Banks’ Profits Rose in Q4 on Drop in Litigation Expenses

Commercial banks and savings institutions insured by the FDIC experienced a drop in litigation expenses and a rise in net operating revenue in the fourth quarter of 2015, and as a result their aggregate net income jumped by 12 percent over-the-year in Q4, according to the FDIC’s latest Quarterly Banking Profile released Wednesday.

That 12 percent increase calculates to an increase of $4.4 billion up to $40.8 billion, according to the FDIC. A total of 6,182 insured institutions reported fourth quarter financial results, more than half of which (nearly 57 percent) reported a year-over-year increase in earnings in the fourth quarter. The share of banks reported to be unprofitable in Q4 declined year-over-year from 9.9 percent down to 9.1 percent—the lowest level for any Q4 in 19 years, according to FDIC.

The increase in net income for FDIC-insured institutions in Q4 was mainly attributable to an increase in net operating revenue of $6.8 billion and a decline in noninterest expenses of $2.7 billion. The non-interest expense decline is due to a drop in litigation expenses at a few of the larger banks, FDIC reported.

“Revenue and income were up from the previous year, overall asset quality continued to improve, loan balances increased, and there were fewer banks on the problem list,” FDIC Chairman Martin Gruenberg said. “However, banks are operating in a challenging environment. Revenue growth continues to be held back by narrow interest margins. Many institutions are reaching for yield, given the competition for borrowers and low interest rates. And there are signs of growing credit risk, particularly among loans related to energy and agriculture.”

“Revenue and income were up from the previous year, overall asset quality continued to improve, loan balances increased, and there were fewer banks on the problem list.”

FDIC Chairman Martin Gruenberg

In Q4, the 5,735 insured institutions that fit into the category of community banks reported an aggregate net income of $5.1 billion, which is a 4 percent jump from Q4 2014. The increase in net income was largely due to an increase in net operating revenue of 7.4 percent up to $22.6 billion, according to the FDIC.

For the full year 2015, net income for FDIC-insured institutions totaled $163.7 billion, which was about 7.5 percent higher ($11.4 billion) than the aggregate net income reported for 2014. Nearly two out of three (63.6) banks reported an increase in net income from 2014 to 2015, the FDIC reported. The banks also saw an increase of 2.2 percent in net operating revenue up to $14.9 billion from 2014 to 2015.

Click here to view the FDIC's Quarterly Banking Profile page.