WASHINGTON — Bank earnings rose nearly 12% to $40.8 billion in the fourth quarter from a year earlier, boosted by lower litigation expenses at a few large institutions, the Federal Deposit Insurance Corp. said Tuesday.
The agency's Quarterly Banking Profile said that noninterest expenses fell 2.5%, mostly because of a $2.4 billion decline, to $616 million, in itemized litigation expenses at a few large banks.
The drop in expenses was offset by 2.5% increase in salary and employee benefit expenses and a 2.7% increase in expenses for premises and other fixed assets.
Margins were stable, with net operating revenue up 4.1% to $174.3 billion. The growth in noninterest income was driven in part by a $2.1 billion increase in servicing income. Net interest income rose 3.6% to $3.9 billion year over year.
The average net interest margin increased by 1 basis point, to 3.13%; it was the first time in five years that the average interest margin wasn't lower than it was in the year-earlier period. The FDIC said, however, that most of the margin improvement occurred at large banks, whose portfolios were "better-positioned to benefit from the increase in short-term interest rates late in the quarter."
Overall, 9.1% of banks reported losses, down from 9.9% last year, which was the lowest proportion of unprofitable firms in the fourth quarter since 1996.
The FDIC noted that provisions for loan losses increased year over year for the sixth consecutive quarter, rising by 45.5% to $12 billion, the largest quarterly total in three years. Roughly 37% of banks reported higher quarterly provisions, while a similar percentage reported reductions.
Loan growth was a bright spot during the quarter, as total loans and leases rose by $197.3 billion. Most loan categories saw growth, including credit cards, which had a 5.8% increase; commercial and industrial loans, which jumped by $39.6 billion; and nonfarm nonresidential real estate loans, which increased by $31.6 billion. Loans to small businesses and farms increased by $7.1 billion in the fourth quarter.
Total assets jumped by $167.8 billion, or 1.1%, from the third quarter. Still, the improvements were not equal across the board.
"Revenue growth continues to be held back by narrow interest margins," FDIC Chairman Martin Gruenberg said in prepared remarks. "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."
Community banks' revenue growth slowed to 4% year over year. Their net income rose 4% to $5.1 billion.
The number of institutions on the agency's "problem list" fell by 20, to 183, while their assets declined to $46.8 billion from $51.1 billion.