Banks saw slight reduction in profits for 2019, but still recorded second highest of all time

Some concern about C&I lending noted

Banks made 1.5% less money in 2019 than the previous year, but still cleared more than $233 billion in profits – the second-highest ever, the federal insurer of bank deposits said Tuesday.

In releasing fourth-quarter (and year-end) 2019 bank financial results in its Quarterly Banking Profile (QBP), the Federal Deposit Insurance Corp. (FDIC) said the slight decline in net income for the nation’s federally insured banks was primarily due to slower growth in net interest income and higher loan-loss provisions. The agency added that lower noninterest income also contributed to the trend.

Nevertheless, the profit report for the nation’s banks was only about $2 billion less than at year-end 2018, which at $236.7 billion was the most ever.

The lower earnings were also reflected in the average return on assets (ROAA, which the agency has noted is the “basic yardstick of bank profitability”). That declined from 1.35% in 2018 to 1.29% in 2019. The ROAA for 2019 was also the second-highest recorded since 2003, according to agency statistics.

The FDIC reported that loan balances rose by $117.9 billion during the fourth quarter and 3.6% for the year. While almost all of the major loan categories reported quarterly increases, FDIC said, commercial and industrial loans reported the first quarterly decline since fourth quarter 2016. On an annual basis, the agency said, commercial and industrial loan portfolio grew at its lowest rate since 2010.

FDIC Board Chairman Jelena McWilliams, in a statement during a press conference unveiling the year-end financial results for the banking industry, downplayed the slight slowdown in bank profits in 2019. “The banking industry remains strong, despite declines in full-year and quarterly net income,” McWilliams said. “Loan balances continue to rise, asset quality indicators are stable, and the number of ‘problem banks’ remains low.”

However, McWilliams also noted some concern about lending. “With three reductions in short-term rates during the second half of 2019, challenges in lending and funding persisted,” she said of the 2019 results. “The environment to attract and expand loan customers and depositors remains competitive and challenging. Consequently, banks need to maintain rigorous underwriting standards and prudent risk management.”

The agency said that the number of “problem banks” (those that have financial, managerial or operational weaknesses that threaten its continued financial viability) declined in 2019 to 51, compared to 60 at year-end 2018. FDIC statistics show that the 2019 number is the lowest since 2006 (with 50 banks on the problem list), the year before the financial crisis began to emerge.

Other statistics released by the agency at year-end 2019 included:

  • Non-current loans were at 0.91% of all loans, down from 0.99 at year-end 2018, and the lowest since 2006 (when the rate was 0.8%).
  • Net charge offs as a share of all loans were at 0.52%, up slightly from the previous year (at 0.48%), and the highest since 2013 (which was 0.69%). However, the rate is still well below the 2.55% charge-off rate recorded in 2010, reflecting the full effect of the financial crisis.

FDIC-Insured Institutions Reported Net Income of $55.2 Billion in Fourth Quarter 2019