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Banking Conditions

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Amid concerns that loan standards may be easing too much, insured commercial banks reported their fifth consecutive quarter of record earnings. First-quarter bank profits totaled $15.9 billion, a 4.1% increase over the previous record, set in 1997:IVQ. The industry’s return on average assets also improved to 1.26%, from 1.24% in the previous quarter. Analysts attributed earnings’ strength to the continued strong asset expansion, growth in contributions from noninterest revenue sources, and favorable asset quality. However, the industry’s net income did receive a boost of more than $1 billion from nonrecurring gains, the returns from a one-time sale of assets. There are other points of concern: Net interest margins have continued to narrow for banks of all asset sizes, credit-loss provisions have risen, and noninterest expenses related to mergers and holding company restructurings have increased.

Suggested citation: “Banking Conditions,” Federal Reserve Bank of Cleveland, Economic Trends, no. 98-08, pp. 16-17, 08.01.1998.

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