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Bank Earnings Plunge 7.3%

A fall in mortgage-related income and hefty litigation expenses caused a disappointing fourth quarter for FDIC-insured financial institutions.
Katie Kuehner-HebertFebruary 25, 2015

The country’s banks made less money in the fourth quarter, though profits were skewed by several giants’ litigation costs.

Collective net income for U.S. banks fell 7.3% in the last three months of 2014, to $36.9 billion, compared with a year earlier. The Federal Deposit Insurance Corporation said the results were skewed by a $4.4 billion increase in litigation expenses at a few large banks.

Indeed, 61.2% of the 6,509 banks reported net income growth for the period, and the percentage of unprofitable banks fell to 9.4%, down from 12.7% a year earlier.

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“The banking industry continued to improve at the end of the year,” FDIC Chairman Martin J. Gruenberg said in a press release announcing the results.

“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 performed “especially well” during the quarter, Gruenberg said. Their collective earnings rose 27.7%, to $4.8 billion, on loan growth to small businesses and net margin increases that were “appreciably higher than the industry.”

For all FDIC-insured banks, loans and leases rose 1.8%, to $8.3 trillion, with commercial and industrial loans rising 2.5%, and credit card balances rising 5.2%. For the year, the industry’s loan and lease balances increased 5.3%, the highest 12-month growth rate for loans since mid-year 2008.

Profitability remains a challenge, as the average return on assets fell to 0.96%, from 1.09% a year earlier, and the average return on equity fell to 8.56%, from 9.76%.

“Revenue growth continues to be held back by narrow interest margins and lower mortgage-related income,” Gruenberg said. “And, many institutions are reaching for yield given the low interest-rate environment, which is a matter of ongoing supervisory attention.”

The industry’s collective net income for all of 2014 fell 1.1%, to $1.7 billion.

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