| The nation’s banks boosted earnings in the fourth quarter, benefiting from loan growth and declining noninterest expenses, but as loan growth and loan losses both picked up, regulators warned banks of rising credit risks.
According to the FDIC’s most recent quarterly banking profile, insured institutions posted aggregate net income of $40.8 billion in the fourth quarter of 2015, representing an increase of $4.4 billion, or 11.9 percent, from the prior year period. The agency said that increase was largely attributable to a $6.8 billion increase in net operating revenue and a $2.7 billion decline in noninterest expenses. The drop in noninterest expenses was due to a decline in litigation expenses at a few large banks, the FDIC said.
More than half (56.6 percent) of the 6,182 insured commercial banks and savings institutions posted year-over-year growth in their quarterly earnings, and the proportion of unprofitable banks fell to 9.1 percent, the lowest level for a fourth quarter since 1996.
“Revenue and income were up from the previous year, overall asset quality continued to improve, loan balances increased, and there were fewer banks on the problem list,” FDIC Chairman Martin J. Gruenberg said in a statement. “However, banks are operating in a challenging environment. Revenue growth continues to be held back by narrow interest margins. Many institutions are reaching for yield, given the competition for borrowers and low interest rates. And there are signs of growing credit risk, particularly among loans related to energy and agriculture.”
Total loan and lease balances increased $197.3 billion, or 2.3 percent, in the fourth quarter and $530.1 billion, or 6.4 percent, for the full year. That latter figure represented the largest 12-month growth rate since mid-2007. For community banks in particular, loan balances increased 2.5 percent for the quarter and 8.6 percent for the year.
The nation’s banks also posted the first year-over-year increase in loan losses since the second quarter of 2010. Net loan and lease charge-offs totaled $10.6 billion in the fourth quarter, up $690 million or 7 percent from the year-ago period. In particular, the FDIC noted that net charge-offs of commercial and industrial loans increased $512 million, or 43.4 percent, and charge-offs of credit cards increased $292 million, or 5.6 percent, from the year-ago period. The average net charge-off rate in the fourth quarter was 0.49 percent, compared with 0.48 percent in the year-ago period.
Though Gruenberg warned of growing interest rate and credit risk in his prepared statements, he also said, “Going forward, the banking industry is better-positioned to withstand less-favorable economic and financial market conditions. Regulatory agencies have been working together to ensure that banks have strong balance sheets. Capital ratios are significantly higher than they were prior to the crisis, and the percentage of highly liquid assets also is significantly higher.”
Finally, the FDIC said that the number of banks on its “problem list” declined from 203 to 183 during the quarter, and total assets of problem institutions fell from $51.1 billion to $46.8 billion. For the entirety of 2015, there were 305 bank mergers, one new charter and eight bank failures.
