The FDIC 

• 

Second Quarter 1988 

• 

FDIC 

Office of Research 

&.teglc Planning 

J ulnn 

(202) 898-3940 

Ross Waldrop 

(202) 898-3951 

uarte r 1y:_______L_.W_illi_am_Se_id_m_an_,_Ch_a_irm_a_n 

anking Rofile 

COMMERCIAL BANKING PERFORMANCE -SECOND QUARTER 1988 

• Banks Earn Record $10.5 Billion in First Half - $5.5 Billion 

in Second Quarter 

• Lackluster Performance in Texas Continues to Depress Aggregates 

• Asset Growth Led by Real Estate Lending 

• Banks Fail at Same Pace as in 1987, Problem Bank List Shrinks 

U.S. commercial banks earned $10.5 billion in the 

first half of 1988, the highest profit ever for a sixmonth period. These results were a stark contrast 

to the $5.4 billion loss in the first half of 1987, 

when many large banks established reserves 

against troubled loans to developing countries. 

First-half provisions for loan losses were $16.3 

billion less in 1988 than in 1987. Aggregate net 

income in the second quarter was $5.5 billion, 

surpassed only by the $5.8 billion earned in the 

third quarter of 1987. The strong earnings were 

the result of generally improved performance by 

banks outside of Texas. Texas banks lost $2.9 

billion in the first half of 1988, $1.2 billion in the 

second quarter; most of this was attributable to 

banks of First RepublicBank Corporation, which 

were closed on July 29. 

Chart A - Quarterly Net Income of FDIC-Insured 

$ Billions Commercial Banks, 1984-1988 

6 +-------~~-~- -~.--°"5~.8'--i:c=-=-=5"-=J,S :4.8 4 7 5.0 ;5.1 4.8 ::, . .i ;5.0 

4 4.~.4-4.L < . ~-< 4.1 "::,,.. c:=-_..,.___,,_~--'111>--M.l-< 

2~!-m-!¢<1--00-,~--~>M-H'Xl--l:l~ll---M-f---!:X:l-~iQf-._-N!-I 

I: I: -10.6 ffl : 

0 ..------=-------""'--'""-',,,......,.""-".........~'-'-"""---_..._...,,,,,_~-. 

-2+-----~---~-- -~----~--

mNet Ope/ating Income : 

-4-+-------.-----.----...---1\1\j.- ..-;----< 

-6 ■ Securitie~ & Other 

Nonr~urnng uatns : . . -a_,___---.: _ __-.-: - - - --'---1111>-..-;----< 

-10 -t--- --- - ---- -----------1 

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 

1984 1985 1986 1987 1988 

Equity capital was 7.3 percent higher as of June 

30 than a year earlier, and the industry's equityto-assets ratio improved to 6.15 percent from 6.02 

Chart B - Equity Plus Reserves and 

Nonperforming Assets, 1982-1988 

100 f-------------- - ----' 

Nonperforming Assets ,--------

50 k=-------....,,,~-=::::::~--------1 

0 l-+-+--+-+--t-+-+-+-i-+-+-+-1-+-t--+--+--t-+-+--+-- 412 3 41234123412341 23 412 

1982 1983 1984 1985 1986 1987 1988 

percent a year ago, and from 6.04 percent as of 

year-end 1987. This trend will continue as large 

banks rebuild their capital base after their large 

transfers to reserves a year ago, and take steps 

to meet new capital standards in the next decade. 

Primary capital strength also increased, as aggregate primary capital rose $15.1 billion over 

year-ago levels to $241.1 billion, a 6.7 percent increase. Banks in the largest size group continued 

to report an exceptionally high ratio of loss 

reserves to loans, due to their extensive reserving for loans to developing nations. 

Bank assets grew $37.5 billion during the second 

quarter, and following the trend of recent years, 

real estate lending accounted for much of the 

growth. As competition in traditional commercial 

lending areas has intensified, banks have increas· 

ingly turned to the real estate and consumer lend· 

ing markets for new business. This has changec 

the profile of bank loan portfolios, as the dolla1 

volume of real estate loans on their books nov. 

exceeds commercial loan outstandings. Reorien· 

tation has entailed costs, however, in terms o1 

higher overhead expenses and credit losses. 

For assistance contact: Section508@fdic.gov
Chart c - Composition of Total Loans Outstanding 

and Real Estate Loan Distribution 

Total Loans Real Estate Loans 

Other 

Real Esl al e 

-....... ~-7.s Mullllamlly -._ Property 

2•1. 

End-Year 1982 

•• Total Loans Home 

$1 ,244 ...._ Mortgaoes 

51"t. 

Fann 

~ loans 

3•1. 

~E Const. 

Loans 18'/, 

Other Rear Estate - Loans 

29 •1. 

Mul tll amily Property 

--31⁄4 

Mid-Year 1988 

• • Total Loans Home Mortgages 

$1 ,882 - ,ov. 

Home EQuity Loans 

--- 6't. ~ RE Loans 2'"/, RE Construction 

-- Loans

201

/ , 

OU,e, 

Loans,.,,& Leases .. Dollar Values Shown in Billions 

Most of the growth in real estate loans has been in 

commercial real estate lending, such as construction 

and development financing. In addition, much of the 

growth on the consumer side has been in home equity lines of credit, rather than purchase money 

mortgages. It is not clear what the shift from commercial loans to real estate lending will mean for the 

overall risk profile of bank loan portfolios. 

Net interest margins have trended slightly 

downwards in recent years, narrowed by competitive 

forces and growth of nonaccrual loans. Greater loan 

losses have further reduced effective lending 

margins, suggesting that banks have had difficulties 

pricing the credit risk in their .loan portfolios. This 

trend has resulted in a decline in profitability through 

the decade as banks have had to divert large portions 

of income to bolster reserves for anticipated loan 

losses. However, for the first time in the 1980s, aggregate loss reserves shrank from the first quarter 

to the second quarter of 1988, which with the reduction in nonperforming assets and an improving trend 

in margins begun in 1987, suggests that the credit 

quality outlook may be improving for the industry as 

a whole. 

Chart D - Adjusted Net Interest Margin 

of FDIC-Insured Commercial Banks, 1984-1988 Percent 

S r-------,,---- -,----------,---, 

2 "---"-----'-----'-----'-'--L-----'---1....J......J'---.L----'--------'---'-~~~~ 

1 2 3 41234 123 412 3 41 2 

1984 1985 1986 1987 1988 

The number of commercial banks continued to 

diminish, as merger activity, bank failures, and 

liberalization of branching laws in some states contributed to the industry's further consolidation. As • 

recently as year-end 1984 there were 14,481 insured 

commercial banks in the U.S.; their ranks had thinned 

to 13,444 by mid-year 1988, a 7.2 percent reduction. 

Non-<leposit funding sources continued to grow in importance during the quarter, especially at larger banks, 

as "other borrowed funds" were 11.5 percent higher 

as of June 30 than a year earlier. Recent events have 

reduced some of the funding advantage of banks' 

parent holding companies, and banks have tapped the 

debt markets themselves. 

Although the percentage of banks that were unprofitable was virtually unchanged from the first to the 

second quarter, the number of banks on the "Problem 

List" fell for the fourth consecutive quarter, and as of 

June 30 was 9.1 percent below the peak reached a year 

earlier. Banks failed at the same pace during the first 

half of 1988 as they did in 1987. Full-year totals will 

be greater, however, due to the 42 failures attributable 

to the demise of First RepublicBank in July. Most of 

the failures have occurred in the Southwest, which 

continues to suffer from severely depressed real estate 

markets. Through the first six months of the year, 58 

of the 101 banks that failed or required assistance 

were in the Southwest, 42 of those in Texas, and this 

pattern should continue through the rest of the year. 

First half operating results were dramatically better I 

than first half 1987 performance, and compare 

favorably with first half 1985 results in each region except the Southwest. Southwest regional aggregate performance ratios were heavily influenced by Texas 

banks. In each of that region's other four states, aggregate net income through the first six months of the 

year was positive. Midwestern banks, having 

weathered severe problems in the middle of this 

decade, continued their strong improving trend. Their 

1988 results to date, reflected in an annualized return 

on assets of 1.07 percent, are more in line with their 

historic levels of performance. However, banks in 

drought-stressed areas may see some decline in the 

second half. 

The current earnings strength reflects improved asset 

quality. Reduced levels of problem assets, which 

declined by $2.2 billion during the second quarter, 

resulted in improved net interest margins as well as 

lower loan loss expenses. Strong growth of 

noninterest revenues has also provided important contributions to the industry's improved bottom-line. With 

better asset quality, the recent rise in interest rates, 

the return of Brcfzilian debt to performing status, and 

the steps taken last year to fortify reserves, 1988 promises a return to profitability levels not seen in the 

commercial banking sector since 1985, when industry 

return on assets was 70 basis points. For the first half • 

of 1988, the aggregate return on assets was 70 basis • 

points, compared to 75 basis points in the first six 

months of 1985. For the banking industry in general, 

the outlook for second half of the year is for a continuation of the strong first half. 

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

1988° 1987" 1987 1986 1985 1984 1983 

Return on assets •..................... . . . 0.70% -0.37% 0.12% 0.63% 0.70% 0.65% 0.66% 

Return on equity ... .. .... ... . . ...... .... . . 11.41 -5.94 2.00 9.94 11.31 10.73 10.70 

Equity capital to assets •...... .... . .... . . .. 6.15 6.02 6.04 6.20 6.20 6.15 6.00 

Prtmarycapital ratio ............ ........... 7.89 7.63 7.69 722. 6.91 6.91 6.59 

Nonperlonnlng assets to assets . ... .... .. . .. 2.40 2.59 2.46 1.94 1.87 1.97 1.97 

Net charge-offs to loans ........... . .. . ..... 0.99 0.79 0.92 0.98 0.84 0.76 0.67 

Asset growth rate . . .. ..................... 4.88 5.01 2.03 7.71 8.86 7.11 6.75 

Net operating Income growth .. ..... ...... .. NIM NIM -8527 -20.65 6.30 3.40 -3.69 

Percentage of unprofitable banks ......... .. . 13.18 16.42 17.66 19.79 17.09 13.06 10.58 

Number of problem banks .................. 1,455 1,601 1,559 1,457 1,098 rol 603 

Number of failed/assisted banks .. . . ...... . .. 101 99 201 144 118 78 45 

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

(dollar figures In millions) 

Preliminar; 

2nd Otr 1st Otr 2nd Otr %Change 

1988 1988 1987 87:2-88:2 

Number of banks reporting .. ...... ....... . .. . .. . . .. . . .. . ........ . 13,403 13,542 13,947 -3.9 

Total employees (full-time equivalent) . .. ... .. .. . ...... . . . . .. .. . .... . 1,539,320 1,530,878 1,622,469 -5.1 

CONDITTON DATA 

• 

Total assets ........ . . .... ................ . . .. ....•... . .. ... . . . $3,055,311 $3,017,806 $2,913,069 4.9 

Reai estate loans ............ .... .. .. ... .. . . .. ............. . 637,665 615,609 556,641 14.6 

Commercial & industrial loans ..... . ........... .. .. ....... ... . 599,422 595,927 582,892 2.8 

Loans to individuals ... . . . . . .. . .... . .. .. ... . . .. ..... ..... . . . . 358,194 350,829 332,839 7.6 

Farm loans ... ........ ........ . .............. . .... . .... .. . . 30,677 28,609 30,820 -0.5 

Other loans and leases ......... .. ..... . .. .. ... .• ........ . ... 256,599 257,864 265,201 -3.2 

Total loans and leases ............ . . . . .. .... . ..• ... .......... 1,882,557 1,848,838 1,768,393 6.5 

LESS: Reserve for losses . . .... . . .. . . . .. . ... . .. . ............ . 49,224 50,305 47,244 4.2 

Net loans and leases ............ .. . . . .... ... . ...... .. ........ . 1,833,333 1,798,533 1,721,149 6.5 

Temporary investments .. ........... . . .. ... ..... . .. ... . ...... . . 467,406 472,352 449,656 3.9 

Securities over 1 year ... . .. ............ . . . . . . . .. . .... . .... . .. . 387,629 392,835 375,867 3.1 

All other assets .............. . . . •. .... ... .. . . .•.......... .... 366,943 354,086 366,397 0.1 

• 

Total liabilities and capital ......... ... . .. ... . ................ . ... . $3,055,311 $3,017,806 $2,913,069 4.9 

Noninterest-bearing deposits . . ...... .. .. . .... . . .. ... . .. ........ . 463,070 438,870 471,716 -1 .8 

Interest-bearing deposits ........ ...• ........ . . .... .... ......... 1,892,280 1,880,341 1,793,310 5.5 

Other borrowed funds ....... . . . . . . . ... . ....... ... .. . .... . .... . 391,060 393,987 350,579 11.5 

Subordinated debt . ............... .. .... .. . .. . ............... . 17,207 17,477 17,283 -0.4 

All other liabilities ... . ..... .... ..•............ . ............. . . 103,659 103,893 104,005 -1.2 

Equity capital ................ . ..... ..... ..... ....... ... ... . . . 188,035 183,238 175,276 7.3 

Primary capital ...................... . ...................... . .. . 241,069 237,413 225,951 6.7 

Nonperfonning assets ............. . . .. .. ....... . . ..... . ..... . . . . 73,371 75,522 75,543 2.9 

Loan commitments and letters of credit .. ... . ......... . ... . ... .... . 812,627 801,915 766,580 6.0 

Domestic office assets . .. .. . . ............ ... ....... . . . ..... . ... . 2,635,006 2,585,095 2,495,158 5.6 

Foreign office assets ................... ...... ... ............. .. . 420,305 432,711 417,911 0.6 

Domestic office deposits .. .. ... .. .................... ... . .. . .. . .. 2,026,228 1,985,484 1,929,036 5.0 

Foreign office deposits .. .... ... . . . ..... .. . ...... . ............•.. 329,122 333,727 335,990 -2.0 

Earning assets . ............... . ..... .. ........... . ............ . 2,688,368 2,663,720 2,546,672 5.6 

Volatile liabilities ..... . .. ..... ..... ..... .... .... ...... . . . .. . . .. . 1,070,574 1,077,501 1,007,818 6.2 

Preliminar; 

INCOME DATA First Half First Half 2nd Otr 2nd Otr 

1988 1987 % Change 1988 1987 % Change 

Total interest income ...... .. .. ...... $129,437 $118,662 9.1 $65,325 $60,236 8.4 

Total interest expense . .. . . .. ..... .. 78,070 69,910 11 .7 39,452 35,599 10.8 

Net interest income .... ....... ... 51 ,367 48,752 5.4 25,873 24,637 5.0 

Provisions for loan losses . . . .. .. .... 9,102 25,376 -64.1 4,401 21 ,269 -79.3 

Total noninterest income .... .. ...... 22,144 19,068 16.1 ' 11,080 9,657 14.7 

Total noninterest expense . . .. . . . . ... 50,064 47,051 6.4 25,031 23,906 4.7 

Applicable income taxes ........... . 4,807 2,021 137.9 2,435 114 2036.0 

Net operating income ............. 9,538 -6,628 NIM 5,086 -10,995 NIM 

Securities gains, net ............ . ... 537 1,131 -52.5 147 335 -56.1 

Extraordinary gains, net ......... •... 436 112 289.3 300 23 1204.3 

Net income ..... . ..... . ... .. .. .. 10,511 -5,385 NIM 5,533 -10,637 NIM 

Net charge-offs ................. ... 9,194 6,949 32.3 5,159 3,680 40.2 

Net additions to capital stock ...... . . 323 743 -56.5 185 703 -73.7 

Cash dividends on capital stock .. .... 6,086 4,691 29.7 2,784 2,357 

.

-through June 30; ratios annualized where appropriate t..l ,..J ......,,.,,..,..: __ t ., I

"' '•A 

18.1 
Table Ill. Second Quarter Bank Data (Dollar figures in billions, ratios in %) 

Asset Size Distribution Geographic Distribution 

Less $100 Million Greater EAST WEST 

than $100 to $1-10 than $10 Northeast Southeast Central Midwest Southwest Wes All Banks Million $1 Billion Billion Billion Region Region Region Region Region Region 

CURRENT QUARTER Preliminary 

(The way it is . .. ) 

Number of banks reporting .... .. . .. ..... 13,403 10,630 2,408 328 37 1,082 1,932 2,966 3,160 2,743 1,520 

Total assets .. ..... . . . . . . .. . ...... . ... $3,055.3 $385.4 . $571.8 $977.9 $1 ,120.2 $1,220.2 $417.1 $486.9 $205.7 $270.8 $454.5 

Total deposits .. ........ .. .. .. ... . . . .. . 2,355.4 343.2 488.0 734.2 790.0 883.7 332.6 391.5 160.0 221 .5 ~ -7 

Net income (in millions) • .. •• . . . .. . •••••• • • 5,533 682 1,139 1,640 2,072 2,951 1,046 1,260 547 -1 ,087 816 

Percentage of banks losing money ... . ... 12.9% 14.2% 8.0% 7.9% 2.7% 7.9% 10.5% 4.9% 7.4% 27.3% 20.3% 

Perfonnance ratios (annualized) 

Yield on earning assets ... . . . ........... 9.77% 9.70% 9.79% 9.70% 10.11% 10.14% 9.74% 9.48% 9.95% 9.25% 9.97% 

Cost of funding earning assets .... . .. .. . . 5.90 5.30 5.40 5.52 6.87 6.63 5.48 5.57 5.62 5.89 5.19 

Net interest margin .. . .. ... .. ... . .. ... . 3.87 4.40 4.39 4.18 3.24 3.51 4.26 3.91 4.33 3.36 4.78 

Net noninterest expense to earning assets . 2.09 2.76 2.59 2.23 1.53 1.63 2.40 2.05 1.98 2.91 2.78 

Net operating cash flow to assets ... .. . . 1.57 1.49 1.63 1.72 1.45 1.64 1.66 1.65 2.10 0.39 1.68 

Net operating income to assets . . . . .... . . 0.67 0.68 0.74 0.66 0.62 0.88 0.96 1.04 1.02 -1.74 0.66 

Return on assets ..... .. ... .. .. . ..... . 0.73 0.70 0.77 0.68 0.74 0.97 0.99 1.05 1.08 - 1.72 0.73 

Return on equity ......... . ... . .. .. . . .. 11 .92 8.01 10.41 11 .04 16.40 17.44 14.31 15.63 14.43 -31 .45 12.65 

Net charge-offs to loans and leases ...... 1.11 0.87 0.95 1.38 1.05 0.64 0.57 0.72 1.37 4.75 1.26 

Loan loss provision to net charge-offs .. . . . 85.31 108.96 99.52 83.10 75.81 98.83 118.97 77.88 90.15 76.11 70.50 

Condition Ratios 

Loss allowance to: 

Loans and leases . . . .. . . ... . . . .. . . .. . 2.61% 1.67% 1.56% 1.79% 4.13% 2.99% 1.30% 2.08% 2.03% 3.92% 2.89% 

Noncurrent loans and leases ........... 80.38 65.32 73.49 82.22 83.36 83.76 100.07 117.44 83.55 49.90 80.12 

Nonperforming assets to assets ........ . 2.40 2.05 1.78 1.72 3.36 2.33 1.02 1.21 1.74 6.25 2.98 

Equity Capital Ratio .... . .......... . . .. 6.15 8.79 7.36 6.20 4.58 5.67 7.02 6.76 7.53 545 5.79 

Primary capital ratio .................... 7.77 9.64 8.24 7.27 7.64 7.65 7.70 7.96 8.63 7.35 7.82 

Net loans and leases to deposits ....... . . 77.84 58.24 69.95 84.90 84.65 82.74 77.42 73.03 71 .53 64.61 82. 

Growth Rates (year-to-yea,J 

Assets ..... . .......... . .. . . . . . ..... . . 4.9% 5.9% 10.6% 13.2% 3.1% 7.2% 9.3% 5.2% 1.8% - 5.4% 2

•.8% 

Equity capital ......... .. •............. 7.3 4.0 8.9 12.3 11.4 14.7 10.7 6.4 2.8 - 19.3 8.9 

Net interest income . ... . .... . ..... . .... 5.0 5.1 9.1 9.2 3.4 8.3 5.0 5.2 4.6 -4.8 2.9 

Net income .......... .. . . .....•....... N/M 15.1 14.0 680.6 N/M N/M 34.9 NIM 790.8 NIM N/M 

Nonperforming assets . ...... .. .... .. . . . -2.9 -2.1 10.5 11 .4 -4.2 -3.1 -0.4 -13.5 -17.7 19.1 -15.5 

Net charge-offs . ..... . ................. 40.2 -13.3 32.2 102.1 39.7 16.8 10.4 42.9 1.2 119.1 21.5 

Loan loss prevision ... . ... . .......... .. -79.3 -17.1 -0.9 -42.8 - 91.5 -90.2 -39.0 -82.6 -57.8 -1 .2 -82.8 

PRIOR SECOND QUARTERS 

(The way it was ... ) 

Return on assets ... . . .. .......... 1987 -1 .48% 0.59% 0.53% 0.06% -4.57% -2.84% 0.86% -0.56% 0.11 % -1 .22% -1 .80% 

. .. . .... . . . .. . ... 1985 0.74 0.88 0.96 0.94 0.37 0.83 1.09 0.85 0.87 0.70 0.16 

............. . . . .1983 0.72 1.12 0.92 0.54 0.55 0.68 1.00 0.74 1.09 0.80 0.41 

Equity capital ratio ..... .. . ... . . .. 1987 6.02 8.65 7.38 6.09 4.22 5.29 6.92 6.68 7.45 6.39 5.47 

.............. . . .1985 6.27 8.68 7.23 5.95 4.87 5.64 6.83 6.88 7.62 7.07 5.54 

. ·.· .. ............ 1983 6.02 8.72 7.19 5.69 4.31 5.25 6.94 6.69 7.68 7.02 5.08 

Nonperforming assets to assets ... . 1987 2.59 2.31 1.96 1.84 3.64 2.58 1.12 1.48 2.16 4.97 3.63 

. .... .. .. .. . .. . . . 1985 2.08 2.08 1.67 1.66 2.67 1.85 1.07 1.65 2.33 2.62 3.22 

. . ...... . ........ 1983 2.10 1.61 1.69 2.04 2.61 1.69 1.27 2.24 1.65 2.24 3.40 

Net charge-offs to loans and leases . 1987 0.86 1.17 0.91 0.81 0.78 0.60 0.58 0.54 1.44 2.13 1.08 

... ·. ...... . ...... 1985 0.76 1.17 0.73 0.60 0.74 0.43 0.54 0.66 1.48 1.17 1.10 

. . ........... .. . .1983 0.63 0.81 0.61 0.78 0.49 0.37 0.62 0.76 0.60 1.14 0.75 

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

Puerto Rico, Rhode Island, Vermont 

Southeast - Alabama, Florida, Georgia, Mississippi, North Carolina, South Carol ina, 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 
Table IV. First Half 1988 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 Sou1hwest West 

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

T HALF PRELIMINARY 

(The way it is ... ) 

Number of banks reporting . .. . .. . ... .... 13,403 10,630 2,408 328 37 1,082 1,932 2,966 3,160 2,743 1,520 

Net _Income (in mil/Ions) ...................... $10,511 $1 ,401 $2,209 $3,292 $3,609 $5,752 $2,085 $2,596 $1,079 $-2,735 $1,735 

Percentage of banks losing money ....... 13.2% 14.6% 7.7% 7.9% 2.7% 6.8% 9.6% 3.5% 7.0% 28.5% 20.1% 

Perfonnance ratios (annualized) 

Yield on earning assets ...... . .......... 9.73% 9.64% 9.69% 9.66% 10.06% 10.08% 9.69% 9.39% 9.96% 9.25% 9.92% 

Cost of funding earning assets .. ......... 5.87 5.29 5.36 5.49 6.81 6.57 5.45 5.53 5.63 5.87 5.18 

Net interest margin . .. .. ....... ...... .. 3.86 4.35 4.33 4.17 3.25 3.51 4.24 3.86 4.33 3.38 4.74 

Net noninterest expense 

to earning assets .................... 2.10 2.76 2.60 2.29 1.47 1.63 2.41 2.00 2.03 2.97 2.n 

Net operating cash flow to assets ........ 1.55 1.44 1.57 1.66 1.51 1.63 1.62 1.66 2.06 0.35 1.68 

Net operating income to assets .......... 0.63 0.70 0.75 0.65 0.54 0.88 0.97 1.05 1.02 -2.10 0.71 

Return on assets . ........ . ........ . .. 0.70 0.75 0.79 0.69 0.64 0.96 1.02 1.09 1.07 -2.05 0.78 

Return on equity ..... . ....... .. ....... 11.41 8.59 10.75 11.20 14.44 17.36 14.n 16.29 14.23 -35.65 13.49 

Net charge-offs to 

loans and leases ............... ... . 0.99 0.75 0.75 1.17 1.03 0.66 0.63 0.75 1.38 3.42 1.01 

Loan loss provision to net charge-offs .... . 99.00 115.16 113.04 91.46 96.32 95.07 97.15 76.72 85.24 123.59 87.24 

Growth Rates (year to year) 

Net interest income .............. .. .... 5.4 4.7 8.8 13.7 4.3 8.3 5.8 6.5 4.7 --6.1 3.9 

Net income ..........-. . ...... .. . . ..... NIM 10.6 3.9 62.4 NIM NIM 16.1 483.7 119.1 NIM NIM 

Net charge-offs ..... ........ ..... ... .. . 32.3 -16.4 16.0 89.0 34.0 24.6 37.9 62.6 -0.1 79.4 -0.3 

Loan loss provision .... ... . . ... .. . . . ... --64.1 -19.3 3.1 -21.6 -80.9 -82.7 -24.0 --69.8 -47.9 56.0 -73.0 

tllOR FIRST HALFS 

The way it was ... ) 

etum on assets .. .. ....... . ..... 1987 -0.37% 0.66% 0.70% 0.45% -2.00% -1.06% 0.96% 0.19% 0.49% -0.51% -0.63% 

................. 1985 0.75 0.90 0.91 0.87 0.48 0.80 1.10 0.84 0.84 0.64 0.34 

. .. ....... . . .... .1983 0.75 1.15 0.94 0.60 0.55 0.69 1.03 0.76 1.11 0.94 0.40 

Net charge-offs to loans and leases . 1987 0.79 0.99 0.81 0.71 0.80 0.57 0.51 0.49 1.43 1.80 1.04 

. ... .. . ...... . .. . 1985 0.66 0.93 0.60 0.56 0.67 0.39 0.44 0.56 1.27 1.03 0.95 

. . .... ... ........ 1983 0.58 0.63 0.54 0.72 0.49 0.38 0.54 0.66 0.54 0.96 0.70 

NOTES TO USERS 

COMPUTATION METHODOLOGY FOR PERFORMANCE AND CONDITION RATIOS 

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

All asset and liability figures used in calculating perfomiance 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 unifom, 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 C&sh 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". 

Retum on Assets-net Income 0ncluding securities transactions and nonrecurring items) as a percentage of average total assets. The basic yardstick of bank' profitability. 

Retum 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. 

Nonperfonnlng Assets-the sum of loans past-due 00 days or more, loans in nonaccrual status, and noninvestment real estate owned other than bank premises. 

NoncurT811t 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. 

porlll)'. l~vestmen!~-the sum of interest-bearing balances due from depository institutions, federal funds sold and resold, trading-account assets and investment securities 

• _,,, remammg matunt1es of one year or less. 

Volatile Uabllltles-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., Washingto,n, D.C. 20429; telephone (202) 898-6996.