Banks and Thrifts Earned $105.5 Billion in 2007
Source:
Federal Deposit Insurance Corp.Washington, DC
www.fdic.org
Commerical banks and savings institutions insured by the FDIC reported net income of $105.5 billion in 2007, a decline of $39.8 billion (27.4%) from the record $145.2 billion that the industry earned in 2006. Although this ended a string of six consecutive years of record earnings for the industry, income was still above the $100 billion mark for the sixth year in a row. Higher provisions for loan losses, primarily due to weakness in residential mortgage and construction loans, and sharply lower trading revenue were primarily responsible for the drop in full-year earnings. The bulk of the earnings decline was attributable to a few large institutions, but fewer that half of all insured institutions (49.2%) reported increased net income in 2007. The FDIC reported that fourth-quarter earnings dropped to $5.8 billion, the lowest level since the fourth quarter of 1991.
FDIC Chairman Sheila C. Bair said that “fourth quarter results were heavily influenced by a number of well-publicized write-downs by large banks.” She also said, “weakness in the housing sector and the credit squeeze in financial markets made it a very challenging time for many institutions. And we can expect these problems to continue in 2008.”
Preliminary financial results for the fourth quarter and full year are contained in the FDIC’s latest Quarterly Banking Profile, released on February 26. Findings for 2007 include the following:
• Growing asset quality problems prompted many institutions to increase their loan loss provisions. Total provisions were $68.2 billion, more than double the $29.5 billion set aside in 2006.
• Ninety-nine percent of insured insitutions were well-capitalized at the end of 2007, and nearly 90% were profitable for the year.
• Trading revenue of $4.1 billion was $14.9 billion less than 2006.
• The return on assets (ROA) fell to 0.86% in 2007, compared to 1.28% in 2006.
• The average net interest margin (NIM) declined slightly to 3.29% in 2007, from 3.31% in 2006. This is the sixth consecutive year that the industry’s NIM has declined, and the average for 2007 was the lowest since 1988.
Chairman Bair said a key issue the FDIC will focus “on in the months ahead is asset quality; the rising trend in noncurrent loans indicates that write-offs and loss provisions will likely remain high for the near future.”
Regarding the fourth quarter of 2007, major findings show that more than 25% of insured institutions with assets greater than $10 billion posted a net loss in the fourth quarter.
At the end of the fourth quarter, 1.39% of the industry’s loans were noncurrent, the highest percentage since the third quarter of 2002.
The Deposit Insurance Fund reserve ration was 1.22% at year end 2007.
