FDIC: Bank Profits Rise in Fourth Quarter, Full Year Income Declines

FDIC-insured banks and savings institutions earned $59.9 billion in the fourth quarter of 2020, a 9.1% increase from the year prior, but full-year net income declined 36.5% to $147.9 billion, the FDIC reported today in its Quarterly Banking Profile. FDIC Chairman Jelena McWilliams said that “while banking industry income for the full year 2020 declined from full year 2019 levels, banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook.”

The average net interest margin fell by 60 basis points year-on-year in the fourth quarter to 2.68%, matching the third quarter record low level. As a result, net interest income fell 3.9% year-on-year to total $131.3 billion, the fifth consecutive quarter that net interest income declined. However, noninterest income increased 6.5% year-on-year to $70.3 billion, due in large part to growth in net gains on loan sales, as well as net gains on sales of other assets. Average return on assets was 1.11%, down eight basis points from a year ago. Community banks reported a 21.2% increase in fourth quarter net income year-on-year, the FDIC said.

“Industry earnings, though down considerably for the year as banks braced for the recession, recovered for three consecutive quarters following sharp declines in the first three months of 2020,” noted ABA Senior Economist Rob Strand. “While total bank lending ticked down slightly in the fourth quarter, it increased 3.3% for the year, bolstered by strong growth in commercial and real estate lending that was partially offset by declines in credit card use.” He added that “the unprecedented inflow of deposits—up 22.6% over 2020—continued in the fourth quarter. This is largely due to consumers and businesses seeking the safety and security of banks as well as cash infusions from federal stimulus programs.”

Meanwhile, quarterly provisions for credit losses were down 76.5% from a year ago to $3.5 billion, the lowest level since the second quarter of 1995. The average net charge off rate declined by 13 basis points year-on-year to 0.41%, and the noncurrent loan rate rose one basis point to 1.18%. During the fourth quarter, three new banks were added and two banks failed. The number of banks on the FDIC’s problem bank list was unchanged from the prior quarter at 56.