Financial Performance

Bank Profits Rise 9% to $59.9B in 4th Quarter

“Banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook,” the FDIC says.
Matthew HellerFebruary 23, 2021

U.S. bank profits rose 9.1% in the fourth quarter, finishing a pandemic-battered year on a positive note in part due to lower credit loss provisions.

The Federal Deposit Insurance Corporation reported Tuesday that aggregate net income for insured institutions increased to $59.9 billion in the last three months of 2020, up $5 billion from a year earlier.

For 2020 as a whole, profits plunged 36.5% to $147.9 billion amid the turbulence of the COVID-19 pandemic, which sent interest rates down to near zero and forced banks set aside billions of dollars to guard against credit losses.

“Banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook,” FDIC Chairman Jelena McWilliams said, attributing the gain to lower provision expenses for credit losses and higher noninterest income.

Loss provision expenses declined 76.5% to $11.4 billion from a year ago, reaching the lowest level since the second quarter of 1995, while noninterest income increased 6.5% to $70.3 billion, due in large part to growth in net gains on loan sales.

Net interest income fell 3.9% to $131.3 billion, the fifth straight quarterly decline, and the average net interest margin fell by 60 basis points to 2.68%, remaining at the record low reached in the third quarter.

Banks in all asset size groups “reported continued average net interest margin compression compared to year-ago levels, as reductions in earning asset yields outpaced the reduction in funding costs,” the FDIC said.

The number of banks on the FDIC’s problem bank list was unchanged from the prior quarter at 56.

ABA Senior Economist Rob Strand noted that bank earnings recovered for three consecutive quarters following the sharp declines in the first three months of 2021 and that “the unprecedented inflow of deposits — up 22.6% over 2020 — continued in the fourth quarter.”

“The low-interest-rate environment coupled with economic uncertainties will continue to challenge the banking industry, placing downward pressure on revenue and the net interest margin,” McWilliams said. “However, the banking industry maintains strong capital and liquidity levels, which can mitigate potential future losses.”