Federal Reserve Bulletin, Volume 93, 2007

Report on the Condition of the U.S. Banking Industry: Second Quarter, 2006

Total assets of reporting bank holding companies rose 2.7 percent ($304 billion) over the second quarter, to $11.7 trillion. 1 Robust loan growth, concentrated in real estate, generated most of the increase. Earnings were dampened by continued pressure on net interest margins and modest growth in fee income, but benefited from loan expansion, reduced operating expenses, and securities gains. Credit quality remained excellent.

Loans expanded at a vigorous pace, rising 3.1 percent ($172 billion) for the quarter. Lending activity was particularly strong in the residential mortgage segment, which grew 3.7 percent ($71 billion) and accounted for more than 40 percent of loan growth. On balance sheet, commercial real estate loans--primarily loans secured by nonfarm, nonresidential properties and construction, land development, and other land loans--also continued to grow rapidly, rising 3.4 percent ($39 billion). Unused commitments to lend expanded 4.2 percent, to $5.8 trillion, with more than half of the increase driven by credit card lines.

Securities and money market assets (up 1.7 percent, or $73 billion) increased more slowly than loans. Growth was constrained by a substantial reduction ($48 billion) in money market holdings--with a fully offsetting decline in money market liabilities--at one bank holding company in which operations are predominantly concentrated at its securities broker-dealer subsidiary. Excluding this company, securities and money market assets increased 3 percent, slightly outpacing asset growth overall. Aggregate trading assets jumped 8.2 percent ($91 billion), mainly among the largest companies.

Deposit growth at 2.8 percent ($153 billion) kept pace with balance sheet expansion. Most growth was concentrated in foreign and time deposits, rates on which moved up. Core deposits--which exclude time deposits in denominations higher than $100,000, brokered deposits, and deposits booked in foreign offices--stayed roughly flat, with a rise in small time deposits partly offset by further declines in transaction accounts. While deposits funded more than half of asset growth, borrowings also advanced 2.6 percent ($98 billion).

Higher dividend payouts by larger companies and increases in unrealized losses in available-for-sale investment account securities that reduced the accumulated other comprehensive income component restrained equity growth for the quarter. Equity was up just 1 percent (roughly $9 billion). Given the more rapid advance in bank holding company assets, the equity to assets ratio dropped slightly from 8.19 percent to 8.06 percent. The tier 1 leverage, tier 1 risk-based, and total risk-based capital ratios, which do not reflect the unrealized losses on available-for-sale securities, also declined slightly, but remained sound at 6.28 percent, 8.94 percent, and 11.73 percent respectively.

Profitability remained strong in the quarter. Return on equity increased 26 basis points from the first quarter, to 15.17 percent, while the return on assets leveled off (up one basis point) to 1.22 percent. Net income improved 2.6 percent, to $35 billion. Reduced non-interest expenses, due to lower incentive-based compensation at the largest companies, and increased realized gains on securities sales (from a $474 million loss in the first quarter) bolstered earnings. Fee income also contributed to growth in earnings, benefiting from stronger mortgage-related and investment banking businesses, but was held back by declines in equity trading at the largest institutions. Despite further margin compression, net interest income grew 1.4 percent ($1 billion) on a larger average earning assets base. The net interest margin fell 7 basis points, to 2.89 percent, owing to a higher cost of deposit funding, a competitive lending environment, and a flattened yield curve. Although 60 percent of the companies reduced provisioning, aggregate provisions for loan losses increased $144 million (2.2 percent).

Nonperforming assets inched up from a low level, but the ratio of nonperforming assets to loans and related assets dropped slightly from 0.67 percent to 0.65 percent as loans expanded briskly. Net charge-offs increased as the moderating effect of last year's reform of the bankruptcy code on credit card losses continued to wane, but remained near historic lows at 0.48 percent of average loans.

1. This report presents aggregate time-series data drawn primarily from the FR Y-9C and FR Y-9LP regulatory report forms submitted to the Federal Reserve each quarter by large bank holding companies (defined within the report as "all reporting bank holding companies"). Beginning with the quarter ended March 31, 2006, the Federal Reserve updated the filing requirements for these reports. Most notably, it raised the asset threshold requiring the filing of the reports to $500 million from $150 million. The changes to the filing requirements mitigated regulatory reporting burden by reducing the number of required respondents substantially. Despite the large drop in the number of filers, reporting bank holding companies still represent a substantial majority of all bank holding company assets (when assets of nonreporting bank holding companies are approximated using data for bank subsidiary assets).   Return to text

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Bank Holding Company Tables

1. Financial characteristics of all reporting bank holding companies in the United States
Millions of dollars except as noted, not seasonally adjusted
Account or ratio 1, 2 2001 2002 2003 2004 2005 2004 2005 2006
Q4 Q1 Q2 Q3 Q4 Q1 Q2
Balance sheet  
 
Total assets 7,487,107 7,989,910 8,880,558 10,339,801 11,333,100 10,339,801 10,710,570 10,956,171 11,257,415 11,333,100 11,352,835 11,656,441
 
Loans 3,835,237 4,083,169 4,435,653 5,109,493 5,659,808 5,109,493 5,192,276 5,363,646 5,525,962 5,659,808 5,561,703 5,733,310
Securities and money market 2,563,779 2,858,856 3,297,932 3,804,003 4,157,256 3,804,003 4,114,628 4,143,955 4,246,546 4,157,256 4,305,752 4,378,775
Allowance for loan losses -68,829 -74,782 -73,817 -74,589 -73,031 -74,589 -73,378 -72,949 -74,097 -73,031 -70,544 -70,759
Other 1,156,920 1,122,668 1,220,790 1,500,894 1,589,068 1,500,894 1,477,045 1,521,520 1,559,005 1,589,068 1,555,924 1,615,116
 
Total liabilities 6,900,721 7,347,694 8,176,868 9,452,623 10,393,243 9,452,623 9,819,629 10,034,472 10,327,938 10,393,243 10,422,650 10,717,404
 
Deposits 4,026,460 4,356,585 4,705,045 5,249,494 5,700,850 5,249,494 5,349,427 5,448,059 5,563,636 5,700,850 5,553,762 5,707,211
Borrowings 2,072,505 2,242,717 2,629,293 3,157,578 3,586,922 3,157,578 3,424,013 3,525,137 3,667,710 3,586,922 3,825,102 3,922,825
Other 3 801,756 748,392 842,531 1,045,552 1,105,471 1,045,552 1,046,189 1,061,277 1,096,593 1,105,471 1,043,787 1,087,367
 
Total equity 586,386 642,216 703,690 887,178 939,857 887,178 890,941 921,699 929,477 939,857 930,185 939,037
 
Off-balance-sheet  
Unused commitments to lend 4 3,482,236 3,651,209 4,097,531 4,823,332 5,437,902 4,823,332 4,929,516 5,064,198 5,245,819 5,437,902 5,520,728 5,754,362
Securitizations outstanding 5 276,717 295,001 298,348 353,978 389,726 353,978 366,430 367,887 375,142 389,726 394,600 388,744
Derivatives (notional value, billions) 6 48,261 57,866 72,883 89,115 99,077 89,115 92,621 96,653 98,281 99,077 109,261 117,992
 
Income statement  
Net income 7 67,208 86,013 107,885 113,317 133,047 28,653 32,598 33,072 34,543 32,837 34,266 35,148
Net interest income 224,127 245,251 256,562 278,075 295,789 70,822 72,434 73,153 74,848 75,363 72,726 73,737
Provisions for loan losses 40,665 45,089 33,052 28,608 32,618 7,793 6,580 6,824 9,972 9,243 6,662 6,806
Non-interest income 220,516 222,815 251,496 270,485 294,938 68,192 73,442 72,542 77,067 71,883 78,427 79,409
Non-interest expense 302,202 297,015 316,339 355,698 370,814 90,007 91,505 91,435 94,057 93,817 95,119 94,182
 
Memo  
Realized securities gains or losses 4,348 4,594 5,771 5,043 1,332 81 417 1,478 484 -1,047 -474 49
 
Ratios (percent)  
Return on average equity 11.98 14.14 16.24 14.35 14.68 13.27 14.71 14.73 15.04 14.23 14.91 15.17
Return on average assets .92 1.12 1.26 1.16 1.21 1.11 1.22 1.21 1.24 1.15 1.21 1.22
Net interest margin 8 3.61 3.74 3.51 3.37 3.09 3.29 3.16 3.08 3.07 3.05 2.96 2.89
Efficiency ratio 7 66.71 62.24 61.65 63.40 61.70 64.13 61.12 61.47 61.74 63.92 61.93 61.37
Nonperforming assets to loans and related assets 1.44 1.44 1.15 .82 .69 .82 .76 .71 .70 .69 .67 .65
Net charge-offs to average loans .91 1.04 .84 .67 .62 .71 .57 .52 .65 .72 .45 .48
Loans to deposits 95.25 93.72 94.27 97.33 99.28 97.33 97.06 98.45 99.32 99.28 100.14 100.46
 
Regulatory capital ratios  
Tier 1 risk-based 8.94 9.24 9.59 9.35 9.14 9.35 9.28 9.27 9.17 9.14 8.96 8.94
Total risk-based 11.93 12.30 12.61 12.22 11.87 12.22 12.15 12.03 11.91 11.87 11.75 11.73
Leverage 6.69 6.73 6.88 6.59 6.50 6.59 6.49 6.53 6.54 6.50 6.33 6.28
 
Number of bank holding companies 1,842 1,979 2,134 2,254 2,268 2,254 2,282 2,296 2,290 2,268 1,003 995

1. For quarters beginning on or after March 31, 2006, this report covers top-tier bank holding companies with consolidated assets of at least $500 million and some smaller top-tier firms that filed the FR Y-9C as required by Federal Reserve Banks for supervisory purposes or on a voluntary basis. Before March 31, 2006, aggregate data refer to top-tier bank holding companies with consolidated assets of at least $150 million and smaller multibank holding companies with debt outstanding to the general public or engaged in certain nonbanking activities.   Return to table
2. Data for all reporting bank holding companies and the fifty large bank holding companies reflect merger adjustments to the fifty large bank holding companies. Merger adjustments account for mergers, acquisitions, other business combinations and large divestitures that occurred during the time period covered in the tables so that the historical information on each of the fifty underlying institutions depicts, to the greatest extent possible, the institutions as they exist in the most recent period. In general, adjustments for mergers among bank holding companies reflect the combination of historical data from predecessor bank holding companies. The data for the fifty large bank holding companies have also been adjusted as necessary to match the historical figures in each company's most recently available financial statement. In general, the data are not adjusted for changes in generally accepted accounting principles.   Return to table
3. Includes minority interests in consolidated subsidiaries.   Return to table
4. Includes credit card lines of credit as well as commercial lines of credit.   Return to table
5. Includes loans sold to securitization vehicles in which bank holding companies retain some interest, whether through recourse or seller-provided credit enhancements or by servicing the underlying assets. Securitization data were first collected on the FR Y-9C report for June 2001.   Return to table
6. The notional value of a derivative is the reference amount of an asset on which an interest rate or price differential is applied when calculating the contractual payments. The total notional value of a bank holding company's derivatives holdings is the sum of the notional values of each derivative contract regardless of whether the bank holding company is a payor or recipient of payments under the contract. The actual cash flows and fair market values associated with these derivative contracts are generally only a small fraction of the contract's notional value.   Return to table
7. Income statement subtotals for all reporting bank holding companies and the fifty large bank holding companies exclude extraordinary items, the cumulative effects of changes in accounting principles, and discontinued operations at the fifty large institutions and therefore will not sum to Net income. The efficiency ratio is calculated excluding nonrecurring income and expenses.   Return to table
8. Calculated on a fully-taxable-equivalent basis.   Return to table
Source: Federal Reserve Reports FRY-9C and FR Y-9LP, Federal Reserve National Information Center, and published financial reports.

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2. Financial characteristics of fifty large bank holding companies in the United States
Millions of dollars except as noted, not seasonallly adjusted
Account or ratio 1, 2 2001 2002 2003 2004 2005 2004 2005 2006
Q4 Q1 Q2 Q3 Q4 Q1 Q2
Balance sheet  
 
Total assets 5,896,783 6,256,824 6,926,108 7,963,241 8,645,888 7,963,241 8,226,990 8,440,266 8,515,432 8,645,888 8,970,662 9,282,941
 
Loans 2,968,905 3,153,028 3,404,117 3,945,799 4,351,995 3,945,799 4,001,893 4,121,526 4,241,636 4,351,995 4,456,423 4,598,577
Securities and money market 2,050,129 2,276,872 2,628,112 2,913,583 3,188,236 2,913,583 3,147,849 3,210,407 3,200,593 3,188,236 3,378,174 3,505,834
Allowance for loan losses -56,737 -61,324 -59,548 -59,656 -57,219 -59,656 -58,287 -57,595 -58,368 -57,219 -57,413 -57,432
Other 934,487 888,248 953,428 1,163,516 1,162,877 1,163,516 1,135,535 1,165,928 1,131,572 1,162,877 1,193,478 1,235,963
 
Total liabilities 5,446,449 5,767,409 6,393,247 7,271,689 7,918,171 7,271,689 7,531,639 7,725,734 7,797,427 7,918,171 8,212,994 8,518,106
 
Deposits 3,036,830 3,273,801 3,531,832 3,967,576 4,297,653 3,967,576 4,038,580 4,102,410 4,172,538 4,297,653 4,402,954 4,540,867
Borrowings 1,875,435 2,037,450 2,358,631 2,712,748 3,077,129 2,712,748 2,896,505 3,024,117 3,097,466 3,077,129 3,248,232 3,379,098
Other 3 534,184 456,158 502,784 591,365 543,390 591,365 596,555 599,207 527,423 543,390 561,808 598,141
 
Total equity 450,334 489,415 532,862 691,552 727,717 691,552 695,351 714,532 718,005 727,717 757,668 764,835
 
Off-balance-sheet  
Unused commitments to lend 4 3,242,175 3,391,837 3,807,849 4,490,684 5,050,405 4,490,684 4,582,671 4,702,953 4,867,314 5,050,405 5,166,727 5,387,508
Securitizations outstanding 5 271,825 289,905 293,046 348,986 384,996 348,986 361,524 363,221 370,518 384,996 391,756 385,937
Derivatives (notional value, billions) 6 48,144 57,746 72,692 88,671 98,749 88,671 92,136 96,300 97,994 98,749 108,963 117,631
 
Income statement  
Net income 7 53,411 68,756 87,858 90,408 106,132 23,455 26,168 25,326 27,761 26,881 29,074 29,689
Net interest income 166,848 183,553 192,195 206,579 215,352 52,844 53,289 53,668 54,200 54,204 55,423 56,645
Provisions for loan losses 35,767 39,400 28,573 25,197 29,128 6,748 5,765 6,035 9,031 8,297 6,034 6,141
Non-interest income 176,226 174,233 196,967 210,812 230,868 55,061 57,860 55,123 59,997 57,884 64,299 65,147
Non-interest expense 225,124 216,533 230,158 259,732 266,747 66,870 66,560 65,694 66,693 67,799 71,902 71,201
 
Memo  
Realized securities gains or losses 4,330 5,022 5,217 4,174 1,702 133 227 1,426 469 -420 -117 374
 
Ratios (percent)  
Return on average equity 12.38 14.74 17.43 14.83 15.05 13.90 15.10 14.46 15.57 15.04 15.51 15.60
Return on average assets .93 1.13 1.31 1.19 1.25 1.18 1.28 1.20 1.30 1.24 1.30 1.27
Net interest margin 8 3.39 3.56 3.36 3.21 2.92 3.17 3.01 2.91 2.89 2.86 2.83 2.76
Efficiency ratio 7 64.36 59.40 58.63 60.57 58.70 61.39 58.03 58.81 58.28 61.29 59.28 58.55
Nonperforming assets to loans and related assets 1.56 1.55 1.21 .84 .70 .84 .78 .72 .71 .70 .68 .66
Net charge-offs to average loans 1.03 1.20 .97 .79 .74 .83 .69 .62 .78 .86 .53 .56
Loans to deposits 97.76 96.31 96.38 99.45 101.26 99.45 99.09 100.47 101.66 101.26 101.21 101.27
 
Regulatory capital ratios  
Tier 1 risk-based 8.26 8.55 8.83 8.59 8.45 8.59 8.54 8.48 8.48 8.45 8.43 8.42
Total risk-based 11.61 11.98 12.21 11.86 11.56 11.86 11.81 11.61 11.62 11.56 11.55 11.56
Leverage 6.26 6.28 6.38 6.18 6.16 6.18 6.10 6.08 6.17 6.16 6.10 6.03

1. Data for all reporting bank holding companies and the fifty large bank holding companies reflect merger adjustments to the fifty large bank holding companies. Merger adjustments account for mergers, acquisitions, other business combinations and large divestitures that occurred during the time period covered in the tables so that the historical information on each of the fifty underlying institutions depicts, to the greatest extent possible, the institutions as they exist in the most recent period. In general, adjustments for mergers among bank holding companies reflect the combination of historical data from predecessor bank holding companies. The data for the fifty large bank holding companies have also been adjusted as necessary to match the historical figures in each company's most recently available financial statement. In general, the data are not adjusted for changes in generally accepted accounting principles.   Return to table
2. In general, the fifty large bank holding companies are the fifty largest bank holding companies as measured by total consolidated assets for the latest period shown. Excludes a few large bank holding companies whose commercial banking operations account for only a small portion of assets and earnings.   Return to table
3. Includes minority interests in consolidated subsidiaries.   Return to table
4. Includes credit card lines of credit as well as commercial lines of credit.   Return to table
5. Includes loans sold to securitization vehicles in which bank holding companies retain some interest, whether through recourse or seller-provided credit enhancements or by servicing the underlying assets. Securitization data were first collected on the FR Y-9C report for June 2001.   Return to table
6. The notional value of a derivative is the reference amount of an asset on which an interest rate or price differential is applied when calculating the contractual payments. The total notional value of a bank holding company's derivatives holdings is the sum of the notional values of each derivative contract regardless of whether the bank holding company is a payor or recipient of payments under the contract. The actual cash flows and fair market values associated with these derivative contracts are generally only a small fraction of the contract's notional value.   Return to table
7. Income statement subtotals for all reporting bank holding companies and the fifty large bank holding companies exclude extraordinary items, the cumulative effects of changes in accounting principles, and discontinued operations at the fifty large institutions and therefore will not sum to Net income. The efficiency ratio is calculated excluding nonrecurring income and expenses.   Return to table
8. Calculated on a fully-taxable-equivalent basis.   Return to table
Source: Federal Reserve Reports FRY-9C and FR Y-9LP, Federal Reserve National Information Center, and published financial reports.

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3. Financial characteristics of all other reporting bank holding companies in the United States
Millions of dollars except as noted, not seasonally adjusted
Account or ratio 1, 2 2001 2002 2003 2004 2005 2004 2005 2006
Q4 Q1 Q2 Q3 Q4 Q1 Q2
Balance sheet  
 
Total assets 1,277,090 1,401,227 1,527,308 1,686,798 1,846,496 1,686,798 1,717,675 1,767,744 1,816,198 1,846,496 1,533,908 1,559,106
 
Loans 812,179 875,986 952,217 1,081,393 1,222,260 1,081,393 1,108,765 1,155,948 1,194,967 1,222,260 1,015,838 1,044,850
Securities and money market 357,366 406,771 446,237 470,040 465,922 470,040 468,314 463,460 467,758 465,922 386,457 375,857
Allowance for loan losses -11,727 -13,021 -13,852 -14,533 -15,343 -14,533 -14,654 -14,901 -15,253 -15,343 -12,704 -12,897
Other 119,273 131,491 142,706 149,898 173,656 149,898 155,251 163,236 168,725 173,656 144,318 151,296
 
Total liabilities 1,162,232 1,271,919 1,387,290 1,531,062 1,678,565 1,531,062 1,562,077 1,606,086 1,651,157 1,678,565 1,393,756 1,416,917
 
Deposits 975,514 1,064,802 1,150,648 1,262,006 1,396,880 1,262,006 1,291,162 1,325,494 1,370,318 1,396,880 1,143,429 1,158,982
Borrowings 161,450 176,225 202,893 228,755 235,401 228,755 228,424 238,313 234,934 235,401 206,535 213,895
Other 3 25,267 30,892 33,748 40,302 46,284 40,302 42,491 42,280 45,905 46,284 43,792 44,040
 
Total equity 114,859 129,308 140,018 155,737 167,930 155,737 155,597 161,658 165,040 167,930 140,152 142,189
 
Off-balance-sheet  
Unused commitments to lend 4 229,887 247,466 276,769 319,277 367,264 319,277 332,445 345,663 359,746 367,264 329,823 336,227
Securitizations outstanding 5 4,567 4,358 4,159 2,877 2,885 2,877 2,792 2,667 2,697 2,885 2,844 2,806
Derivatives (notional value, billions) 6 89 88 94 144 103 144 98 99 100 103 86 88
 
Income statement  
Net income 7 13,659 16,469 17,626 19,244 21,306 4,831 5,154 5,433 5,617 5,102 4,472 4,774
Net interest income 45,676 50,475 52,266 56,545 62,698 14,723 15,049 15,484 16,116 16,049 13,294