U.S. commercial banks continued to be highly profitable in 2004. Return on assets and return on equity declined moderately, but the economy's continued expansion and supportive financial conditions helped keep bank profits in the elevated range that has prevailed since the mid-1990s. Profits were trimmed a bit by a narrowing of banks' net interest margins as the yield curve flattened and competition put pressure on loan spreads. In addition, gains in non-interest income were less pronounced than in 2003, and non-interest expenses increased. However, the continued improvement in the overall credit quality of business and household loans allowed banks to reduce their provisioning for loan and lease losses, and delinquency and charge-off rates for all loan categories trended down. Bank balance sheets also expanded. A robust housing sector and generally low interest rates supported residential mortgage lending, and increases in demand along with an easing of lending standards and terms throughout the year boosted commercial and industrial loans. Banks also reported easing their standards and terms on commercial real estate loans, and such loans increased despite soft conditions in some markets. Still-low interest rates supported the continued growth of core deposits, but the greater rise in bank assets required banks to rely more heavily on managed liabilities, which rose strongly last year.