Commercial banks and savings institutions in the United States saw a drop in net income in 2020, although late year numbers showed dramatic improvement.
The Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile for the fourth quarter of 2020, which showed a 36.5 percent drop in net income for the full year of 2020. Banks pulled in $147.9 billion in 2020, a $84.9 billion drop from 2019’s annual net income.
According to the FDIC report, this net income drop can be attributed to higher provision expenses in early 2020, which is connected to the COVID-19 pandemic and the attendant economic slow-down. Provision expenses increased by 140 percent, or $77.1 billion, while net interest income dropped by $20 billion.
Banks saw a 0.57 percent decline on the average return on assets (ROA) ratio, from 2019’s ratio of 1.29 percent to 2020’s ratio of 0.72 percent.
After two consecutive years of astronomical annual net incomes in 2018 and 2019, the net income number for 2020 was a sharp return to Earth for commercial banks. This was the lowest annual net income since 2012 when the FDIC reported the annual net income to be approximately $141 million.
Despite the discouraging year totals, there were reassuring signs of a pick-up at the end of the year. In the fourth quarter, the quarterly income increased by 9.1 percent, or 5 billion, over last year’s fourth quarter total. In 2020, banks pulled in $59.9 billion in the fourth quarter, which was attributed to reduction of provision expenses. A majority of banks – 57.4 percent – reported year-over-year increases in quarterly income in 2020.
Banks’ non-interest income also increased in 2020, rising by $4.3 billion, or 6.5 percent, from 2019. However, non-interest expenses also rose in 2020, increasing by 2.7 percent or $3.3 billion. Overall, 61 percent of banks reported annual increases in non-interest income and 66.4 percent of banks reported annual expenses increases in 2020.
The banking industry also saw its total assets increase in the fourth quarter. In total, assets increased by $664 billion or 3.1 percent. Cash and balances increased by $357 billion, security holdings increased by $321.4 billion, and mortgage-backed securities increased by $244.9 billion.
Deposits and equity capital also increased from the third quarter to the fourth quarter. Between the quarters, deposits rose $706.9 billion, an increase of 4.1 percent. Equity capital rose $41.9 billion from the third quarter, ending up at $2.2 trillion.