Bank profits hit new earnings record in 2003

Banks earn $121 billion in 2003; nonperforming loans decrease 11.5 percent; and deposits jump 7 percent

Profits at the nation's banks and thrifts hit a new record in 2003, during which banks earned $120.6 billion. According to findings released June 21 by Weiss Ratings Inc., 2003 earnings are 14.5 percent higher than the previous record of $105.3 billion, which was set in 2002. Institutions reporting the largest year-over-year increases in net income were JP Morgan Chase Bank, Citibank NA, Wells Fargo Bank NA, Citibank (West) FSB and Bank of America NA.

Despite soaring profitability, the industry's net margin weakened, declining to 3.29 percent at year-end 2003, compared to 3.53 percent at the end of 2002. The decline is an indication that the industry is earning less on its revenue generating assets primarily loans.

In addition, other types of banking business, such as trust services, securities trading and insurance sales continued to improve as the industry's net noninterest margin increased to negative 0.83 from as low as negative 1.37 in 1998.

"Following several quarters of strong profits and an increasing reliance on nonlending business, the industry is well positioned to absorb the imminent rise in interest rates," said Melissa Gannon, Weiss Ratings vice president, in the release.

Nonperforming loans declined $7.9 billion, or 11.5 percent, to $60.9 billion as of Dec. 31, 2003 from a record high of $68.9 billion at year-end 2002.

Likewise, the industry reported a decline in net loan charge-offs, which fell to $49.1 billion, a decrease of 9.5 percent compared to the $54.3 billion charged off in 2002.

Meanwhile, deposits rose to $6 billion at year-end 2003, representing a 6.9 percent increase from the $5.6 billion reported in 2002.

Institutions reporting the largest year-over-year increases in deposits include Wells Fargo Bank NA, Wachovia Bank NA, Bank of America NA, Comerica Bank and JP Morgan Chase Bank.

"While increasing deposits is a healthy trend, it's notable that it has slowed down compared to recent years," Gannon said. "This may indicate that consumers are seeking other investments that return more money than the abysmal rates paid by savings accounts and CDs."

Weiss reviewed 8,255 banks and thrifts. Weiss Safety Ratings are based on analysis of a company's risk-adjusted capital, five-year historical profitability, quality of investments, liquidity and stability. The latter category combines a series of factors, including asset growth, premium growth, strength of affiliate companies and risk diversification.