largest banking organizations. comparative numbers show there are about 7, 300 community banks, compared with 11, 000 twenty years ago. many different factors have contributed to this consolidation, as i mentioned earlier. critically, the reduction in the number of community banks should not be misinterpreted as a signal that bank charters have somehow become less attractive - - far from it. let's look at the past five years. it is true that as of june 2005 there were 1, 033 fewer commercial banks than at the end of 1999. that decline, however, is really not the interesting part of the story. over 4 / 6 the same period, according to the fdic, some 718 new commercial bank charters were granted. do a little arithmetic, and that figure suggests that for every five times that one bank acquired another bank, somewhere there were two new charters being issued. moreover, those new charters brought more than $ 5. 7 billion of new capital into the banking industry. both the number of new charters and the magnitude of new capital injections are an eloquent testament to the attractiveness and vibrancy of the bank franchise. issues of interest to supervisors overall, the banking industry is healthy. however, some issues warrant the attention of bankers and their supervisors. one credit risk management issue that has been in the news quite a bit lately is home mortgage lending, particularly the surge in originations of nontraditional mortgages, such as interest - only loans, payment - option loans, and various hybrid forms of adjustable - rate loans. these types of mortgages typically involve a low monthly payment for the borrower. they are sometimes called " affordability products " because the low payment can make it possible for some households to qualify for higherpriced homes that they could not afford using traditional thirty - year fixed - rate mortgages. the credit risk concern is, of course, that households stretching to qualify for loans will be severely challenged if, for example, interest rates rise, causing the adjustable rate on a hybrid loan to reset at a much higher rate. another concern is that despite the lower monthly payment, the households will eventually have to repay or refinance the principal on these loans, whether or not the current home price is sustained. this prospect is especially troubling if the pricing and payment structure of the mortgage leads to negative amortization of the loan balance. federal reserve reviews indicate that banks'holdings of these unconventional mortgage loans, while still small, have

risen significantly in 2005. therefore, banks'risk management procedures must take into account the unique characteristics and credit risk profile of these novel types of loans, especially because our experience with them is quite limited. moving to one last credit risk management issue : community bank loans to finance real estate construction rose 7. 4 percent over the second quarter. this increase continues a remarkable trend in which commercial real estate - - or cre - - lending has accounted for virtually all asset growth at community banks. in 2001 and 2002, growth in cre loans as a whole accounted for two - thirds of overall asset growth at community banks. in 2003 and 2004, cre lending represented essentially all of that asset growth. over the first half of 2005, cre loans expanded by twice as much, in dollar terms, as total assets. the continued rapid growth in cre lending was accompanied by declines in securities holdings, home equity loans, and other consumer loans. this pattern of sustained and one - dimensional asset growth naturally raises questions about potential concentrations of credit risk in cre loans. these questions are most striking in markets where commercial vacancy rates are particularly high, where competition among lenders is most intense, or where potentially overheated home - price conditions have contributed to a sharp expansion in new - home construction. there is still no indication that the credit quality of these loans has begun to deteriorate, but the potential for concentrations in lending exposure remains an ongoing area of supervisory attention. interest - rate - risk management is always a key issue at financial institutions, particularly in the current economic and policy environment. although many large institutions have felt earnings pressure from the flattening yield curve, net interest margins at community banks were 4. 12 percent in 2004 - - 40 basis points higher than for the industry as a whole. the gap has been even wider in 2005. a look at community banks'balance sheets and how they have been managed tells us a lot about why community banks'margins have fared better. the sharp growth in construction lending, which is predominantly variable rate, is one element that has allowed community bank loan yields to keep up with their funding costs. community banks also reduced their holdings of securities over the past year, while shortening the maturity of 5 / 6 their remaining holdings. as of june, only 15. 8 percent of commercial bank assets had maturities beyond five years, compared with 16. 9 percent at year - end 2004 and the peak level of 18. 5 percent a year earlier. at