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While the economic effects of the Omicron variant remain to be seen, improving economic conditions during the first nine months of 2021 helped drive Massachusetts bank earnings above pre-pandemic levels.
According to the FDIC’s latest state banking performance summary, Massachusetts’ 107 FDIC-insured institutions together had $3.45 billion in net income during the first nine months of 2021, a 50 percent increase over the first nine months of 2020, when banks had $2.3 billion in net income. Net income was also higher compared to the first nine months of 2019, when Massachusetts banks had $2.9 billion in earnings.
More Massachusetts banks reported earnings gains year-to-date through Sept. 30 compared to both 2020 and 2019. About 86 percent of banks reported income gains in the first nine months of 2021 compared to 42.7 percent during the same period in 2020 and 59.5 percent on Sept. 30, 2019.
Almost all institutions are now considered profitable, with just 1 percent classified as unprofitable. In the first nine months of 2020, 5.5 percent of institutions were unprofitable.
FDIC Chairman Jelena McWilliams said in a statement announcing the latest FDIC Quarterly Banking Profile that economic growth and improving credit quality had supported strong earnings nationwide.
“A third consecutive quarter of negative provision expense lifted earnings year over year, as banks continued to adjust expectations for potential credit losses,” McWilliams said. “The banking industry reported a modest quarterly increase in total loan balances, while the net charge-off rate reached a new record low.”
While net interest margin rose slightly nationwide after reaching a record low in the second quarter, Massachusetts banks on average have yet to see the margin expand. The net interest margin at Massachusetts institutions was down to 1.65 at the end of the third quarter, similar to the second quarter ratio of 1.66 percent. During the first nine months of 2020, the net interest margin was 1.87 percent, and on Sept. 30, 2019, it was 2.40 percent.
Massachusetts institutions saw a collective 1.75 percent yield on all earning assets in the first nine months of 2021, down year-over-year from 2.23 percent. Before the pandemic, the yield on earning assets was 3.18 percent on Sept 30, 2019.
Total loans and leases were $162.3 billion compared to $169.5 billion in the third quarter of 2020 but ahead of the same period in 2019, when loans totaled about $159 billion.
“Community banks reported increased balances in most loan categories relative to second quarter, despite a decline in aggregate loan balances because of repayment and forgiveness of Paycheck Protection Program (PPP) loans,” McWilliams said. “With strong capital and liquidity levels to support lending and protect against potential losses, the banking industry continued to support the country’s needs for financial services while navigating the challenges presented by the pandemic.”
For the first time since the third quarter of 2020, Massachusetts’ banks collectively saw deposits decline from the previous quarter. The state’s banks had $428.17 billion in deposits at the end of the third quarter, down 2.3 percent from the second quarter. Nationwide, third quarter deposits had increased by 2.3 percent from the previous quarter.
Compared to the third quarter of 2020, deposits were up 18.8 percent, when deposits totaled $360.3 billion.
Total assets at the state’s institutions were about $511.8 billion at the end of the third quarter compared to $460 billion at the end of the third quarter 2020.
The number of full-time-equivalent employees in these institutions declined from the second quarter and year-over year. Massachusetts institutions had 49,809 full-time equivalent employees at the end of September compared to 51,171 at the end of June and 51,493 a year ago.
