WASHINGTON - Commercial bank profits rose 15.8%, to $71.7 billion, in 1999, setting the eighth consecutive annual earnings record and smashing 1998's record by nearly $10 billion, the Federal Deposit Insurance Corp. said Thursday.

Fourth-quarter earnings, at $17.8 billion, were up 20% from the fourth quarter of 1998. It was the third-best quarter ever, 8.2% below the record of $19.4 billion scored in the quarter that ended Sept. 30. The FDIC credited gains in noninterest income for the record-breaking 1999. Aided by robust gains in fee income, noninterest income rose 16.8% last year, to $144.5 billion. It accounted for 44.1% of commercial bank net operating revenues, up from 40.4% in 1998.

The improvement in noninterest income helped offset a 94.1% decline in proceeds from the sale of securities. With four quarter-point rate hikes since June, the value of banks' securities has fallen significantly, according to the FDIC's Quarterly Banking Profile.

Net interest income rose 5.2%, to $192.2 billion, in 1999, while the net interest margin remained flat, at 4.07%.

The industry's average return on assets, a basic measure of profitability, hit an all-time high of 1.31%, up from 1.19% in 1998. For the quarter, average return on assets was 1.27%, up from 1.10% in the fourth quarter of 1998.

At a press conference Thursday, FDIC Chairman Donna Tanoue said shifts in the make-up of bank balance sheets during 1999 reveal a heightened sensitivity to future interest rate hikes.

"The industry as a whole increased its holdings of assets with long-term maturities, that is to say five years or longer, while at the same time increasing its exposure to liabilities that reprice or mature in less than a year," Ms. Tanoue said.

Ms. Tanoue's remarks echoed statements made by Federal Reserve Chairman Alan Greenspan on March 8 in San Antonio. Mr. Greenspan warned community bankers that a steady rise in average asset maturities, coupled with a decline in stable core deposits, indicates a growing exposure to rising interest rates.

Long-term assets as a percentage of total assets have steadily risen over the past 15 years, to 20.6% in 1999 from 10.2% in 1984, according to data provided by the FDIC. And core deposits as a percentage of total deposits had declined to 47% by the end of 1999 from 62.4% at the close of 1992.

However, Ms. Tanoue said many banks are taking steps to hedge against further interest rate increases. FDIC senior financial analyst Ross Waldrop added that history shows the banking industry will be able to adjust to gradual rate hikes, either through the use of off-balance sheet instruments or advances from the Federal Home Loan Bank system.

Asset quality showed signs of improvement in 1999, the FDIC said, primarily because of improvement in bank credit card portfolios. Net loan losses on credit card loans were down 20.1%, or $2.3 billion, in 1999, offsetting chargeoffs for commercial and industrial loans which increased more than 51%, or $1.8 billion.

The noncurrent loan rate, or the percentage of loans 90 days or more past due or in nonaccrual status, declined to 0.96% from 0.94% - its lowest level in the 18 years banks have reported that data. The percentage of chargeoffs also fell in 1999, to 0.61% from 0.67% a year ago.

The FDIC said assets grew 5.4% in 1999 to $5.73 trillion - the lowest annual growth rate since 1992, marking the second consecutive year of slowing growth.

For the fourth straight year, the pace of industry consolidation slowed - the number of insured commercial banks fell by 194 to 8,580, compared with a decline of 368 in 1998. During 1999, the 417 banks absorbed by mergers was the fewest in any year since 1990, according to the report, while the 231 new bank charters in 1999 was the most since 1986.

In a continuing trend, banks with less than $100 million of assets saw their average profitability erode to 1.01%, from 1.13% in 1998. Declining net interest margins and shortfalls in noninterest income hurt these banks. The FDIC said that more than 10% of the smallest banks, or 543 of 5,157 institutions, were unprofitable for the first time since 1991.

The FDIC said that 66 commercial banks were on its "problem" list at the end of 1999, down from 69 at the beginning of the year. Seven commercial banks failed in 1999, which is estimated to cost the Bank Insurance Fund roughly $810 million. The number of bank failures in 1999 was the highest in five years.

Like commercial banks, the 1,640 FDIC-insured thrifts also reported record earnings for 1999, for the third straight year. Net income rose 7.3%, to $10.9 billion. Asset growth was especially strong in commercial real estate loans, loans to commercial borrowers, and consumer loans.

Thrift earnings for the fourth quarter of 1999, which rose roughly 34% to $2.7 billion, were down $132 million from the third quarter of 1999.

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