Industry-wide quarterly earnings took a hit last year due to a few big banks’ litigation expenses, but on the whole, the fourth quarter was a rosier picture for the rest of the industry, as the number of unprofitable and problem banks fell and community banks posted double-digit gains.
Aggregate net income for the quarter ended Dec. 31 totaled $36.9 billion, down $2.9 billion or 7.3 percent from $39.8 billion during the same period in 2013. The Federal Deposit Insurance Corp. (FDIC) said that decline was mainly attributable to $4.4 billion in litigation expenses at a few large banks.
But just over 61 percent of the 6,509 institutions insured by the FDIC saw year-over-year growth in their earnings, and the proportion of banks that were unprofitable during the fourth quarter fell year-over-year to 9.4 percent, from 12.7 percent a year earlier.
"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," FDIC Chairman Martin J. Gruenberg said in a statement. "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."
Furthermore, community banks saw their earnings increase by $1 billion, or about 28 percent, year-over-year to $4.8 billion in the fourth quarter. Community banks’ net income, net interest income, noninterest income and loan balances grew at a faster pace than those of the industry as a whole, and community banks held about 45 percent of loans to small businesses. The FDIC estimates that nearly 93 percent of the institutions it insures are community banks and said they held assets of $2.1 trillion, or 13.3 percent of total industry assets.
For the whole industry, loan and lease balances increased $149.4 billion, or 1.8 percent, to $8.3 trillion in the fourth quarter. Commercial and industrial loans increased $42.2 billion, or 2.5 percent, and credit card balances grew $35.4 billion, or 5.2 percent. Over the past 12 months, loan and lease balances increased 5.3 percent, which the FDIC said was the highest 12-month growth rate for loans since mid-2008.
Full-year industry earnings dipped $1.7 billion, or 1.1 percent, to $152.7 billion, marking the first decline in annual net income in five years. The FDIC attributed that decrease to reduced revenues from the sale, securitization and servicing of residential mortgage (down about $9 billion or 35 percent) and increased litigation expenses at a few large banks (up $6.5 billion or 206 percent), and it noted that 64 percent of banks posted higher net income than in 2013.
The number of problem banks fell for the 15th consecutive quarter to 291, the lowest level since the end of 2008 and 67 percent lower than the post-crisis high of 888 in early 2011.
