- Negative Provision Expense Drove Increased Full-Year 2021 Net Income
- Quarterly Net Income Continued to Increase Year Over Year
- Net Interest Margin Remained Stable Quarter Over Quarter
- Quarterly Loan Growth Was Broad-Based
- Asset Quality Continued to Improve
- Community Banks Reported an Increase in Quarterly Net Income and Full-Year Net Income
“With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to meet the country’s credit needs while navigating the economic effects of the pandemic. Still, challenges remain, as rising interest rates and geopolitical uncertainty could negatively affect bank profitability, credit quality, and loan growth going forward.”
— FDIC Acting Chairman Martin J. Gruenberg
WASHINGTON— Reports from 4,839 commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reflect aggregate net income of $63.9 billion in fourth quarter 2021, an increase of $4.4 billion (7.4 percent) from a year ago. This increase was driven by further economic growth and improved credit conditions, which led to expanded net interest income and a fourth consecutive quarter of aggregate negative provision expense. These and other financial results for fourth quarter and full-year 2021 are included in the FDIC’s latest Quarterly Banking Profile released today.
“In the fourth quarter, revenue has increased from the year ago quarter, along with stronger economic growth, higher loan demand, and improved credit conditions,” Gruenberg said.
Highlights from the Fourth Quarter 2021 Quarterly Banking Profile
Net Income Increased in 2021: The banking industry reported full-year 2021 net income of $279.1 billion, up $132.0 billion (89.7 percent) from 2020. The increase was primarily attributable to negative provision expenses, supported by continued economic growth and further improvements in credit quality. The average return-on-assets (ROA) ratio increased from 0.72 percent in 2020 to 1.23 percent in 2021.
Quarterly Net Income Continued to Increase Year Over Year: Quarterly net income totaled $63.9 billion, an increase of $4.4 billion (7.4 percent) from the same quarter a year ago, primarily due to a $5.8 billion increase in net interest income and a $4.0 billion decline in provision expense. A majority of banks (52.1 percent) reported annual improvements in quarterly net income. However, net income declined $5.6 billion (8.1 percent) from third quarter 2021, driven by a quarter-to-quarter increase in provision expense (up $4.5 billion to negative $742.4 million).
The banking industry reported an aggregate ROA ratio of 1.09 percent, on par with the 1.10 percent ROA ratio reported in fourth quarter 2020, but down from 1.21 percent reported in third quarter 2021.
Net Interest Margin Remained Stable Quarter Over Quarter: The net interest margin (NIM) was unchanged from the prior quarter at 2.56 percent, 6 basis points higher than the recent record low in the second quarter 2021 but down 12 basis points from the previous year. While improvements in net interest income were widespread, as nearly two-thirds of banks (65.6 percent) reported higher net interest income compared with a year ago, earning asset growth outpaced net interest income growth.
The yield on earning assets declined slightly to 2.71 percent (down 2 basis points quarter-over-quarter and 21 basis points year-over-year). The growth rate in average earning assets outpaced the growth rate in interest income. Average funding costs declined 2 basis points from the previous quarter to a new record low of 0.15 percent.
Community Banks Reported an Increase in Quarterly Net Income Year Over Year: Community banks reported net income growth of $511.6 million from the year-ago quarter, supported by an increase in net interest income and a decline in provision expense. Net interest income was up $1.3 billion (6.7 percent) from the year-ago quarter due to a decline in interest expense ($910.9 million or 35.1 percent) and increase in interest income ($384.5 million, or 1.8 percent). Net interest income, however, declined slightly ($165.8 million, or 0.8 percent) from third quarter 2021. Provision expenses declined $914.9 million (74 percent) from a year ago and increased $39.2 million (13.9 percent) from the previous quarter. Just over half (51.2 percent) of 4,391 FDIC-insured community banks reported higher quarterly net income.
The net interest margin for community banks narrowed 11 basis points from the year-ago quarter to 3.22 percent, as growth in earning assets outpaced growth in net interest income.
Loan Balances Increased from the Previous Quarter and a Year Ago: Total loan and lease balances increased $326.0 billion (3.0 percent) from the previous quarter. Several portfolios contributed meaningfully to the industry’s loan growth, including consumer loans (up $84.9 billion, or 4.7 percent), commercial and industrial (C&I) loans (up $70.8 billion, or 3.2 percent), and loans to nondepository institutions (up $59.0 billion, or 9.1 percent).
Annually, total loan and lease balances increased $383.2 billion (3.5 percent), as growth in consumer loans (up $137.8 billion, or 7.9 percent), loans to nondepository institutions (up $124.5 billion, or 21.5 percent), and nonfarm nonresidential commercial real estate (CRE) loan balances (up $77.0 billion, or 4.9 percent) helped offset declines in C&I loans (down $126.7 billion, or 5.2 percent). The annual decline in C&I loan balances was driven by Paycheck Protection Program loan forgiveness and repayment.
Community banks reported a 1.4 percent increase in loan balances from the previous quarter, and a 2.0 percent increase from the prior year. Growth in nonfarm nonresidential CRE loan balances drove the increases.
Credit Quality Continued to Improve: The outstanding balance of loans that were 90 days or more past due or in nonaccrual status (i.e., noncurrent loans) continued to decline (down $3.1 billion, or 3.0 percent, from third quarter 2021). The noncurrent rate for total loans declined 5 basis points from the previous quarter to 0.89 percent. The net charge-off balance also continued to decline (down $5.6 billion, or 49.5 percent) from a year ago. The total net charge-off rate dropped 21 basis points to 0.21 percent—just above last quarter’s record low.
The Reserve Ratio for the Deposit Insurance Fund Was Unchanged at 1.27 Percent: The Deposit Insurance Fund balance was $123.1 billion as of December 31, up $1.2 billion from the end of the third quarter. Due to continued strong growth in insured deposits, the reserve ratio remained the same at 1.27 percent.
Mergers Continued in the Fourth Quarter: Seventy-two institutions merged and no banks failed in fourth quarter 2021.