Increased litigation expenses at a few larger banks caused the Q4 aggregate net income for commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC Chairman was still encouraged by the numbers, however.
The reported aggregate net income on FDIC-insured institutions was $36.9 billion for Q4 2014, a decline of 7.3 percent from the same quarter a year earlier ($39.8 billion). FDIC attributes the decline in net income largely to an increase of $4.4 billion in litigation expenses taken on by a few of the larger banks.
Though earnings declined overall, more than half (61.2 percent) of the 6,509 FDIC-insured institutions reported higher earnings in Q4 2014 than in Q4 2013, and the percentage of banks and financial institutions that were unprofitable fell from 12.7 percent in Q4 2013 down to 9.4 percent in Q4 2014.
"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."
Community banks reported earnings of $4.8 billion during Q4, which was an increase of $1 billion from the same quarter a year earlier (a 27.7 percent jump). The FDIC attributes the spike in earnings for community banks to higher net interest income, increased noninterest income, and lower loan-loss provisions. Community banks made up 92.7 percent (a total of 6,037) of all FDIC-insured institutions in Q4, with 13.3 percent of industry assets (totaling $2.1 trillion).
"Community banks performed especially well during the quarter," Gruenberg said. "Their earnings were up 28 percent 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. . .the current operating environment remains challenging. Revenue growth continues to be held back by narrow interest margins and lower mortgage-related income. And, many institutions are reaching for yield given the low interest-rate environment, which is a matter of ongoing supervisory attention. Nevertheless, results from the fourth quarter generally were positive for the banking industry, and for community banks in particular."