Federal Reserve Bulletin, Volume 93, 2007

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

Change in Reporting Panel

This report presents aggregate time-series data drawn primarily from the FR Y-9C (Consolidated Financial Statements for Bank Holding Companies) and the FR Y-9LP (Parent Company Only Financial Statements for Large Bank Holding Companies) regulatory report forms submitted to the Federal Reserve each quarter by large bank holding companies (defined within this 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 at which bank holding companies are required to file reports to $500 million from $150 million. 1 The changes to the filing requirements mitigated regulatory reporting burden because it substantially reduced the number of required respondents. Compared with those that filed as of December 31, 2005, the number of top-tier bank holding companies that filed these reports as of March 31, 2006, fell by more than 1,200 companies. 2

Despite the large drop in the number of filers, reporting bank holding companies still represented a substantial majority of all bank holding company assets. At quarter-end, 5,129 top-tier bank holding companies held roughly $11.9 trillion in consolidated assets. 3 Among these companies, 1,003 with aggregate consolidated assets of $11.4 trillion filed the FR Y-9C, representing more than 95 percent of total bank holding company assets. 4

Although the effect of the reporting change on the volume of bank holding company assets included in this report was relatively modest, the substantial reduction in the number of filers enhanced, on the aggregate, the already significant influence of the largest companies, moving some measures included on table 1, "Financial characteristics of all reporting bank holding companies in the United States," closer to the levels for the same measures at the fifty large bank holding companies summarized in table 2. For example, the capital ratios for all reporting bank holding companies are slightly lower than they were before the change in the reporting requirements, and the loan to deposit ratio is higher. In addition, by trimming the number of companies covered in the reports by more than half, the numbers shown for both domestic financial holding companies and bank holding companies engaged in nonbanking activities were reduced. (See table 4, "Nonfinancial characteristics of reporting bank holding companies.") Also, the fifty large bank holding companies now account for 79 percent of all reporting companies' assets, an increase of nearly 3 percentage points.

The quarterly comparisons below focus on the subset of bank holding companies that filed the FR Y-9C as of March 31, 2006, and the accompanying tables (except for the fifty large companies) append a column of modified year-end financial statistics for these first-quarter FR Y-9C respondents. It should be noted that the December 31, 2005, data include the results for a small number of top-tier FR Y-9C filers that subsequently merged into top-tier bank holding companies included in the March 31, 2006, fixed panel. Including these companies in the December 2005 data improves the comparability of data for these periods.

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Summary of Current Developments for the Fixed Panel of Reporters

Assets of reporting bank holding companies increased 4.1 percent ($446 billion) over the first quarter, to $11.4 trillion, mainly in money market assets and loans. Net income rose sharply from the fourth quarter of 2005, owing to robust capital markets revenues and exceptional credit quality, which allowed a sizable reduction in provisions for loan losses.

Growth in securities and money market assets generated more than half of the asset expansion, as balances rose 7.0 percent ($280 billion), to $4.3 trillion, from year-end 2005. A $155 billion buildup in federal funds sold and securities purchased under agreements to resell, which was accompanied by a corresponding rise in money market liabilities ($179 billion), contributed to most of this increase. Investment securities expanded 4.0 percent ($71 billion), to $1.8 trillion.

Aggregate loans grew at a slower pace, rising 2.4 percent ($130 billion), to $5.6 trillion. Increases in home equity loans and construction, land development, and other land loans were relatively strong. Commercial and industrial loans also advanced substantially, increasing 4.4 percent ($43 billion). Unused commitments to lend expanded 2.4 percent ($127 billion), to $5.5 trillion.

Deposits grew 2.3 percent (or $126 billion) at the same time that customer sensitivity to the increased yields available on time deposits caused a shift away from transaction deposits. The growth in deposits largely kept pace with loan expansion, but nondeposit borrowings (including the $179 billion increase in federal funds purchased and securities sold under agreements to repurchase noted above) funded most of the asset growth over the quarter, rising 7.2 percent ($257 billion), to $3.8 trillion.

Shareholders' equity at all reporting bank holding companies rose 3.6 percent, to $930 billion. Merger adjustments (related, in particular, to the combination of Bank of America Corporation and MBNA Corporation) and, to a lesser extent, retained earnings enlarged the equity base. Risk-based capital ratios, which exclude goodwill from the capital base, remained largely stable. Compared with year-end 2005, the total risk-based capital ratio edged down 1 basis point, to 11.75 percent and the tier one capital ratio decreased 2 basis points, to 8.96 percent. The leverage ratio dropped 5 basis points, to 6.33 percent.

First-quarter net income for reporting bank holding companies climbed 7.0 percent, or $2.2 billion, from the fourth quarter of 2005 to $34.3 billion in the first quarter of 2006. The strong earnings growth boosted returns on assets (up 4 basis points, to 1.21 percent) and equity (up 34 basis points, to 14.88 percent). Higher non-interest income (particularly trading revenues and net servicing fees) and lower provisions (down 28 percent, or $2.6 billion) bolstered earnings growth. In addition, reflecting significant realized losses booked in the last quarter of 2005 in conjunction with efforts to restructure interest rate risk positions, lower realized securities losses contributed almost $700 million of the improvement in quarterly net income. However, elevated non-interest expenses, related to incentive-based compensation, weighed on earnings growth. Moreover, a still flatter term structure and growth in higher-cost certificates of deposit exerted downward pressure on the aggregate net interest margin (down 9 basis points, to 2.96 percent).

Nonperforming assets edged down 2 basis points, to 0.67 percent of total loans and related assets. Nonaccrual loans contracted 3.9 percent, or $1.2 billion (mostly in first-lien residential mortgages and consumer loans), as inflows of nonperforming loans fell considerably. The ratio of net charge-offs to average loans improved markedly, shrinking to a historically low 0.45 percent from 0.74 percent in the fourth quarter of 2005 when credit losses were elevated by an increase in personal bankruptcy filings related to a change in the bankruptcy law.

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1. In addition, certain lower tier bank holding companies that formerly filed the FR Y-9C are no longer required to file this report.    Return to text
2. Some bank holding companies with consolidated assets less than the reporting threshold of $500 million continue to file the FR Y-9C and the FR Y-9LP reports voluntarily or for supervisory purposes.   Return to text
3. Consolidated assets for bank holding companies that do not file the FR Y-9C are approximated using financial data for bank subsidiaries reported on the Call Report.   Return to text
4. The remaining bank holding companies submit a semiannual FR Y-9SP (Parent Company Only Financial Statements for Small Bank Holding Companies) regulatory report.   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 2005r 2006
Q4 Q1 Q2 Q3 Q4 Q4 Q1
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 10,906,559 11,352,835
 
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 5,431,492 5,561,703
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 4,025,401 4,305,752
Allowance for loan losses -68,829 -74,782 -73,817 -74,589 -73,031 -74,589 -73,378 -72,949 -74,097 -73,031 -70,146 -70,544
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 1,519,813 1,555,924
 
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 10,008,645 10,422,650
 
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 5,427,593 5,553,762
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 3,568,417 3,825,102
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 1,012,636 1,043,787
 
Total equity 586,386 642,216 703,690 887,178 939,857 887,178 890,941 921,699 929,477 939,857 897,914 930,185
 
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 5,393,260 5,520,728
Securitizations outstanding 5 276,717 295,001 298,348 353,978 389,726 353,978 366,430 367,887 375,142 389,726 387,875 394,600
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 99,060 109,261
 
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 32,036 34,266
Net interest income 224,127 245,251 256,562 278,075 295,789 70,822 72,434 73,153 74,848 75,363 72,678 72,726
Provisions for loan losses 40,665 45,089 33,052 28,608 32,618 7,793 6,580 6,824 9,972 9,243 9,292 6,662
Non-interest income 220,516 222,815 251,496 270,485 294,938 68,192 73,442 72,542 77,067 71,883 71,358 78,427
Non-interest expense 302,202 297,015 316,339 355,698 370,814 90,007 91,505 91,435 94,057 93,817 91,564 95,119
 
Memo  
Realized securities gains or losses 4,348 4,594 5,771 5,043 1,332 81 417 1,478 484 -1,047 -1,141 -474
 
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 14.54 14.88
Return on average assets .92 1.12 1.26 1.16 1.21 1.11 1.22 1.21 1.24 1.15 1.17 1.21
Net interest margin 8 3.61 3.74 3.51 3.37 3.09 3.29 3.16 3.08 3.07 3.05 3.05 2.96
Efficiency ratio 66.71 62.24 61.65 63.40 61.70 64.13 61.12 61.47 61.74 63.92 63.77 61.93
Nonperforming assets to loans and related assets 1.44 1.44 1.15 .82 .69 .82 .76 .71 .70 .69 .69 .67
Net charge-offs to average loans .91 1.04 .84 .67 .62 .71 .57 .52 .65 .72 .74 .45
Loans to deposits 95.25 93.72 94.27 97.33 99.28 97.33 97.06 98.45 99.32 99.28 100.07 100.14
 
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 8.98 8.96
Total risk-based 11.93 12.3 12.61 12.22 11.87 12.22 12.15 12.03 11.91 11.87 11.76 11.75
Leverage 6.69 6.73 6.88 6.59 6.50 6.59 6.49 6.53 6.54 6.50 6.38 6.33
 
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 1,016 1,003

Note: All data are as of the most recent period shown. The historical figures may not match those in earlier versions of this table because of mergers, significant acquisitions or divestitures, or revisions or restatements to bank holding company financial reports. Data for the most recent period may not include all late-filing institutions.
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 seasonally adjusted
Account or ratio 1 2 2001 2002 2003 2004 2005 2004 2005 2006
Q4 Q1 Q2 Q3 Q4 Q1
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
 
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
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
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
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
 
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
 
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
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
Other 3 534,184 456,158 502,784 591,365 543,390 591,365 596,555 599,207 527,423 543,390 561,808
 
Total equity 450,334 489,415 532,862 691,552 727,717 691,552 695,351 714,532 718,005 727,717 757,668
 
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
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
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
 
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
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
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
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
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
 
Memo  
Realized securities gains or losses 4,330 5,022 5,217 4,174 1,702 133 227 1,426 469 -420 -117
 
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
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
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
Efficiency ratio 64.36 59.40 58.63 60.57 58.70 61.39 58.03 58.81 58.28 61.29 59.28
Nonperforming assets to loans and related assets 1.56 1.55 1.21 .84 .70 .84 .78 .72 .71 .70 .68
Net charge-offs to average loans 1.03 1.20 .97 .79 .74 .83 .69 .62 .78 .86 .53
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
 
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
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
Leverage 6.26 6.28 6.38 6.18 6.16 6.18 6.10 6.08 6.17 6.16 6.10

Note: All data are as of the most recent period shown. The historical figures may not match those in earlier versions of this table because of mergers, significant acquisitions or divestitures, or revisions or restatements to bank holding company financial reports. Data for the most recent period may not include all late-filing institutions.
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 2005 2006
Q4 Q1 Q2 Q3 Q4 Q4 Q1
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 1,512,393 1,533,908
 
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 1,222,260 996,041 1,015,838
Securities and money market 357,366 406,771 446,237 470,040 465,922 470,040 468,314 463,460 467,758 465,922 383,635 386,457
Allowance for loan losses -11,727 -13,021 -13,852 -14,533 -15,343 -14,533 -14,654 -14,901 -15,253 -15,343 -12,526 -12,704
Other 119,273 131,491 142,706 149,898 173,656 149,898 155,251 163,236 168,725 173,656 145,242 144,318
 
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 1,374,465 1,393,756
 
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 1,124,004 1,143,429
Borrowings 161,450 176,225 202,893 228,755 235,401 228,755 228,424 238,313 234,934 235,401 210,170 206,535
Other 3 25,267 30,892 33,748 40,302 46,284 40,302 42,491 42,280 45,905 46,284 40,291 43,792
 
Total equity 114,859 129,308 140,018 155,737 167,930 155,737 155,597 161,658 165,040 167,930 137,928 140,152
 
Off-balance-sheet  
Unused commitments to lend 4 229,887 247,466 276,769 319,277 367,264 319,277 332,445 345,663 359,746 367,264 323,206 329,823
Securitizations outstanding 5 4,567 4,358 4,159 2,877 2,885 2,877 2,792 2,667 2,697 2,885 2,878 2,844
Derivatives (notional value, billions) 6 89 88 94 144 103 144 98 99 100 103 101 86
 
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 4,426 4,472
Net interest income 45,676 50,475 52,266 56,545 62,698 14,723 15,049 15,484 16,116 16,049 13,897 13,294
Provisions for loan losses 4,461 5,058 4,262 3,179 3,191 763 684 735 892 881 947 578
Non-interest income 22,118 24,282 27,311 25,934 26,410 6,299 6,569 6,646 6,930 6,264 5,972 6,063
Non-interest expense 43,828 46,390 50,672 52,661 56,323 13,681 13,783 13,845 14,325 14,369 12,680 12,252
 
Memo  
Realized securities gains or losses 727 651 962 531 35 -3 98 61 66 -190 -177 22
 
Ratios (percent)  
Return on average equity 12.54 13.55 13.08 13.16 13.24 12.60 13.25 13.70 13.74 12.29 12.99 12.91
Return on average assets 1.13 1.25 1.20 1.20 1.21 1.16 1.22 1.25 1.26 1.12 1.19 1.19
Net interest margin 8 4.20 4.25 3.97 3.93 3.97 3.94 3.97 3.98 4.0 3.93 4.16 3.94
Efficiency ratio 63.75 61.05 62.93 62.68 61.89 64.01 62.59 61.76 61.54 62.74 62.20 61.98
Nonperforming assets to loans and related assets .99 1.04 .99 .77 .69 .77 .75 .71