The threat securities pose to the banking industry decreased during the first quarter, according to data compiled by Veribanc Inc.
"There's no real ballooning of any of the problem categories," said Warren Heller, Veribanc's research director.
Banks' long term holdings of debt securities appreciated by $10.4 billion during the first quarter from $19.2 billion at the end of last year.
Despite the appreciation, banks still carry $8.9 billion in unrecognized securities losses - still a significant problem, Mr. Heller said.
Total securities owned by banks, other than in trading accounts, amount to $886 billion. Structured notes and other high-risk mortgage derivative securities account for $26 billion. Recognized and unrecognized losses on these instruments amounted to $1.08 billion.
A continuing positive lending picture, however, has enhanced profitability. The net interest margin from commercial and industrial loans before fee income and chargeoffs was at a robust 4.59%, up from 3.80% at a similar time last year.
At the same time, delinquencies as a percent of loans decreased to 1.37 at the end of the first quarter, from 2.70 a year earlier.
The largest commercial lenders renewed their commitment to lending, increasing the average outstanding loans during the quarter by 8.1% from the end of the first quarter of last year.
Meanwhile, off-balance-sheet derivatives adversely impacted banks' bottom lines. Derivatives cost the banking industry $86.3 million, or 0.74% of industry net income.
Citibank's off-balance-sheet derivatives added $233 million to its net income during the first quarter, while those at Morgan Guaranty Trust Company of New York resulted in a $133 million loss.