| The banking industry saw fourth quarter earnings rise 7.7 percent from the prior year, boosted largely by interest income, the FDIC said this week.
In prepared remarks, FDIC Chairman Martin J. Gruenberg highlighted increases in revenue, net income and loan balances, as well as improved asset quality and community banks’ particular success.
“Nevertheless, the operating environment for banks remains challenging,” he said in his remarks. “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.”
Aggregate net income across FDIC-insured institutions totaled $43.7 billion, up $3.1 billion from the same period in 2015. Net interest income rose $8.4 billion, or 7.6 percent, over that same time frame. Net operating revenue was up 4.6 percent from the year-ago period.
For the full year, net income increased $8 billion, or 4.9 percent, from the fourth quarter in 2015. Net operating revenue increased $29 billion, or 4.2 percent.
Fifty-nine percent of banks posted year-over-year earnings growth and the percentage of unprofitable institutions fell to 8.1 percent from 9.6 percent in the fourth quarter of 2015.
Community banks outpaced the industry at large, however. Net income at community banks totaled $5.3 billion in the fourth quarter, representing a $508 million, or 10.5 percent increase year-over-year. Total loan and lease balances increased $22.4 billion, or 1.5 percent, from the prior quarter. Over the prior 12 months, loans and leases at community banks increased $115.7 billion, or 8.3 percent, compared with 4.3 percent at noncommunity banks. Net operating revenue increased $1.6 billion, or 7.6 percent, to $23 billion in the fourth quarter. The FDIC identifies 5,461 institutions as community banks.
For the entire industry, total loan and lease balances increased $72.3 billion, or 0.8 percent, during the fourth quarter. Credit card balances increased $38.2 billion, or 5 percent, during the quarter, reflecting seasonal holiday spending, while real estate loans secured by nonfarm nonresidential real estate properties rose $22.8 billion, or 1.7 percent, and real estate construction and development loans increased $10.1 billion, or 3.3 percent. Loans to commercial and industrial borrowers declined for the first time in 26 quarters, falling by $7.7 billion, or 0.4 percent. For the 12 months ended Dec. 31, loans and leases increased $466 billion, or 5.3 percent.
