WASHINGTON, Feb 28 (Reuters) - Net income at U.S. banks increased by $3.1 billion, or 7.7 percent, in the fourth quarter of 2016 compared with a year ago, while the number of struggling lenders fell, the Federal Deposit Insurance Corp said on Tuesday.
For the year, the banking industry reported a 4.9 percent rise in net income to $171.3 billion, according to the quarterly report from the bank regulator.
The FDIC noted the share of unprofitable banks in 2016, 4.2 percent, was the lowest since 1995.
The FDIC shields bank customers if a lender fails, and the agency chief said he saw bright spots for the industry, even as he urged caution.
"Loan balances grew, asset quality improved and the number of unprofitable banks and 'problem banks' continued to fall," FDIC Chairman Martin Gruenberg said in a statement.
"Nevertheless, the operating environment for banks remains challenging."
Gruenberg warned that banks must brace for rising interest rates. (Reporting by Patrick Rucker; Editing by Jeffrey Benkoe)