The dip in net income reflected a slowdown in the lowering of banks' loan loss provisions to negative $5.2 billion.
Still, net interest income fell by $7.6 billion, or 5.6%, the sixth straight quarterly decline, and average net interest margin fell to 2.56%.
“Banks remained resilient in fourth quarter 2020, consistent with the improving economic outlook,” the FDIC says.
Banks diverted earnings to reserves for "newly risky loans as the coronavirus tanked credit health and plunged the U.S. into a recession."
Average net interest margin reached its highest level since late 2012 as banks continued to benefit from rate hikes.
An FDIC survey shows the industry is benefiting from increasing net interest margins, which reached an average of 3.22% in Q2.
The industry posted "another positive quarter," the FDIC says, but faces continued challenges including low interest rates.
The Fund says a cyclical recovery is not enough to solve the bank profitability problem, recommending a "bold structural reform program."
Results were "mostly positive," the FDIC said, with profits rising 1.4% and the number of problem banks falling to a 7-year low.
The good times are ending before they had really begun.
Credit Suisse, Standard Chartered and Deutsche Bank are among the banks that are overhauling themselves after losing ground to U.S. banks.
The sector's first-quarter net income rose 16% from a year ago, compared to 6.9% for all FDIC-insured banks.
