FDIC: ‘Banks Operating in Challenging Environment’



The FDIC reported that insured commercial banks and savings institutions’ aggregate net income of $40.8 billion in the fourth quarter of 2015, was up $4.4 billion (11.9%) from earnings of $36.5 billion a year earlier. The increase in earnings was mainly attributable to a $6.8 billion increase in net operating revenue and a $2.7 billion decline in noninterest expenses. The reduction in noninterest expenses is attributed to a drop in litigation expenses at a few large banks.

Of the 6,182 insured institutions reporting fourth quarter financial results, more than half (56.6%) reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the fourth quarter fell from 9.9% a year earlier to 9.1%, 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. “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.”

Full-year 2015 earnings are 7.5% higher than 2014: net income for the full year totaled $163.7 billion, an increase of $11.4 billion (7.5%) over the total for 2014.  Almost two out of every three banks (63.6%) reported higher net income in 2015.  Net operating revenue was $14.9 billion (2.2%) higher than in 2014, while total noninterest expenses were $5.5 billion (1.3%) lower. Itemized litigation expenses at a few large banks were $6.6 billion (67.6%) less than in the previous year.

Highlights from the Q4/15 Quarterly Banking Profile

Community bank earnings rise: The 5,735 insured institutions identified as community banks reported $5.1 billion in net income in the fourth quarter, an increase of 4% from the fourth quarter of 2014. Net operating revenue of $22.6 billion at community banks was $1.6 billion (7.4%) higher than a year earlier.

Net operating revenue of $174.3 billion is 4% higher than a year ago: Loan growth helped lift revenue at most banks, as net interest income rose $3.9 billion (3.6%) compared to the fourth quarter of 2014.  Noninterest income was $3.0 billion (5%) higher, as servicing income rose $2.1 billion (178%) and gains on asset sales increased by $984 million (32%). Total net operating revenue was 4.1% percent higher than a year ago.

Noninterest expenses Are 2.5% lower: Total noninterest expenses of $105.8 billion in the fourth quarter were $2.7 billion (2.5%) less than in the fourth quarter of 2014. Itemized litigation expenses at a few large banks were $2.4 billion (80%) below the level of a year ago.

Loan losses post first year-over-year increase since second quarter of 2010: Net loan and lease charge-offs totaled $10.6 billion in the fourth quarter, an increase of $690 million (7%) compared to the fourth quarter of 2014.  This is the first time since the second quarter of 2010 that charge-offs have increased year-over-year.  Net charge-offs of loans to commercial and industrial borrowers were $512 million (43.4%) higher than a year ago, while charge-offs of credit cards were $292 million (5.6%) higher.  The average net charge-off rate for the fourth quarter was 0.49%, compared to 0.48% a year ago.

Loan growth rate continues to pick up: Total loan and lease balances increased $197.3 billion (2.3%) during the fourth quarter. For the 12 months ended December 31, loans and leases increased $530.1 billion (6.4%). This is the largest 12-month growth rate since mid-2007 to mid-2008.  At community banks, loan balances rose 2.5% during the fourth quarter of 2015 and increased 8.6% during the past 12 months.

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Terry Mulreany
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