WASHINGTON–The nation’s federally insured banks reported profitability improved during the third quarter when compared to the first half of 2020, even as the combined net interest margin fell to a record low, according to data released by the FDIC.
According to the FDIC, third-quarter 2020 financial results show banks reported aggregate net income of $51.2 billion in the third quarter, down 10.7% from the same period in 2019. But the number was still an improvement over the financials reported during Q1 and Q2, when net income was at or below $20 billion for each quarter.
But the data show bank net interest margin declined to what the FDIC called an “unprecedented level” to 2.68%, down 68 basis points from a year ago and the lowest level in the history of its Quarterly Banking Profile, the agency said.
The FDIC said net interest income declined for a fourth consecutive quarter, falling by $10 billion (7.2%) from Q3 2019, which also marked the largest year-over-year decline on record.
“The annual reduction in yields on earning assets (down 139 basis points) outpaced the decline in average funding costs (down 72 basis points),” the FDIC said. “Nearly half of all banks (49.9%) reported lower net interest income year-over-year.”
Additional Findings
The FDIC Quarterly Banking Profile for Q3 also found:
- Loan and lease volume was down slightly, declining by 0.8% (by $84.5 billion) from Q2, with a reduction in commercial and industrial (C&I) lending of $150.3 billion the primary reason for the decline.
- Asset quality was marginally weaker, with noncurrent loans (those that were 90 days or more past due or in nonaccrual status) increasing by $9.3 billion (7.9%) in Q3.
- The FDIC Bank Insurance Fund’s (BIF) ratio of reserves to savings insured remained at 1.3%, unchanged from the previous quarter.
- “Deposit growth stabilized during the third quarter after record increases in the first (quarter) of 2020 and is now near the average rate of growth between year-end 2014 and year-end 2019,” the FDIC said.