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Insured Banks and Thrifts Report Record Earnings in 2006
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $145.7 billion in 2006, eclipsing the previous record of $133.9 billion set in 2005. The improvement in earnings can be attributed in part to strong growth in noninterest income at large banks, higher net interest income and lower expenses for bad loans. This is the sixth year in a row that industry earnings set a new record.
"The banking industry continues to perform well, even as an inverted yield curve and a weakening mortgage market have made the operating environment more challenging," said FDIC Chairman Sheila C. Bair. "While institutions are generally well positioned from a capital perspective, bankers and regulators should ensure that risk-management practices are also equal to the challenges."
More than half of all insured institutions (55.9 percent) reported increased profits in 2006 compared to 2005, but only 46.3 percent reported higher returns on assets (ROAs), a basic yardstick of earnings performance. The industry's ROA of 1.28 percent in 2006 was slightly lower than the 1.30 percent in 2005. The average net interest margin -- the difference between the average interest income that institutions earn on their loans and other interest-bearing investments and the average interest expense they incur to fund those assets -- declined to an 18-year low of 3.31 percent in 2006 (from 3.52 percent in 2005). Rising short-term interest rates caused the difference between short-term and longer-term interest rates to narrow and even become negative at times in 2006.
Preliminary financial results for the fourth quarter and full year are contained in the FDIC's latest Quarterly Banking Profile, which was released today. Among the major findings:
The complete report is available at http://www2.fdic.gov/qbp/index.asp on the FDIC Web site.
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Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,681 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (1-877-275-3342 or 703-562-2200).PR-15-2007
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