Office of the Comptroller of the Currency Washington, D.C. Fall 2014

“The financial performance of federally chartered institutions through the first six months of 2014 was weaker than the same period in 2013, as revenues and profitability declined. Overall, system profitability as measured by return on equity (ROE) remained just under 10 percent year-to-date through June 30, 2014. Smaller-bank ROE has improved, however, and nearly matches that of larger banks. Net income (NI) could have been even weaker, if not for lower provision and non-interest
expenses. Year-to-date revenue for all banks through June was lower than year-ago levels because of weakness in noninterest income. Net interest income (NII) was slightly higher year-over-year, as fewer banks are seeing net interest margin (NIM) compression compared with a year ago, especially smaller banks. Commercial loan growth continued its healthy revival driven by strong gains in commercial real estate (CRE) and commercial and industrial (C&I) loans, and loans to non-depository institutions. While stronger loan growth is beneficial, the revenue generated by this growth is constrained by continued low interest rates that weigh on NIMs. Also, almost one in three institutions with assets less than $1 billion had no loan growth (or an outright decline) over the past year, as they struggle with legacy credit quality issues, competition, and limited local loan demand.”