Banks End 2015 on Profitable Note with $40.4B in Q4

FDIC-insured banks and savings institutions earned $40.4 billion in the fourth quarter, up 11.9 percent from the industry’s earnings a year before, the FDIC said today. The rise in earnings was largely driven by a $6.8 billion jump in net operating revenue and a $2.7 billion decline in noninterest expenses, the agency said. For 2015, the industry’s net income rose 7.5 percent to $163.7 billion, and two-thirds of banks reported higher year-over-year net income.

Loan growth helped power the increase in operating revenue, with net interest income growing 3.6 percent compared to the fourth quarter of 2014. Servicing income and asset sales also fueled revenue growth, with noninterest income up 5 percent year-on-year. For the full year, net operating revenue rose 2.2 percent and noninterest expenses fell by 1.3 percent.

“Strong, broad-based loan growth was the driving factor behind another solid year for America’s banking industry,” said ABA Chief Economist James Chessen. “Lending is the big story as banks of all sizes steadily increase their loans to small, medium and large businesses.”

Community banks earned $5.1 billion during the fourth quarter, up 4 percent from the same period in 2014. “Total loans are up more than 6 percent with community banks leading the charge,” Chessen commented. The average industry-wide return on assets rose to 1.03 percent from 0.95 percent a year earlier, and ROA for the full year was at 1.04 percent.

Overall asset quality dipped slightly in the final quarter of 2015, with net charge-offs rising 7 percent to $10.6 billion — the first year-on-year increase since 2010. However, charge-off growth was concentrated in commercial and industrial loans, especially to borrowers in the energy business, and in auto loans; other credit categories saw lower charge-offs.

Meanwhile, provisions set aside in the fourth quarter for loan and lease losses rose by 45.5 percent to $12 billion. “As assets grow, the industry is setting aside additional provisions for loan losses that may occur down the road,” Chessen said. “This is prudent management to assure resources are available in a downturn.” The number of institutions on the problem bank list dropped from 203 to 183, and the Deposit Insurance Fund balance rose to $72.6 billion during the quarter.