The year 2001 tested the strength
and resiliency of the State's commercial banking sector. A
global economic downturn, major business bankruptcies, debt defaults
and the precarious state of the Argentine economy were some of the
more challenging issues faced by the industry. The adverse
environment was further exacerbated by the events of September 11th.
Asset quality indicators evidenced
deterioration as credit weaknesses in the marketplace intensified
especially during the latter part of the year. The percentage of
noncurrent loans and chargeoffs to total loans climbed to 1.82%
and .81%, respectively. The sector's total asset base dropped
3% to $874 billion due, in large part, to the merger of The Chase
Manhattan Bank and Morgan Guaranty Trust Company in the fourth quarter.
The combination of these banks created a global giant with nearly
$540 billion in assets, the second largest in the United States.
Profit performance also suffered as pressures on net interest income
coupled with rising loan loss provisions and a slower rate of growth
in non-interest income negatively impacted the bottom line.
The industry's return on average assets was .71%, a 39 basis point
drop from the previous year.
Despite these difficulties, the industry
remains fundamentally sound and well positioned to move forward
as economic improvement takes place. Capital adequacy, as measured
by risk-based capital guidelines, remained healthy with the tier
one capital ratio increasing slightly to 9.89%. In addition to
strong capital levels, loan loss reserves have been strengthened,
and prudent risk management practices have helped avoid some of
the concentration pitfalls of the past.
Besides the Chase/Morgan merger,
other noteworthy transactions included the acquisition of Fiduciary
Trust Company International of New York by Franklin Resources, Inc.
and First Union Corporation acquiring control of Offitbank, a large
wealth management trust company. (Wachovia
Corporation merged with and into First Union Corporation under the
name Wachovia Corporation.)