Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported aggregate net income of $45.6 billion in the third quarter of 2016, up $5.2 billion or nearly 13% from the same quarter in 2015.
Of the 5,980 insured institutions reporting third quarter financial results, 60.8% reported year-over-year growth in quarterly earnings, according to the FDIC’s Quarterly Banking Profile released Nov. 29.
The proportion of banks that were unprofitable in the third quarter fell to 4.6% from 5.2% a year earlier, the report found. That was the lowest percentage since the third quarter of 1997.
The increase in bank earnings was mainly attributable to a $10 billion increase in net interest income and a $1.2 billion increase in noninterest income. One-time accounting and expense items at three institutions had an impact on the growth in income, and banks also increased their loan-loss provisions by $2.9 billion from a year earlier, according to the report.
“The banking industry reported another positive quarter, but faces continued challenges.”
— FDIC Chairman Martin J. Gruenberg
“Revenue and net income rose from a year ago, loan balances increased, asset quality improved, and the number of unprofitable banks and ‘problem banks’ continued to fall,” Gruenberg said in a news release about the report. “Community banks also reported solid results for the quarter with strong income, revenue and loan growth.
“Nevertheless, the banking industry continues to operate in a challenging environment,” he added in the release. “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. Current oil and gas prices continue to affect borrowers that depend on the energy sector and have had an adverse effect on asset quality. These challenges will only intensify as interest rates normalize. Banks must manage risks prudently to ensure that growth is on a long-run, sustainable path.”
The 5,521 insured institutions identified as community banks reported quarterly net income of $5.6 billion, an increase of $593 million or 11.8% compared with the third quarter of 2015. Community banks reported net operating revenue of $23 billion for the third quarter, an 8.5% increase from the same quarter in 2015, according to the release.
The number of banks on the FDIC’s Problem List fell from 147 to 132 during the third quarter. This is the smallest number of problem banks in more than seven years and is down significantly from the peak of 888 in the first quarter of 2011. Total assets of problem banks fell from $29 billion to $24.9 billion during the third quarter, the release stated.
To read more about the report, click here.