Banks

U.S. banks posted a 7.7% jump in profit in the fourth quarter while the number of unprofitable banks and “problem banks” continued to fall.

In its latest Quarterly Banking Profile, the Federal Deposit Insurance Corp. said federally-insured commercial banks and savings institutions reported aggregate net income of $43.7 billion in the third quarter, up $3.1 billion from a year earlier.

For the most part, the increase reflected a $8.4 billion (7.65%) gain in net interest income. Fifty-nine percent of all banks reported year-over-year increases in quarterly earnings, while 8.1% were unprofitable for the quarter, down from 9.6% the previous year.

The number of financial institutions on the FDIC’s “problem list” fell to 123 from 132 the year before, the lowest level in more than seven years.

“The banking industry had another largely positive quarter,” FDIC Chairman Martin J. Gruenberg said in a news release, noting that “Revenue and net income were higher, loan balances grew, asset quality improved, and the number of unprofitable banks and ‘problem banks’ continued to fall.”

But he also said 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.”

Community banks had another strong quarter, with net income rising $508 million (10.5%) and net operating revenue increasing $1.6 billion (7.6%). Loan growth was led by nonfarm nonresidential mortgages, commercial and industrial loans, multifamily residential mortgages, and construction and development loans.

“Community banks … reported solid results for the quarter and year with strong net income, revenue, and loan growth. ” Gruenberg said.

For full-year 2016, banking industry earnings rose $8 billion (4.9%) compared to full-year 2015. Net operating revenue was $29 billion (up 4.2%), while itemized litigation expenses at a few large banks were almost $3 billion lower than in 2015.

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