WASHINGTON—FDIC-insured commercial banks and savings institutions reported 2014 full-year earnings of$152.7 billion. Total net income for 2014 was $1.7 billion (1.1%) less than the industry reported in 2013. This is the first decline in annual net income in five years, according to FDIC.
Full-year ROA was 1.01%, marking the third year in a row that the annual ROA has exceeded 1%. Reduced revenues from the sale, securitization, and servicing of residential mortgages (down $9.1 billion or 35%) and increased litigation expenses at a few large banks (up $6.5 billion or 206%) were the main causes of the drop in full-year earnings, according to FDIC. Almost two out of every three banks (64 percent) reported higher net income than in 2013.
FDIC-insured commercial banks and savings institutions reported aggregate net income of $36.9 billion in the fourth quarter of 2014, down $2.9 billion (7.3%) from earnings of $39.8 billion that the industry reported a year earlier, according to the FDIC.
The agency attributed the earnings decline to $4.4-billion in expenses by a few large banks related to litigation.
During the fourth quarter more than half of the 6,509 insured institutions reporting (61.2% ) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the fourth quarter fell to 9.4% from 12.7% a year earlier, the FDIC said.
"The banking industry continued to improve at the end of the year," FDIC Chairman Martin J. Gruenberg said. "Although total industry earnings declined as a result of significant litigation expenses at a few large institutions and a continued decline in mortgage-related income, a majority of banks reported higher operating revenues and improved earnings from the previous year. In addition, banks made loans at a faster pace, asset quality improved, and the number of banks on the 'Problem List' declined to the lowest level in six years."
Other fourth quarter data:
- The FDIC said community banks performed especially well during the quarter. Their earnings were up 28% from the previous year, their net interest margin and rate of loan growth were appreciably higher than the industry, and they increased their small loans to businesses. Community banks earned $4.8 billion during the quarter.
- Based on criteria developed for the FDIC Community Banking Study published in December 2012, there were 6,037 community banks (92.7% of all FDIC-insured institutions) in the fourth quarter of 2014 with assets of $2.1 trillion (13.3% of industry assets).
- Fourth quarter net income of $4.8 billion at community banks was up $1.0 billion (27.7%) from a year earlier, driven by higher net interest income, increased noninterest income, and lower loan-loss provisions.
- Community banks' net income, net interest income, noninterest income, and loan balances all grew at a faster pace than the industry as a whole. Asset quality indicators showed further improvement, and community banks continued to hold 45%of small loans to businesses, the FDIC said.
- For the industry as a whole, loan and lease balances rose $149.4 billion (1.8%) in the fourth quarter to $8.3 trillion. Commercial and industrial loans increased by $42.2 billion (2.5%), and credit card balances grew by $35.4 billion (5.2%). Over the past 12 months, loan and lease balances increased 5.3 percent. This is the highest 12-month growth rate for loans since mid-year 2008.
- Net interest income was $1.1 billion (1%) higher than a year ago, as the industry's interest-bearing assets increased 6.2% in 2014. Almost three out of four institutions (70.5%) reported higher net interest income than in the fourth quarter of 2013.
- Noninterest income was down $160 million (0.3%) from a year ago, as income from the sale, securitization, and servicing of residential mortgages declined $1.6 billion (30.8 percent). More than half of all banks (54.4 percent) reported year-over-year increases in quarterly noninterest income.
- The number of "problem banks" fell for the 15th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 329 to 291 during the quarter, the lowest since the end of 2008. The number of "problem banks" now is 67% below the post-crisis high of 888 at the end of the first quarter of 2011.
FDIC Fund Performance
The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance (the net worth of the Fund) rose to a record $62.8 billion as of December 31 from $54.3 billion at the end of September. The Fund balance increased primarily due to decreases in estimated losses for past bank failures. Estimated insured deposits increased 1.0%, and the DIF reserve ratio (the Fund balance as a percentage of estimated insured deposits) rose to 1.01% as of December 31 from 0.88% as of September 30. A year ago, the DIF reserve ratio was 0.79%.