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Important Notices

August 29, 2007

DFI Quarterly Report - 2nd Quarter 2007

Quarterly Report (Excel) Second Quarter 2007

Introduction

Welcome to the Quarterly Report, a new publication of the Department of Financial Institutions (DFI). Every quarter we will present summary statistics of each of the classes of financial institutions that we license with a one-year comparison. The intention of the Quarterly Report is to show at a glance significant changes on the balance sheets and reports of income of DFI licensees. We invite readers to review the Financial Statistics page on our website, and the financial data published by the Federal Reserve Bank, Federal Deposit Insurance Corporation and the National Credit Union Administration.

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Commercial Banks

For the one-year period ending June 30, 2007, state-chartered banks experienced double-digit growth in number of banks, total loans, total assets and total capital. There were 205 commercial banks at midyear 2007, compared to 183 a year previous, an increase of 22, or 12%. Assets were up from $195.1 billion to $214.6 billion, an increase of $19.5 billion, or 10.0% over the same period, while loans were up 12.5%, from $135.1 billion to $152.0 billion. Total equity capital was up a strong 18%, from $23.7 billion to $27.9 billion at the close of the quarter.

Deposits, at $152.1 billion as of June 30 were up 6.7% over 2006’s $142.6 billion, trailing loan growth. This caused the loan to deposit ratio to increase from 94.7 to 99.9% while net income remained flat at $1.3 billion. Reflecting the tightening credit market and increased cost of funds, the net interest margin was down from 3.85 to 3.62%. Return on assets, return on equity and reserve coverage of noncurrent loans decreased, as noncurrent loans increased 60.9% from $530.5 million to $853.8 million.

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Industrial Banks

Financial statistics for industrial banks were significantly impacted by the results of a single subprime lender. Total loans, total assets and total capital experienced double-digit declines from June 30 one year ago. Assets were down 11.6% from $17.2 billion to $15.2 billion while loans declined 33.3%, from $15.6 billion to $10.4 billion. Total equity capital was down sharply, from $2.1 billion to $1.2 billion a decrease of 42.9% at the close of the quarter, while the number of industrial banks decreased by one, from 15 to fourteen.

Deposits remained constant at $13.0 billion which caused the loan-to-deposit ratio to decrease from 120.2% to 80%. Net income slipped into the minus column, going from $117.1 million one year ago to a net loss of $676.3 million, while noncurrent loans increased more than three times, from $99.7 million to $445.1 million.

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Credit Unions

Credit unions experienced modest growth in total assets, total loans, total shares and total capital over the year ended June 30. Assets, at $70.8 billion were up 5.7% from the $67.0 billion reported as of June 30, 2006. Loans were up 4.3% from $48.5 billion to $50.6 billion while shares were up 5.6% from $56.9 billion to $60.1 billion. Capital was up 7.1%, from $7.0 billion to $7.5 billion. The number of credit unions decreased by four; a change of 1.9%.

Narrowing interest margins declined from 4.17 at the end of the second quarter 2006 to 4.01 at the close of the same period in 2007, while the provision for loan losses increased 65.5% from $86.9 million at midyear 2006 to $143.8 million in the same period of 2007. This put a crimp in net income, which declined from $308.7 million to $225.0 million, a decrease of $83.7 million or 27.1%. Delinquent loans were up 59.1% over the period, from $176.8 million to $281.3 million an increase of $104.5 million.

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Foreign Banks

State-chartered offices of foreign banking organizations experienced growth in total assets, total loans and total deposits during the year ended June 30, 2007. Total assets were up 15.7% from $15.3 billion to $17.7 billion while loans at $13.3 billion were up 12.7% from $11.8 billion as of midyear 2006. Deposits were $9.3 billion as of June 30, 2007 an increase of 24.0% from the $7.5 billion reported as of June 30, 2006. The number of foreign banking organizations with state-chartered offices in California remained constant at thirty-six.

Total operating income of offices of foreign banks was up 25.1% from $560.2 as of June 30, 2006 to $701.1 million at midyear 2007, however, that growth was outstripped by a 45.6% increase in total operating expenses from $426.2 million to $620.4 million, leading to a decline in net income from $134 million to $80.6 million over the same period.

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Trust Companies and Departments

Total corporate assets of trust companies were up from $658.5 million at midyear 2006 to $706.7 million a gain of 7.3% with most of the increase centered in investments in U.S. Treasury securities. While total income from fiduciary activities was up 6% from $413 million to $438 million over the same period, net income was off 16%, from $68.1 million at midyear 2006 to $57.2 million, caused in part by a 36.9% hike in salary and employee benefit costs from the same period one year ago. Total fiduciary assets at state-chartered banks and trust companies increased 11.4% from $355.5 billion to $396.0 billion. The number of trust companies went from 11 to ten, and the number of state-chartered banks with trust powers went from 20 to 19 during the period.