U.S. commercial banks enjoyed another year of high profits in 1994, reporting record net income, according to a study in the Atlanta Fed's Economic Review. However, rapid asset and capital growth slightly reduced rates of return on assets and equity.
According to authors Lynn W. Woosley and James D. Baer, economic analysts in the Atlanta Fed's research department, banks in the Southeast again outperformed those in the nation as a whole in 1994. Woosley and Baer examine the forces behind this performance, concluding that healthy economic conditions augmented banks' bottom lines by stimulating loan growth and curtailing loan losses. Much of the decline in rates of return can be attributed to changes in accounting rules, which resulted in a one-time addition to assets.
For 1995, the analysts predict that banks' levels of net income margins, return on assets, and return on equity should remain near historic highs, although profitability may be somewhat lower than in 1994.