FDIC: Bank Profits Fall amid Ongoing Pandemic; Community Bank Income Grows

FDIC-insured banks and savings institutions earned $18.8 billion in the second quarter of 2020, a 70% decline from a year prior, the FDIC reported today. The decline reflected the ongoing economic downturn that persisted in the wake of the policy response to the coronavirus pandemic, although asset quality metrics showed only a slight decline.

As the Federal Reserve dopped rates to zero, net interest margin fell 58 basis points year-over-year to 2.81%, the lowest figure ever reported by the FDIC. As a result, net interest income fell 5.4% year-on-year to $131.5 billion. However, noninterest income rose 6.9% to $70.8 billion on higher trading revenue and loan sales, partially offset by a 6.2% increase in noninterest expense. Average return on assets fell from 1.38% in the second quarter of 2019 to 0.36% in the second quarter of 2020. Community banks earned $6.63 billion in Q2, a 3.2% year-on-year increase, driven by gains from loan and securities sales, the FDIC said.

Although banks increased their provisions for loan losses 17.4% from the first quarter to the second, loan quality remained relatively resilient. The average net charge-off rate rose by seven basis points from a year ago to 0.57%, and the non-current loan rate rose by 15 basis points to 1.08%. Banks that have implemented the Current Expected Credit Loss accounting standard increased provisions by 419.2% year-on-year, while those that have yet to adopt CECL increased provisions by 207.3%.

“The data show that banks remain a source of strength for the economy during the global pandemic, as the industry not only increased lending in the second quarter but also hiring,” said ABA Senior Economist Rob Strand. “The FDIC report also highlights that banks continue to maintain strong capital and liquidity levels despite the economic headwinds.”