FDIC: Bank Profits Improve as Pandemic Persists; Community Banks See 10% Boost in Net Income

FDIC-insured banks and savings institutions earned $51.2 billion in the third quarter of 2020, a 10.7% decline from the year prior, but a significant improvement from the first half of the year, the FDIC reported today in its Quarterly Banking Profile. The FDIC said that “the banking industry remains well positioned to accommodate loan demand and support the economy.”

With interest rates hovering around zero, the average net interest margin fell by 68 points year-on-year to 2.68%—a record low. As a result, net interest income fell 7.2% year-on-year to total $128.7 billion—the largest-ever year-on-year decline and the fourth consecutive quarterly decline. However, noninterest income increased 4.5% to $72.6 billion, due in large part to growth in net gains on loan sales, as well as an increase in trading revenue, which were partially offset by a 3% increase in noninterest expense. Average return on assets fell to 0.97%, down from 1.25% a year ago, but was up from 0.36% in the second quarter. Community banks reported a 10% increase in net income year-on-year, the FDIC said.

“Despite significant headwinds, net income increased in the quarter,” noted American Bankers Association Senior Economist Rob Strand. “With solid capital levels and strong risk management measures in place, America’s banks remain a source of strength for the economy.” He added that “while the economic outlook remains uncertain, the prospect of effective COVID-19 vaccines could bolster the recovery moving forward.”

Meanwhile, quarterly provisions for credit losses were down 76.8% from the second quarter, but remained 3.5% higher than a year ago. The average net charge-off rate declined by five basis points year-on-year to 0.46%, and the noncurrent loan rate rose nine basis points to 1.17%. During the third quarter, one new bank was added and no banks failed. The number of banks on the FDIC’s problem bank list increased slightly from 52 to 56.