WASHINGTON—Commercial banks and savings institutions insured by the FDIC reported aggregate net income of $38.7 billion in the third quarter of 2014, up $2.6 billion (7.3%) from earnings of $36.1 billion the industry reported a year earlier.
According to the FDIC, the increase in earnings was mainly attributable to a $7.8 billion (4.8%) increase in net operating revenue (the sum of net interest income and total noninterest income), the biggest since the fourth quarter of 2009. Almost two-thirds of the 6,589 insured institutions reporting (62.9%) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the third quarter fell to 6.4% from 8.7% a year earlier, the FDIC said.
In a released statement, FDIC Chairman Martin J. Gruenberg said, "The banking industry had another positive quarter. Community banks, in particular, performed better than a year ago. Most importantly, third quarter income growth was based on revenue growth instead of lower loan-loss provisions. This can be a more sustainable foundation for continued earnings growth going forward."
Among the industry financials released by the FDIC:
- Total loan and lease balances rose by $50.9 billion (0.6%) in the third quarter to $8.2 trillion. Commercial and industrial loans increased by $10.1 billion (0.6%), and auto loans grew by $9 billion (2.4%), while balances of one- to four-family mortgage loans declined by $6.7 billion (0.4%). Over the last 12 months, loan and lease balances increased by 4.6%.
- Non-interest income was $5.4 billion (9.2%) higher than a year ago. Gains from loan sales were $1.2 billion (45.6%) higher, while trading income was up by $1.1 billion (25.3%). This is the first time in the last five quarters that non-interest income has increased year-over-year, the FDIC said.
- Net interest income was up $2.4 billion (2.3%) from a year ago, as interest-bearing assets were 5.9% higher. The average net interest margin (the difference between the average yield banks earn on loans and other investments and the average cost of funding those investments) was 3.14%, down from the 3.26% average in the third quarter of 2013. This is the lowest quarterly average margin since 3.11% in the third quarter of 1989, as larger institutions increased their holdings of low-yield, liquid investments.
- Non-interest expenses for goodwill impairment were $1.1 billion higher than a year ago, while itemized litigation expenses were $1.6 billion lower. Expenses for salaries and employee benefits were $2.0 billion (4.3%) higher than in the third quarter of 2013. Banks set aside $7.2 billion in provisions for loan losses, up 23.9% from $5.8 billion a year earlier. This is the first time in five years that the industry has reported a year-over-year increase in loss provisions, according to the FDIC.
- Asset quality indicators continued to improve as insured banks and thrifts charged off $9.2 billion in uncollectible loans during the quarter, down $2.4 billion (21.0%) from a year earlier. The amount of noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell by $9.7 billion (5.3%) during the quarter. The percentage of loans and leases that were noncurrent declined to 2.11%, the lowest level since the 2.09% posted at the end of the second quarter of 2008.
- The average ROA rose slightly to 1.02% in the third quarter from 1.00% a year earlier. The average return on equity (ROE) rose from 8.94% to 9.04%.
- Community banks earned $4.9 billion during the quarter. Based on criteria developed for the FDIC Community Banking Study published in December 2012, there were 6,107 community banks (93.0% of all FDIC-insured institutions) in the third quarter of 2014 with assets of $2.0 trillion (13.0% of industry assets). Third quarter net income at community banks of $4.9 billion was up $351 million (7.8%) from a year earlier, driven by higher net interest income and lower loan-loss provisions. The report also found that loan balances at community banks in the third quarter grew at a faster pace than in the industry as a whole, asset quality indicators continued to show improvement, and community banks continued to account for 45% of small loans to businesses.
- The number of "problem banks" fell for the 14th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 354 to 329 during the quarter, the lowest since the 305 in the first quarter of 2009. The number of "problem" banks now is 63% below the post-crisis high of 888 at the end of the first quarter of 2011. Two FDIC-insured institutions failed in the third quarter, compared to six in the third quarter of 2013.
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