2013 Annual Report
B. Overview of the Industry
The 6,812 FDIC-insured commercial banks and savings institutions that filed financial results for full year 2013 reported net income of $154.7 billion, an increase of 9.6 percent compared to 2012. This is the fourth consecutive year that industry earnings have registered a year-over-year increase. The improvement in earnings was primarily attributable to lower expenses for loan-loss provisions, reduced noninterest expenses, and increased noninterest income. More than half of all institutions—54.2 percent—reported year-over-year increases in net income, and the percentage of institutions with negative net income for the year fell to 7.8 percent, down from 11 percent a year earlier.
The average return on assets (ROA) was 1.07 percent, up from 1.00 percent in 2012. This is the highest annual ROA for the industry since 2006. However, fewer than half of insured institutions—45.3 percent—had higher ROAs in 2013 than in 2012. Insured institutions set aside $32.1 billion in provisions for loan and lease losses during 2013, a decline of $25.7 billion (44.4 percent) compared to 2012. This is the smallest annual loss provision since 2006. The industry's total noninterest expenses fell by $4.5 billion (1.1 percent), as itemized litigation expenses declined by $4.5 billion. Noninterest income rose by $3.2 billion (1.3 percent), as trading revenue was $4.3 billion (23.7 percent) higher, servicing fee income was up by $3.9 billion (27.5 percent), and income from trust activities rose by $2.2 billion (7.7 percent). Noninterest income from changes in the fair values of financial instruments accounted for under a fair value option was $6.5 billion lower than in 2012. Realized gains on securities were $5.2 billion (53.7 percent) lower, as higher interest rates in 2013 reduced the market values of banks' securities portfolios.
A challenging interest-rate environment contributed to a decline in the industry's net interest income in 2013. Net interest income registered a third consecutive annual decline, falling by $3.7 billion (0.9 percent), as interest income declined more rapidly than interest expense. Total interest income was $16 billion (3.3 percent) lower than in 2012, even though average interest-earning asset balances were $487.3 billion (4 percent) higher, as older, higher-yield assets matured and were replaced by lower-yielding current investments. The average net interest margin fell from 3.42 percent in 2012 to 3.26 percent, the lowest annual average since 2008.
Indicators of asset quality continued to improve in 2013. In the twelve months ended December 31, total noncurrent loans and leases—those that were 90 days or more past due or in nonaccrual status—declined by $69.7 billion (25.2 percent). Loans secured by real estate properties accounted for the largest share of the reduction in noncurrent loans ($64.9 billion). Noncurrent 1-4 family residential real estate loans fell by $44.5 billion (23.2 percent), noncurrent nonfarm nonresidential real estate loans declined by $9.5 billion (31.1 percent), and noncurrent real estate construction loans fell by $8.6 billion (50.6 percent). Noncurrent balances in all other major loan categories declined, led by loans to commercial and industrial (C&I) borrowers (down $3.3 billion, or 24.8 percent).
Net charge-offs of loans and leases (NCOs) totaled $53.2 billion in 2013, a decline of $29 billion (35.3 percent) compared to 2012. Real estate loans secured by 1-4 family residential properties registered the largest year-over-year decline, with NCOs falling by $15.9 billion (51.7 percent). Net charge-offs of credit card loans were $3.2 billion (12.5 percent) lower, while net charge-offs of nonfarm nonresidential real estate loans declined by $3 billion (51.4 percent), and NCOs of real estate construction and development loans were $2.8 billion (73 percent) lower than in 2012. NCOs in all other major loan categories also posted significant declines. At the end of 2013, there were 467 institutions on the FDIC's "Problem List," down from 651 "problem" institutions a year earlier.
Asset growth remained modest in 2013. During the 12 months ended December 31, total assets of insured institutions increased by $272.1 billion (1.9 percent). Loans and leases accounted for more than half of the increase in total assets, rising by $197.3 billion (2.6 percent). C&I loans increased by $101.5 billion (6.8 percent), nonfarm nonresidential real estate loans rose by $36.1 billion (3.4 percent), and auto loans increased by $33.2 billion (10.4 percent). In contrast, home equity lines of credit fell by $44 billion (7.9 percent), and other real estate loans secured by 1-4 family residential properties declined by $63.5 billion (3.4 percent).
Growth in deposits outpaced the increase in total assets. In the 12 months ended December 31, total deposits of insured institutions increased by $374.7 billion (3.5 percent). Deposits in domestic offices rose by $343.9 billion, (3.6 percent), while foreign office deposits increased by $30.7 billion (2.2 percent). Much of the increase in domestic deposits occurred in balances in large-denomination accounts. Deposits in accounts with denominations greater than $250,000 increased by $269.4 billion, (5.9 percent). Nondeposit liabilities declined by $128.2 billion (6.4 percent), while equity capital rose by $29.8 billion (1.8 percent).