Higher expenses pared bank profits: FDIC

WASHINGTON — Banks’ profits grew in the fourth quarter, but the country’s largest banks spent more on salaries, benefits and other expenses, according to the Federal Deposit Insurance Corp.’s Quarterly Banking Profile.

U.S. banks reported fourth-quarter income of $63.9 billion, a 7.4% increase from the same time last year, according to the QBP. The increase is mostly attributable to a $5.8 billion rise in net interest income and a $4 billion drop in provision expense. Noncurrent loan balances fell 3% from the third quarter.

More than half of banks reported year-over-year improvements in quarterly net income.

From the third quarter, net income fell $5.6 billion, or 8.1%, as provision expense rose quarter-to-quarter. For the total year, U.S. banks reported net income of $279.1 billion, a 89.7% jump from the previous year.

The $5.8 billion rise in net interest income stemmed from a 31.8% (or $3.8 billion) drop in interest expense in the fourth quarter compared to the prior year. Banks also enjoyed a $1.2 billion jump in trading revenue — a 17.8% increase — and $1.2 billion increase in investment banking fees, which buoyed their noninterest income streams.

Net interest margin remained unchanged from the prior quarter at 2.56%.

But banks also had to contend with higher costs late last year. Marketing and data processing, as well as higher expenses in salaries and benefits, drove up noninterest expenses by $7.8 billion, a 6.2% increase in the fourth quarter compared to the previous year. Nearly 70% of banks said they saw higher noninterest expenses compared to the same time last year.

Acting Chairman Martin Gruenberg noted during a press conference following the release of the quarterly banking profile that the increases came as banks dealt “with the pandemic and current environment in the economy.”

Larger banks bore the brunt of increased salary and benefit expenses, said Diane Ellis, director of the division of insurance and research at the FDIC.

“Community bank increases were much more modest with regards to salary expenses,” Gruenberg added.

This quarterly release is Gruenberg’s first since becoming acting FDIC chair in February. He said that proposed changes tothe bank merger review process — the issue that hastened former Chair Jelena McWilliams’ exit from the agency — would be submitted to the Federal Register for comment “shortly.” Gruenberg declined to give further timing details on banking regulators’ review of the Community Reinvestment Act, saying that the agencies hope to act on the notice of proposed rulemaking “in the near future.”

Consumer loans grew by 4.7%, or $84.9 billion, in the fourth quarter; commercial and industrial loans increased by 3.2%, or $70.8 billion; and loans to nondepository institutions swung up 9.1%, or $59 billion. Annually, runoff from the Paycheck Protection Program drove down C&I loan balances, but gains in other lending categories pared those losses.

The number of banks on the problem bank list dropped by two from the third quarter to 44. That’s the lowest level since the FDIC Quarterly Banking Profile data collection started in 1984, according to the report, and there were no bank failures or openings in the fourth quarter.