The profit of FDIC-insured banks declined by $2.9 billion or 7.3% to $36.9 billion due to higher litigation expenses during the fourth quarter of 2014.  According to FDIC, the four largest banks reported total of $4.1 billion declines in net income year-over-year.

The performance of insured financial institutions was also negatively impacted by lower noninterest income from sales, securitization, and reduced mortgage revenues, according to FDIC.

During the quarter, 61% of the FDIC-insured banks posted better earnings, while the percentage of unprofitable banks declined from 12.7% to 9.4%. The agency also reported that the average return of assets (ROA) dropped from 1.09% to 0.96%. It is the first time for banks to report average quarterly ROA of less than 1% in two years.

Seven largest banks posted lower earnings in 2014

For the full year 2014, the FDIC reported that insured banks achieved $152.7 billion in net income, down by 1.1% or $1.7 billion in 2012. It is the first decline in annual net income recorded in five years. The banks’ ROA was 1.01%.

The FDIC said almost 64% of banks reported improved earnings last years. However, 7 of 10 largest banks posted lower earnings.

FDIC Insured Banks

Majority of FDIC-insured banks posted increase revenues

According to the FDIC, majority of insured banks reported increased revenues during the quarter. The banks’ net operating revenue climbed $923 million and net interest income increased $1.1 billion, which driven growth in interest bearing assets (up 6.2%). The average net interest margin was 3.12%.

The FDIC noted that 71% of all the banks posted higher interest income compared in the previous year.

During the fourth quarter, the FDIC noted that the noninterest income declined by 0.3% or $160 million, which was primarily caused by a $1.6 billion drop in revenue from the sale, securitization, and servicing of residential mortgage loans. The agency said 54.4% of all banks reported higher noninterest during the period.

Banks increased loss provisions

The FDIC reported that the amount allocated by banks for loan-loss provisions increased during the quarter compared in the same period in 2013. The agency said the total loan-loss provisions increased 12% or $878 million.

The banks’ non interest expenses rose 4.8% or $4.9 billion. The FDIC noted that some of the largest banks’ itemized litigation expenses were $4.4 billion higher than the year-ago quarter.