FDIC Quarterly Banking Profile
ALL INSTITUTIONS PERFORMANCE
FOURTH QUARTER 2016
Notes to Users
Net Income Is $43.7 Billion in Fourth Quarter
Insured institutions reported net income of $43.7 billion for the quarter, an increase of $3.1 billion (7.7 percent) compared with the year before. Almost 60 percent of all banks reported year-over-year increases in quarterly earnings. Only 8.1 percent of banks were unprofitable for the quarter, down from 9.6 percent the previous year. The average return on assets (ROA) rose slightly to 1.04 percent, from 1.02 percent in fourth quarter 2015.
Full-Year 2016 Earnings Rise to $171.3 Billion
The industry reported $171.3 billion in net income for full-year 2016, $7.9 billion (4.9 percent) more than the industry earned in 2015. Almost two out of every three banks—65.2 percent—reported higher earnings in 2016 than in 2015. Only 4.2 percent of all banks had negative full-year net income. This is the lowest percentage of unprofitable banks for any year since 1995. Net operating revenue was $29 billion (4.2 percent) higher than in 2015, as net interest income increased by $29.8 billion (6.9 percent) and total noninterest income declined by $779 million (0.3 percent). The average net interest margin (NIM) rose to 3.13 percent from 3.07 percent in 2015. Total noninterest expenses were only $5.1 billion (1.2 percent) higher than a year earlier, as itemized litigation charges at a few large banks were $2.95 billion lower than in 2015. Loan-loss provisions totaled $47.8 billion, an increase of $10.7 billion (28.8 percent) from 2015. The average return on assets for 2016 was 1.04 percent, unchanged from the full-year average for 2015.
Net Interest Income Growth Lifts Operating Revenues
Net operating revenue totaled $181.8 billion in the fourth quarter, up $7.9 billion (4.6 percent) from the year before. Net interest income was $8.4 billion (7.6 percent) higher, while noninterest income declined by $480 million (0.8 percent). The increase in net interest income was attributable to growth in interest-bearing assets (up 5.2 percent over the past 12 months) and improvement in the industry’s aggregate NIM, which rose to 3.16 percent, from 3.12 percent in fourth quarter 2015. The NIM improvement was not broad-based. A majority of banks—54.3 percent—reported lower NIMs than the year earlier. The decline in noninterest income was driven by a $950 million drop in income from changes in fair values of financial instruments and a $432 million decline in interchange fees. Both trading income and servicing income rose $1.7 billion (39.8 percent and 51.4 percent, respectively) from fourth quarter 2015.
Noninterest Expenses Up 2.6 Percent From a Year Before
Total noninterest expenses were $2.7 billion (2.6 percent) higher than the year before. Salary and employee benefit expenses rose $1.7 billion (3.4 percent), while goodwill impairment charges were $675 million higher. Expenses for premises and fixed assets were only $9 million (0.1 percent) higher than the year earlier.
Quarterly Loss Provisions Decline From a Year Ago
Loan-loss provisions totaled $12.2 billion in the fourth quarter, $3 million less than banks set aside a year earlier. This marks the first time since second quarter 2014 that quarterly provision expenses have not posted a year-over-year increase. For the industry, fourth-quarter provisions represented 6.7 percent of the quarter’s net operating revenue, down from 7 percent in fourth quarter 2015.
Quarterly Charge-Offs Rise for a Fifth Consecutive Quarter
Net loan losses totaled $12.2 billion, up $1.5 billion (13.5 percent) from a year earlier. This is the fifth quarter in a row that net charge-offs have posted a year-over-year increase. Credit card charge-offs were $1.4 billion (24.8 percent) higher, while net charge-offs of loans to commercial and industrial (C&I) borrowers rose $666 million (37.9 percent). Charge-offs of residential mortgage loans were $576 million (75.1 percent) lower than in fourth quarter 2015. The average net charge-off rate rose to 0.53 percent, from 0.49 percent the year before. This is well below the high of 3.00 percent recorded in fourth quarter 2009.
Noncurrent Loan Rate at Lowest Level Since 2007
Noncurrent loans and leases—those 90 days or more past-due or in nonaccrual status—declined for the 26th time in the last 27 quarters, falling by $2.4 billion (1.8 percent) during the three months ended December 31. During the quarter, noncurrent C&I loans declined for the first time in eight quarters, falling by $1.4 billion (5.3 percent). Noncurrent residential mortgage loan balances fell by $2 billion (3 percent), while noncurrent home equity loans declined by $170 million (1.6 percent), and noncurrent nonfarm nonresidential real estate loans fell by $192 million (2 percent). These improvements exceeded the $1.1 billion (12.7 percent) increase in noncurrent credit card balances. The average noncurrent loan rate fell from 1.45 percent to 1.41 percent, the lowest level since year-end 2007.
Loan-Loss Reserves Decline for the First Time in Five Quarters
Banks reduced their reserves for loan and lease losses during the fourth quarter, as slightly lower loan-loss provisions were offset by higher net charge-offs. Loss reserves fell by $649 million (0.5 percent). At banks that itemize their reserves, which represent more than 90 percent of total industry reserves, the decline was driven by reductions in reserves for residential real estate loan losses, which fell by $1.2 billion (6.5 percent), and in reserves for commercial loan losses, which declined by $639 million (1.8 percent). Itemized reserves for losses on credit cards increased by $677 million (2.3 percent). Despite the small reduction in industry reserves, the larger decline in noncurrent loan balances caused the coverage ratio of reserves to noncurrent loans to rise from 91.1 percent to 92.3 percent in the quarter, the highest level since third quarter 2007.
Equity Capital Posts a Quarterly Decline as the Market Value of Available-For-Sale Securities Falls
Total equity capital declined by $16.8 billion (0.9 percent) in fourth quarter 2016, as higher interest rates caused the market values of available-for-sale securities at banks to fall. Accumulated other comprehensive income declined by $39.5 billion in the quarter, mostly as a result of the drop in securities values. Retained earnings contributed $15.1 billion to equity growth, $1.8 billion (13.5 percent) more than a year earlier. Banks declared $28.6 billion in dividends, a $1.3 billion (4.8 percent) increase over fourth quarter 2015. The average equity-to-assets ratio for the industry declined from 11.22 percent to 11.11 percent. At the end of the quarter, 99.7 percent of all banks, representing 99.9 percent of industry assets, met or exceeded the requirements for the highest regulatory capital category as defined for Prompt Corrective Action purposes.
Loan Balances Increase $72.3 Billion in the Fourth Quarter
Total assets rose by $13.7 billion (0.1 percent) during the fourth quarter. Total loan and lease balances increased by $72.3 billion (0.8 percent). Growth in loan balances was led by credit cards (up $38.2 billion, 5 percent), loans secured by nonfarm nonresidential real estate properties (up $22.8 billion, 1.7 percent), and real estate construction and development loans (up $10.1 billion, 3.3 percent). C&I loan balances fell for the first time in 26 quarters, declining $7.7 billion (0.4 percent). Investment securities portfolios rose by $52 billion (1.5 percent) during the quarter despite a $52.4 billion decline in the market values of securities available for sale. Assets in trading accounts declined by $27.3 billion (4.6 percent). Banks reduced their balances at Federal Reserve banks by $116.4 billion (9.6 percent).
Total Loan Balances Rise 5.3 Percent During 2016
For full-year 2016, total assets increased $812.6 billion (5.1 percent). Total loans and leases increased by $466 billion (5.3 percent), as C&I loans rose by $94.2 billion (5.1 percent), loans secured by nonfarm nonresidential real estate were up by $92.6 billion (7.5 percent), and residential mortgages increased by $91.1 billion (4.8 percent). All major loan categories grew in 2016. Banks increased their investment securities by $205.9 billion (6.1 percent) in 2016, with mortgage-backed securities up $133.3 billion (7.1 percent) and U.S. Treasury securities up $97 billion (23 percent).
Deposits Rise by $96 Billion
Domestic deposit growth was relatively strong in the fourth quarter. Total deposits rose by $95.9 billion (0.7 percent), as deposits in domestic offices increased by $186.5 billion (1.6 percent), while foreign office deposits declined by $90.6 billion (6.8 percent). Balances in domestic interest-bearing accounts rose by $178.7 billion (2.1 percent), and balances in noninterest-bearing accounts grew by $7.7 billion (0.2 percent). Balances in consumer-oriented accounts increased by $120.5 billion (3 percent), while all other domestic office deposits rose by $62 billion (1 percent). Banks reduced their nondeposit liabilities by $65.4 billion (3.1 percent), as securities sold under repurchase agreements declined by $25.1 billion (10.9 percent), and trading account liabilities fell by $13 billion (5.1 percent).
“Problem Bank List” Continues to Improve
The number of FDIC-insured commercial banks and savings institutions reporting quarterly financial results fell to 5,913 in the fourth quarter, from 5,980 in the third quarter of 2016. There were 65 mergers of insured institutions during the quarter, while no insured banks failed. No new charters were added during the quarter. Banks reported 2,052,504 full-time equivalent employees, an increase of 18,777 from fourth quarter 2015. The number of insured institutions on the FDIC’s “Problem Bank List” declined from 132 to 123, as total assets of problem banks rose from $24.9 billion to $27.6 billion. For all of 2016, the number of insured institutions reporting declined by 269. Mergers absorbed 251 institutions, and 5 insured institutions failed. This is the smallest number of bank failures in a year since three FDIC-insured institutions failed in 2007. In 2015, there were eight failures.
Chart 1. Quarterly Net Income
Chart 3. Annual Net Income
Chart 4. Quarterly Net Operating Revenue
Chart 6. Reserve Coverage Ratio
Chart 8. Quarterly Change in Loan Balances
Chart 9. Annual 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 2016, All FDIC-Insured Institutions
TABLE IV-A. Fourth Quarter 2016, 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