chart F 

Net Loan Charge-Off Rates 

% of Avg. Loans 1982-1988 

2.0 ,----y---r----,--�----r---, 

'82 '83 '84 '

85 '86 · '87 '88 

Loan growth remained limited to the real 

estate and consumer sectors in 1988, as 

these two areas accounted for 104.5 percent 

of total loan growth. Over $100 billion of the 

industry's $120 billion total asset growth in 

the year was attributable to additions to the 

real estate and consumer loan portfolios. 

Growth in real estate loans was almost evenly divided between residential and commercial real estate. Persistently strong growth 

in the Northeast and Southeast regions, in 

the face of softening market prices, will merit 

closer attention. Commercial and industrial 

loans grew by only $6.5 billion during 1988, 

$770 million during the fourth quarter. Loans 

in all other categories actually fell $8.8 billion 

during the year, with $5.4 billion of that 

reduction seen in the fourth quarter. This last 

group includes many of the loans to developing countries, some of which have been 

charged off by banks over the past year and 

a half. 

Reversing the historic pattern, larger banks 

reported higher profitability than smaller 

banks in 1988. Nevertheless, small banks 

demonstrated improved profitability, both in 

the fourth quarter and for the the full year. 

Improving trends in their relative levels of 

nonperforming assets and net loan losses, 

and in the number of unprofitable small 

banks, suggest that performance gains may 

carry over into 1989. 

3 
9.46 

5 ---- - ----- --- -- -- ------------

2.67 2.52 

0 .___· 1_9

-=m,,,H""i -_-_._

16--"'ll"'ll'""IIL..._-

2

_

3

"""'=---"-==-

250 ---- -1-+-..--j--- --- -----··­

f---· --·--·-·;!·;ti_ ·-

.I llil·l ll{l-l--ll--llll I -11-11 

I 

� ... .., �,:, ....... � .... 

Chart G 

Regional Failure & Problem Bank Rates 

Percent 1988 

30,-----------------=;;-------, 

25 

20 

15 ···············--· - ·· 13.95· 

10 -··-· ·- .. -· -·-··-·· 

_J 

,.43 mm_

mm 

NE SE C MW SW w 

■ 1988 Failure Rate till 0/o on "Problem Bank" List 12/31/88 

Continuing the trend of recent years, 

problem and failed banks were predominantly in the western half of the U.S. in 1988, with 

the greatest concentration in the Southwest. 

The Southwest was the only region to experience a year-to-year decline in aggregate 

profitability, and even that decline was 

understated with so many losses being taken 

out of the system through bank failure 

transactions. Improvement is anticipated in 

1989, as the region's recovery begins to be 

reflected in banking results. 

Chart H 

Structural Changes Among 

FDIC-Insured Commercial Banks 

Number of Banks 1980-1988 

600 .---�--,--�-�-------� 

· 500 .... 

'80 '81 '82 '83 '84 '85 '86 '87 '88 

The liberalization of state branching laws in 

Texas and the Midwest has accelerated consolidation of the banking industry. Since new 

bank chartering peaked in 1984, the industry 

has seen a reduction 'in the number of 

operating banks. Due in large part to fewer 

branching restrictions, this process is also 

a natural response to competitive pressures 

facing the industry, and the need for improved efficiency. 

This trend has also been reflected in a 

shrinkage of the "Problem Bank" list. Most 

of the weakest banks have left the system. 

In addition, some "problem banks" have 

been converted to branches of other banks. 

But most significantly, many banks that 

found their way onto the "Problem Bank" list 

due to local economic problems and difficulty with the more competitive, deregulated environment of the 1980s, have succeeded in 

adapting, and have been able to shed 

"problem" status. 

Chart I 

Quarterly Changes 

in FDIC "Problem Bank" List 

1984-1988 Number of Banks 

300 ,------�--�----,------;------, 

ADDITIONS 

200 

150 t-------+----.-.J---a-il_H .. t-W------· -----

100 

50 i-a-a-a-aa-H ..... �---------H-IIJ-W-a-a-t�------7 

0 

-50 • -100 i;: 

- 150 

-200 L__ 

1234 

___,____123• 

__J___ 1234 _,._1234 ____,___1234� 1984 1985 1988 1986 1987 

■ Banks Added � Banks Deleted and S/111 Operating � Failed Banks 

Without last year's one-time contributions, 

1989 earnings are not likely to equal 1988's 

results, although several positive trends are 

expected to continue. The two-year decline 

in the numbers of unprofitable and 

"problem" banks should persist; and there 

should be a decline in the number of failures 

for the first time in eight years. Large banks' 

1988 earnings may not prove sustainable, but 

small bank performance is likely to show further improvement. 

NOTES: The data of one $10 billion national bank in the 

Northeast region was received too late to include in this 

report and is missing from the aggregates. It reported 

net losses of $125 million for the year and $205 million 

for the fourth quarter, but this will not materially affect 

the performance indicators or conclusions of this report. 

Also, as explained in the previous issue, the closing of 

the banks of First Republicbank Corporation in July 

resulted in the effective removal of $2.3 billion in first• 

half losses from full•year industry earnings. Industry 

earnings for the first and second quarters of 1988 have 

been restated to reflect this change. 

4 
2.03 8.12 

3.40 

4.0 

589,309 

7.7 

5.3 

49,855 -6.9

-3.9

395,343 

4.0 

450,964 

4.8 

835,755 

-5.1

313,999 -8.1

3.7 

1.9 

7.0 

7.6

2.3

204.4

-9.4

Table I. Selected Indicators, FDIC-Insured Commercial Banks 

1988 1987 1986 1985 

Return on assets ......................... 0.84% 0.12% 0.63% 0.70% 

Return on equity .......................... 13.61 2.00 9.94 11.31 

Equity capital to assets .................... 6.30 6.04 6.20 6.20 

Primary capital ratio ....................... 7.00 7.70 7.22 6.91 

Nonperforming assets to assets ............. 2.14 2.46 1.94 1.87 

Net charge-offs to loans .................... 0.98 0.92 0.98 0.84 

1984 1983 1982 

0.65% 0.66% 0.71% 

10.73 10.70 12.11 

6.15 6.00 5.87 

6.91 6.59 6.47 

1.97 1.97 1.85 

0.76 0.67 0.56 

Asset growth rate ......................... 4.00 7.71 8.86 7.11 6.75 

Net operating income growth ............... 2008.37 -8527 -20.65 6.30 -3.69 -0.62

Percentage of unprofitable banks ............ 13.86 17.66 19.79 17.09 13.06 10.58 827

Number of problem banks .................. 1,394 1,559 1,457 1,098 800 603 326 

Number of failed/assisted banks ............. 221 201 144 118 78 45 34 

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

(dollar figures in millions) 

Preliminar; 

4th Otr 3rd Qtr 4th Otr %Change 1988 1988 1987 87:4-88:4 

Number of banks reporting ..................................... .. 13,114 13,238 13,701 -4.3

Total employees (full-time equivalent) .............................. . 1,532,319 1,527,335 1,545,281 -0.8

CONDITION DATA 

Total assets .................................................. . $3,119,868 $3,094,361 $2,999,757 

Real estate loans .......................................... . 674,738 657,285 fiJJ,097 12.4 

Commercial & industrial loans ............................... . 595,781 595,010 1.1 

Loans to individuals ........................................ . 377,024 367,359 351,157 

Farm loans .........................................•...... 30,198 31,117 29,425 2.8 

Other loans and leases ..................................... . 247,744 252,269 257,357 -4.4

Total loans and leases ...................................... . 1,925,280 1,001,932 1,829,058 

LESS: Reserve for losses .............................•...... 46,405 49,184 

Net loans and leases ......................................... . 1,878,876 1,852,748 1,779,203 5.6 

Temporary investments ....................................... . 464,730 482,956 451,176 3.0 

Securities over 1 year ........................................ . 380,919 382,781 396,549 

All other assets ............................................. . 375,876 372,828 6.0 

Total liabilities and capital ....................................... . $3,119,868 $3,094,361 $2,999,757 

Noninterest-bearing deposits ................................... . 478,013 477,561 0.1 

Interest-bearing deposits ...................................... . 1,946,208 1,923,945 1,857,603 

Other borrowed funds ........................................ . 

Subordinated debt ........................................... . 

All other liabilities ........................................... . 

Equity capital ............................................•... 

Primary capital ............................................... .. 

Nonperforming assets .......................................... . 

Loan commitments and letters of credit ........................... . 

377,844 

17,255 

103,976 

196,400 

246,388 

66,803 

403,833 361,764 4.4 

17,197 17,614 -2.0

105,100 104,617 -0.6 

193,230 180,503 8.9 

246,062 234,143 5.2 

75,774 73,843 -9.5

818,227 794,186 5.2 

Domestic office assets ......................................... . 2,716,603 2,678,088 2,574,703 5.5 

Foreign office assets .........•............................•..... 403,265 416,272 425,054 

Domestic office deposits .......................................•. 2,110,222 2,046,546 1,993,554 5.8 

Foreign office deposits .....................................•.... 328,362 341,610 

% Change 

Earning assets ................................................ . 2,724,525 2,718,484 2,626,929 

Volatile liabilities ........•..•................................... 1,069,142 1,101,761 1,049,485 

Preliminar; Preliminary 

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

1988 1987 3⁄4Change 1988 1987 

Total interest income ...................... $271,345 $244,826 10.8 $76,377 $66,143 15.5 

Total interest expense ........ ............ 164,432 144,942 13.4 46,147 39,565 16.6 

Net interest income ........ . . ...... . . . . 106,913 99,884 30,230 26,577 13.7 

Provisions for loan losses ................. 16,577 37,504 -55.8 5,307 8,575 -38.1

Total noninterest income .................. 44,603 41,466 11,554 12,308 

Total noninterest expense ................. 100,929 97,293 3.7 27,373 26,770 

Applicable income taxes ........... . ······ 10,035 5,417 85.3 2,681 1,393 92.5

Net operating income ..................• 23,975 1,137 2008.4 6,423 2,146 199.3

Securities gains, net ...................... 285 1,427 -80.0 -230 30 N/M 

Extraordinary gains, net ................... 1,088 203 435.8 494 20 2317.4

Net income ............................ 25,348 2,767 816.0 6,687 2,197 

Net charge-offs .......................... 18,238 16,430 11.0 5,437 6,001 

Net additions to capital stock .............. 3,218 2,602 23.7 590 235 150.5

Cash dividends on capital stock ............ 13,219 10,671 23.9 5,279 4,668 13.1

NIM-Not meaningful 

5 

-6.1
39 

................ ......... $37.8.54 $997.73 

3,384 

4..57. 4.3.3 4..49 3.98 

3.35 

95.7.4 

7.86 7.3.7 

7 7.50 57.90 

4..8 -8.4. 8.3 

8.4 

-3.9..7.

1.9 9..2 -6.4.

-9.4 -3..5.

-3.8.1 -48.9.

5..43 

5..84. 7.3.4 

4..43 5.3.6. 7.48 

3.47 

Table Ill. Fourth Quarter Bank Data (Dollar figures in billions, ratios in %) 

Asset Size Distribution Geographic Distribution 

EAST WEST Less $100 Million Greater 

than $100 to $1-1.0 than $1.0 Northeast Southeast Central Midwest Southwest w�

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

CURRENT QUARTER Preliminary 

(The way it is ...) 

$1,1.52.2.0 

Number of banks reporting .............. 10,2.86 

33.7.2.2 

2,465 

$591.41 

50 7.65 

324.

7 52.93 

13,1 14. 1,080 1,943 2,92.2 3,109 2,555 1,505

Total assets ' $3,1.1 9.8.7 $1,233.41 $43.9.8.9 $505.53 $2.10.1.2 $261.51 $469.42 

Total deposits ......................... 2,42.4.2.2 82.6.42 

7.7% 

8 96.40 3 51.93 40.7.8.9 166.34 222.22 379.44 

Net income (in millions/ . •................. 6,687 390 870. 2,044 

Percentage of banks losing money ....... 2 0.1% 2 2.4% 12.1% 1 0.2% 

3,40.8 1,.009 1,336 234 -330 1,03.1 

1 2.3% 1 9.6% 1 0.1% 1 7.0% 36.9% 23.8% 

Perfonnance ratios (annualized)

Yield on earning assets ................. 11.30% 1 0.1.8% 10.40% 10.93% 12.48% 1 2.2.5% 1 0.45% 1 0.1.8% 10.6.8% 10.74% 1 1.36% 

Cost of funding earning assets ........... 

Net interest margin .................... 

5.61.

3.0.7.

5.81 6.42 

4.59 4.52 

2.7.8 2.33 

8.1.5 

1.86 

7.91 6.0.7 6.1.2 

4.34 4.3.8 4.06 

1.96 2.48 2.1.0 

6.1.9 

2.2.5 

6.8.2 

4.47 

6.7.5 5.7.2

5..6 4

2.98.

0.55 2.2.5.

Net noninterest expense to earning assets . 2.3.4 

Net operating cash flow to assets ........ 1.86 1.36 1.63 1.93 2.0.8 2.0.7 1.6.8 1.7.5 2.00 

Net operating income to assets .......... 0.6.2

Return on assets ...................... 0.8.7 0.42 0.60 0.84 1.1.7 1.1.1 0.94 1.0.7 0.45 -0.51 0.8.9.

Return on equity ...................... 13.7.9 4.7.0 8.1.5 13.49 23.56 1 8.91 13.2.8 1 5.7.6 5.97 -8.94. 15.2.1 

Net charge-offs to loans and leases ....... 1.1.4 1.26. 0.98 1.13 1.2.1 1.0.2 0.7.4 0.8.2 1.42 2.37. 1.46.

Loan loss provision to net charge-offs ..... 97.6.0 1 05.3.1 120.47 10.7.12 7 8.2.2 100.1.7 107.6.5 83.7.1 97.2.6 109.53 8 7.73.

Condition Ratios 

Loss allowance to: 

0.83 0.43 0.83 1.0.7 1.03 0.94 1.0.9 0.88. -0.8.7. 0.8.5.

Loans and leases .................... 2.41% 1.6.5% 1.58% 1.7.5% 3.6.4% 2 .8 4% 1.2.9% 1.97% 

Noncurrent loans and leases ........... 8 2.59 7 0.99 7 7.42 91.6.9 8 1.94 7 8.6.8 1 0346 117.6.4 

1.92% 

1.51 

2.99% 2.7.0% 

54.7.6 86.1.1 

Nonperfomiing assets to assets .......... 2.1.4 1.92 1.73 1.52 2.97 2.3.5 1.0.1 1.1.4 4.56 2.66

Equity capital ratio ..................... 6.3.0 8.7 6 7.2 5 6.1.6 5.1.2 5.95 6.95 6.7.6 7.45 5.7.1 5.91 

7.92 

5.5, •

84.6.8 

Primary capital ratio .................... 

Net loans and leases to deposits ......... 

8.2.1 

7 0.03 

9.66 7.52 7.8.1 7.8.1 8.03 8.56 7.1.8

83.56 83.3 5 7 7.2 4 7 2.6.8 7 1.8 9 59.73 8 2.0.1 

Growth Rates (year-to-year) 

Assets ............................... 4.0% 6.8% 1 1.2% 13.8% 2.1% 4.5% 8.2% 5.3% 0.8% -6.5% 

Equity capital ......................... 8.9 8.8 13.6 1 7.1 1 4.6 1 0.5 9.0 0.9 

171.7 

Net interest income .................... 13.7 8.0 1 4.3 1 6.3 2 6.7 2 5.5 5.5 -0.0 1 4.9 

NIM 2 42.2 

-0.3 

Net income ........................... 204.4 211.9 2 9.4 1 64.9 151.1 92.9 2 4.7 

-1.4.1 0.1 7.5

Nonperfomiing assets .................. 11.2 

-2.4 

-9.5 0.7 4.9 -6.0. -1.8.2 -2.6.4. -1.4.5 

Net charge-offs ................. ....... Loan loss provision .................... 

1 1.8 -3.0 .8 -23.1 -2.9.1 -2.7.0. 1 1.3 

-2.1.1 -2.5.1 -48.7. -2.8.1 -2.6.6 -58.9 -2.6.7 -36.4.

PRIOR FOURTH QUARTERS 

(The way it was ... ) 

Return on assets ................. 1 987.

................. 1 985.

................. 1 983 

0.42% 

0.51 

0.7.7 

0.2.1% 

-0.00.

0.3.4.

0.5 8% 

0.59 

0.63 

0.3.9% 

0.8.4 

0.63 

0.40% 

0.47 

0.44 

0.6.1% 

0.7.4 

0.6.4 

0.7.9% 

0.7.8 

0.8.2 

0.43% 

0.73 

0.53 

0.7.4% 

0.2.7 

0.57 

-1.13% 

-0.1.2 

0.41 

0.42%.

0.13 

0.1.0 

7.2.9 6.1.4 

5.70.

Equity capital ratio ............... 1 987. 6.0.4 8.55. 4.41 6.8.1 6.52 7.46 6.06 5.77.

................. 1 985 6.2.0 8.50. 7.2.0 4.91 5.67. 6.6 0 6.8 1 6.86. 5.53 

................. 1 983 6.00 8.50. 7.00 6.7.6 6.51 6.7.2 5.2.2

2.1.9 

Nonperforming assets to assets .... 1 987. 2.46 2.1.0 1.8 0 1.8 1 2.44 1.0 4 1.2 7 1.8 7 5.8 2 3.2.8

................. 1 985. 1.8.7 2.13 1.7.0 1.49 1.55 1.0.7 1.49 2.2.2 2.7.5 2.83 

................. 1 983 1.97 1.58 1.53 1.7.0 2.59 1.55 1.11 2.0.7 1.6.1 2.04. 3.3.8 

Net charge-offs to loans and leases . 1 987. 1.2.5 1.57. 1.18. 1.40 1.23 0.1.6 1.1.4 1.1.1 2.0.1 2.46. 1.2.9 

................. 1 985. 1.2.2 2.45 1.3.7 0.90 1.0.2 0.6.6 0.91 0.97 2.7.0 2.40. 1.55 

................. 1 983 1.3.8 1.63 1.0.8 0.96 0.64 0.46 0.7.7 1.0.1 1.40 1.8.1. 1.0.5 

REGIONS: Northeast - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New H,impshire, New Jersey, New York, 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 - Arkansas, Louisiana, New Mexico, Oklahoma, Texas 

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

6 
2,465 

$4,2 57 $4,154 

5.5 4 5.85 5.4 0 

4.46 3.93 4.4 0 3.5 5 5.0 3 

7.5 4 

2.9 

Table IV. Preliminary Full Year 1988 Bank Data (Dollar figures in billions, ratios in %) 

1988 PRELIMINARY 

(The way it is ... ) 

All Banks 

Less 

than $100 

Million 

Asset Size Distribution 

$100 Million 

to $1-10 

$1 Billion Billion 

Greater 

than $10 

Billion 

Northeast 

Region 

Geographic Distribution 

EAST 

Southeast Central Midwest 

Region Region Region 

WEST 

Southwest 

Region 

West 

Region 

Number of banks reporting .............. 13,114 1 0,2 86 32 4 39 1,080 1,943 2,92 2 3,109 2,555 1,505 

Net Income /in millions) ...................... $2 5,348 $2,4 5 7 $7,467 $1 1,1 66 $12,031 $5,2 1 5 $1,833 $-1,70 1 $3,814 

Percentage of banks losing money ....... 13.9% 1 5.4% 8.4% 7.4% 2.6% 9.6% 13.5% 4.3% 8.0% 30.0% 20.7% 

Performance ratios 

Yield on earning assets ................. 1 0.31 % 9.84% 1 0.0 1% 1 0.1 5% 1 0.75% 10.83% 10.00% 9.70% 10.2 5% 9.31% 1 0.4 3% 

Cost of funding earning assets ........... 6.24 5.39 7.2 3 7.11 5.69 5.77 5.85 5.76 

Net interest margin . . ........... ....... 4.06 4.4 5 4.31 3.5 1 3.72 4.31

Net noninterest expense 

to earning assets .................... 2.1 4 2.85 2.66 2.2 6 1.5 3 1.70 2.44 2.0 4 2.12 2.83 2.77 

Net operating cash flow to assets ........ 1.68 1.4 6 1.62 1.80 1.68 1.76 1.65 1.69 2.0 5 0.62 1.92 

Net operating income to assets .......... 0.82 0.66 0.76 0.80 0.91 0.99 1.0 2 1.0 7 0.82 -0.78 0.80 

Return on assets ...................... 0.84 0.68 0.76 0.80 0.97 1.00 1.00 1.0 8 0.91 -0.68 0.86 

Return on equity ..... ................. 1 3.61 1 0.2 9 1 2.88 2 0.5 8 1 7.61 14.20 1 6.00 12.0 3 -11.32 1 4.82 

Net charge-offs to loans and leases ....... 0.98 0.86 0.78 1.0 5 1.0 5 0.80 0.62 0.72 1.33 2.38 1.2 3 

Loan loss provision to net charge-offs ..... 90.89 1 15.4 8 118.74 102.1 3 65.98 89.65 106.4 8 82.0 4 91.85 1 0 1.46 81.32 

Growth Rates (year to year) 

Net interest income .................... 7.0% 6.8% 12.2% 1 5.3% 9.5% 11.6% 6.8% 7.1% 4.7% -8.5% 6.5% 

Net income ........................... 81 6.0 2 3.5 11.7 60.1 N/M NIM 16.4 1 61.8 35.9 N/M NIM 

Net charge-offs ........................ 1 1.0 -14.7 1 0.6 39.3 2 4.3 2 7.1 -0.0 1 2.7 -12.6 0.9 1 5.0 

Loan loss provision .................... -5 5.8 -15.5 -13.5 -78.5 -69.0 -1 9.1 -60.7 -35.2 -2 7.4

PRIOR YEARS 

.The way it was ... )

tum on assets ................. 1 987 0.12% 0.5 7% 0.74% 0.5 3% -0.65% -0.1 3% 0.93% 0.44% 0.67% -0.62% -0.0 1%

........... ...... 1985 0.70 0.66 0.84 0.87 0.5 1 0.78 1.0 1 0.82 0.69 0.4 3 0.34

................. 1983 0.66 1.2 3 1.12 0.86 0.63 0.67 0.96 0.69 0.94 0.64 0.34 

Net charge-offs to loans and leases . 1987 0.92 1.15 0.88 0.94 0.89 0.67 0.69 0.68 1.5 7 1.99 1.0 7 

................. 1 985 0.84 1.4 1 0.84 0.70 0.79 0.4 9 0.5 9 0.68 1.70 1.46 1.1 9 

................. 1983 0.67 1.16 0.90 0.97 0.77 0.39 0.5 5 0.73 0.77 1.4 0 0.79 

NOTES TO USERS 

COMPUTATION METHODOLOGY FOR PERFORMANCE AND CONDITION RATIOS 

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

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. 

Yield on Earning Assets-total interest, dividend and fee 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 Noninterest Expense-total noninterest expense, excluding the expense of providing for loan losses, less total noninterest income. A measure of banks' overhead costs. 

Net Operating 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 00 days or more, loans in nonaccrual status, and noninvestment real estate owned other than bank premises. 

Noncurrent Loans & Leases-the sum of loans past-due 00 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. 

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

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

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 Quarterly 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. 

7 

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