WASHINGTON–Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported aggregate net income of $43.7 billion in the fourth quarter of 2016, up $3.1 billion (7.7%) from a year earlier.
The increase in earnings was mainly attributable to an $8.4 billion (7.6%) increase in net interest income, according to the FDIC, which released the financial results for the fourth quarter of 2016 in its latest Quarterly Banking Profile released today.
Of the 5,913 insured institutions reporting fourth quarter financial results, 59% reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the fourth quarter fell to 8.1% from 9.6% a year earlier, the FDIC said.
“Revenue and net income were higher, loan balances grew, asset quality improved, and the number of unprofitable banks and ‘problem banks’ continued to fall,” Gruenberg said. “Community banks also reported solid results for the quarter and year with strong net income, revenue, and loan growth. Nevertheless, the operating environment for banks remains challenging. Low interest rates for an extended period have led some institutions to reach for yield, which has increased their exposure to interest-rate risk, liquidity risk, and credit risk. Banks must manage risks prudently to ensure that industry growth is on a long-run, sustainable path.”
Among the findings released by the FDIC:
- Quarterly Industry Net Income is $3.1 Billion Higher Than a Year Earlier. Quarterly earnings were 7.7% higher than in the fourth quarter of 2015, as the average return on assets rose to 1.04% from 1.02% a year earlier. Revenue growth helped propel quarterly earnings. Net operating revenue – the sum of net interest income and total noninterest income – was $181.8 billion, an increase of $7.9 billion (4.6%) from a year earlier, the FDIC said.
- Full-Year 2016 Earnings Rise to $171.3 Billion. Full-year earnings for the banking industry rose $8 billion (4.9%) compared to full-year 2015. Net operating revenue was $29 billion (4.2%) higher than in the previous year, while itemized litigation expenses at a few large banks were almost $3 billion lower than in 2015, the FDIC said. Loan-loss provisions rose to $47.8 billion in 2016, an increase of $10.7 billion (28.8%) from 2015.
- Community Bank Revenue and Loan Growth Outpace Industry. The 5,461 insured institutions identified as community banks reported a $508 million (10.5%) increase in net income in the fourth quarter. Total loan and lease balances at community banks rose $22.4 billion during the fourth quarter. During the past 12 months, loans and leases at community banks rose $115.7 billion (8.3%), according to the FDIC. Net operating revenue of $23 billion at community banks was $1.6 billion (7.6%) higher than in the fourth quarter of 2015.
- Total Loan Balances Rise 5.3% During 2016. Total loan and lease balances increased $72.3 billion (0.8%) during the fourth quarter, the FDIC said. Credit card balances increased $38.2 billion (5%) during the quarter, reflecting seasonal holiday spending, while real estate loans secured by nonfarm nonresidential real estate properties rose $22.8 billion (1.7%), and real estate construction and development loans increased $10.1 billion (3.3%). Loans to commercial and industrial borrowers declined for the first time in 26 quarters, falling by $7.7 billion (0.4%). For the 12 months ended December 31, loans and leases increased $466 billion (5.3%).
The agency added that the number of banks on the FDIC’s Problem Bank List fell from 132 to 123 during the fourth quarter. This is the smallest number of problem banks in more than seven years and is down significantly from the peak of 888 in the first quarter of 2011, the FDIC said.
The DIF reserve ratio rose from 1.18% to 1.20% during the quarter. Estimated insured deposits increased 1.4% in the fourth quarter. For all of 2016, estimated insured deposits increased 6%.