100 Most Profitable Banks of 2006:

Winning Strategies & Best Execution

Published: July 2007

Report #: 2007-701

Summary

The number of FDIC insured banks and thrifts as of Dec. 31, 2006 was 8,681. The number of bank and thrift institutions analyzed in this report is 7,430. The difference of 1,251 chartered institutions is due to two primary factors. First, 127 non-bank chartered institutions were removed from the universe because their business model is very limited and does not represent a full service bank or thrift institution. Second, we consolidated multiple, related holding company affiliates into single institution entities. This latter process removed another 1,124 institutions via consolidation. The industry is still bottom heavy with institutions with assets of less than $1 billion. Over 92% of the 7,433 institutions are concentrated in the two smallest asset segments: <$100 million and $100 million to $1 billion.

This universe of institutions requires an analytical methodology that achieves a level playing field. A fair and universal ranking process was achieved by developing an algorithm for calculating institutional profitability. The concept that guides this algorithm is the balance institutions must achieve between return on equity and an appropriate measure for the earning capacity of the bank’s asset base. Capital requirements continue to be refined to reflect levels of risk associated with various lending and investment alternatives. Return on assets is a useful, counter balance to return on equity, but runs into obstacles that relate to a variety of tax rates and Subchapter S status, which avoids taxes altogether at the institution level. The algorithm used in this analysis equally weights pre-tax return on assets and return on equity. This balance is achieved by establishing a mathematical relationship between pre-tax return on assets and return on equity for the entire industry.

The report's findings includes an analysis of the 100 most profitable banks and thrifts, the most profitable banks by asset segment, and an analysis of the business strategies and key operating characteristics of the 100 most profitable banks and thrifts. In addition, two appendices contain key operating metrics for these institutions for 2006 and 1Q2007. The report contains 14 tables and one chart.

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