FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
FOURTH QUARTER 2015
Fourth Quarter Net Income of $40.8 Billion Is 11.9 Percent Higher Than a Year Ago Lower Litigation Expenses Boost Year-Over-Year Earnings Growth Quarterly Loan Losses Post First Year-Over-Year Increase in 22 Quarters Full-Year Earnings of $163.7 Billion Are 7.5 Percent Above 2014 Results Total Loan and Lease Balances Rose 6.4 Percent in 2015 Number of Banks on ‘Problem List’ Falls Below 200
Earnings and Profitability Register Year-Over-Year Improvement
Declines in expenses for litigation at a few large banks combined with moderate revenue growth to lift fourth-quarter net income at FDIC-insured institutions to $40.8 billion, an increase of $4.4 billion (11.9 percent) compared with fourth quarter 2014. The improving trend in earnings was widespread. More than half of all banks, or 56.6 percent, reported year-over-year increases in quarterly net income. Meanwhile, the percentage of banks reporting negative quarterly net income fell to 9.1 percent, from 9.9 percent in the year-ago year. The average return on assets (ROA) rose to 1.03 percent from 0.95 percent in fourth quarter 2014.
Margins Improve at Large Banks
Net operating revenue—the sum of net interest income and total noninterest income—totaled $174.3 billion in the fourth quarter, up $6.8 billion (4.1 percent) from a year earlier. More than two-thirds of all banks, or 68 percent, reported year-over-year growth in revenues. Noninterest income was $3 billion (5 percent) higher, as servicing income rose by $2.1 billion (178 percent), and gains on asset sales were $984 million (32 percent) higher. Net interest income increased by $3.9 billion (3.6 percent) compared with fourth quarter 2014. The average net interest margin (NIM) was 3.13 percent, slightly higher than the 3.12 percent average the year before. This is the first time in five years that the average quarterly NIM hasn’t been lower than the year earlier. Most of the margin improvement occurred at larger banks, whose asset portfolios were better-positioned to benefit from the increase in short-term interest rates late in the quarter. Only 45 percent of all banks reported year-over-year NIM improvement.
Litigation Expenses Fall 80 Percent
Total noninterest expenses were $2.7 billion (2.5 percent) lower than in the year-ago quarter. Itemized litigation expenses at a few of the largest banks totaled $616 million, a decline of $2.4 billion (80 percent) from fourth quarter 2014. Salary and employee benefit expenses were $1.2 billion (2.5 percent) higher, while expenses for premises and other fixed assets rose $313 million (2.7 percent).
Loss Provisions Rise to Three-Year High
Provisions for loan and lease losses increased year over year for a sixth consecutive quarter, rising by $3.8 billion (45.5 percent). The $12 billion in provisions that banks set aside in the fourth quarter is the largest quarterly total in three years. About 37 percent of banks reported higher quarterly provisions, while a similar proportion reported reductions in their loss provisions.
Full-Year Revenues Post Modest Growth
Full-year earnings totaled $163.7 billion, an increase of $11.4 billion (7.5 percent) over the total for 2014. The average ROA in 2015 was 1.04 percent, up from 1.01 percent in 2014. Almost two out of every three banks, or 63.6 percent, reported higher net income in 2015. Only 4.6 percent of banks reported negative net income for the year, down from 6.3 percent in 2014. Net operating revenue increased $14.9 billion (2.2 percent) in 2015, as net interest income rose by $9.4 billion (2.2 percent) and noninterest income increased by $5.5 billion (2.2 percent). Total noninterest expenses were $5.5 billion (1.3 percent) lower than in 2014, as a few large banks reported $6.6 billion (67.6 percent) less in itemized litigation expenses in 2015. Full-year loan-loss provisions registered an increase for the first time in six years, rising by $7.2 billion (24.1 percent). Full-year net charge-offs were $2.4 billion (6.1 percent) lower than in 2014.
Charge-Offs Rise in C&I, Consumer Portfolios
Net charge-offs totaled $10.6 billion in the fourth quarter, an increase of $690 million (7 percent) from a year earlier. This is the first year-over-year increase in quarterly charge-offs in 22 quarters. Net charge-offs of loans to commercial and industrial (C&I) borrowers rose by $512 million (43.4 percent), as lower oil prices adversely affected some energy sector borrowers. Credit card charge-offs were $292 million (5.6 percent) higher, an increase largely in line with the growth in total credit card balances. Net charge-offs of auto loans increased by $105 million (15.9 percent). All other major loan categories had lower charge-offs than a year ago. The average net charge-off rate in the fourth quarter was 0.49 percent, almost unchanged from the 0.48 percent average in fourth quarter 2014.
Provisions Exceed Charge-Offs for First Time in Six Years
Banks barely reduced their reserves for loan losses during the fourth quarter, as quarterly loan-loss provisions exceeded quarterly net charge-offs for the first time in six years. Loan-loss reserves declined by $586,000 (0.0005 percent) during the three months ended December 31. The average “coverage ratio” of reserves to noncurrent loans improved for a 13th consecutive quarter as a result of the decline in noncurrent loan balances. The coverage ratio improved from 85.2 percent to 86 percent during the quarter. This is the highest level for the ratio since mid-year 2008. Banks with assets greater than $1 billion break out their loan-loss reserves for major loan categories. These institutions, which account for almost 90 percent of total industry reserves, increased their reserves for non-real estate commercial loan losses by $2.3 billion (7.9 percent) during the quarter, and increased their reserves for credit card losses by $460 million (1.7 percent). They reduced their reserves for all other loan and lease losses by $2.3 billion (4.7 percent).
Lower Securities Values Limit Growth in Equity
Equity capital registered a modest $4.4 million (0.2 percent) increase in the fourth quarter. Retained earnings contributed $13.5 billion to equity growth, matching the contribution of a year earlier, as banks increased their fourth-quarter dividends by $4.4 billion (19 percent). Accumulated other comprehensive income, which is included in equity capital, declined by $13.5 billion during the quarter, as higher interest rates caused a decline in unrealized securities gains. At the end of 2015, 98.9 percent of all insured institutions, representing 99.8 percent of total industry assets, met or exceeded the requirements for the highest regulatory capital category as defined for Prompt Corrective Action purposes.
Pace of Loan Growth Accelerates
Total assets increased by $167.8 billion (1.1 percent) during the quarter. Total loans and leases rose by $197.3 billion (2.3 percent), as credit card balances had a largely seasonal $41.7 billion (5.8 percent) increase, C&I loans increased by $39.6 billion (2.2 percent), and nonfarm nonresidential real estate loans rose by $31.6 billion (2.6 percent). In addition, loans to nondepository financial institutions increased $17.1 billion (6.5 percent), and multifamily residential real estate loans rose by $15 billion (4.6 percent). Loans to small businesses and farms increased $7.1 billion (1.1 percent). Investment securities holdings grew by $49.6 billion (1.5 percent). Banks reduced their balances with Federal Reserve banks by $42 billion (3.4 percent), with most of the decline occurring at a few of the largest banks. Assets in trading accounts fell by $22.1 billion (3.8 percent).
Deposits Continue to Fund Asset Growth
Total deposits increased by $199.4 billion (1.7 percent) during the fourth quarter, as deposits in domestic offices rose by $255.9 billion (2.4 percent), and foreign office deposits declined by $56.5 billion (4.2 percent). Interest-bearing domestic deposits were up $215.1 billion (2.8 percent), while noninterest-bearing deposits rose by $40.7 billion (1.4 percent). Banks reduced their nondeposit liabilities by $35.9 billion (1.8 percent) during the quarter.
‘Problem List’ Falls Below 200 Institutions
The number of FDIC-insured commercial banks and savings institutions reporting quarterly financial results declined from 6,270 to 6,182 in the fourth quarter. Mergers absorbed 81 institutions in the three months ended December 31, while two insured institutions failed. No new charters were added in the fourth quarter. Banks reported 2,033,758 full-time equivalent employees in the quarter, down from 2,038,490 in the third quarter and 2,047,945 a year ago. The number of insured institutions on the FDIC’s “Problem List” declined from 203 to 183 during the quarter, and total assets of problem institutions fell from $51.1 billion to $46.8 billion. For all of 2015, there were 305 mergers of insured institutions, one new charter was added, and eight banks failed.
Chart 1. Quarterly Net Income
Chart 3. Quarterly Net Operating Revenue
Chart 5. Annual Net Income
Chart 7. Quarterly Change in Loan Balances
TABLE I-A. Selected Indicators, All FDIC-Insured Institutions
TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions
TABLE III-A. Full Year 2015, All FDIC-Insured Institutions
TABLE IV-A. Fourth Quarter 2015, All FDIC-Insured Institutions
TABLE V-A. Loan Performance, All FDIC-Insured Institutions
TABLE VI-A. Derivatives, All FDIC-Insured Call Report Filers
TABLE VII-A. Servicing, Securitization, and Asset Sales Activities
TABLE VIII-A. Trust Services, All FDIC-Insured Institutions