Typical Net Profit Margin for Banks
According to the Federal Deposit Insurance Corp., there were 6,096 commercial banks and 987 savings institutions operating in the United States as of December 2012. A large number of new or "de novo" banks were created between 2000 and 2006. However, that trend reversed and an even larger number of banks closed since late 2008. One way to compare the health and performance of banks is to look at their net profit margin.
According to Yahoo! Finance, as of early 2013, the average net profit margin, at 20 percent, is highest for regional banks in the Southwest and Midwest. Pacific regional banks have a net profit margin of 18 percent. In the Northeast and mid-Atlantic regions, regional banks have a net profit margin of 16 percent and 13 percent, respectively. The Southeast region has the lowest net profit margin, at 11 percent.
The net profit margin is calculated by dividing net income by sales. Both of these numbers are found on a bank's net income or profit-and-loss statement. Net profit margin shows how much of each sales dollar is earned by the company as profit. Comparing net profit margin across the banking industry or another industry allows a lender or investor to determine how well one company is doing in relation to its peers.
Banks are highly regulated by state and federal entities, but the level of regulation does not hinder the creation of new banks. Newly chartered banks form as corporations then raise money from institutions and private investors and small and medium business owners in the area. People typically form de novo banks to serve underserved markets. For example, community banks are often started by a group of business owners and leaders to serve entrepreneurs and business owners in that community.
A bank's financial statements are highly similar to other company financial statements. However, much of a bank's assets shown on the balance sheet are represented by loans. Banks must therefore hold cash in reserve to comply with federal reserve capital requirements. How much they hold in reserve depends on the the total amount of loans and the quality of the loans. Revenue generated from interest assessed on the loans shows up on the income statement as do losses that arise from the write-off or write-down of bad loans.