Banks’ Net Income Rises in Fourth Quarter

FDIC-insured banks and savings institutions earned $43.7 billion in the fourth quarter, up 7.7 percent from the industry’s earnings a year before, the FDIC said today. The rise in net earnings was largely driven by an $8.4 billion increase in net interest income.

“Banks continued to be a positive economic force in 2016 with robust year-over-year growth in business loans, as well as commercial real estate and construction lending,” said ABA Chief Economist Jim Chessen. “A strong revival in business confidence — buoyed by expectations of tax relief and less red tape — is likely to accelerate loan demand in 2017, creating even more opportunities for banks to provide the credit necessary for companies to grow and expand their workforce.”

Total loan balances increased by $466 billion, or 5.3 percent, year-over-year. Credit card balances rose by 5 percent during the quarter as a result of holiday spending. Meanwhile, non-farm, non-residential real estate properties rose by 1.7 percent, and real estate and construction development loans increased by 3.3 percent. Loans to commercial and industrial borrowers fell for the first time in more than two years, however, decreasing by 0.4 percent in the fourth quarter.

Loan-loss provisions continued to increase, totaling $47.8 billion — a 28.8 percent increase from the year prior. Net charge-offs rose as banks closed out 2016, but remained near historic lows at 0.47 percent. “Banks are ready for additional interest rate increases by the [Federal Reserve] this year, and have factored in any potential risk from these into their asset and liability management plans,” Chessen noted. “Deposit flows remain steady and banks are highly capitalized at levels well above even the most stringent regulatory standards. Banks remain laser-focused on deploying capital through loans that help grow businesses and create jobs.”

Community bank revenue growth outpaced the rest of the industry at 10.5 percent and profits totaled $5.3 billion. The proportion of banks that were unprofitable fell to 8.1 percent from 9.6 percent in 2015, and the number of institutions on the problem bank list dropped from 132 to 123. The Deposit Insurance Fund rose to $83.2 billion during the quarter.