Guest Commentary By Carl White, Federal Reserve Bank of St. Louis
Commercial Banks in Missouri, Nation Finish 2021
in Strong Position
U.S. commercial banks continued their bounce back from pandemic-related challenges in 2021, recording satisfactory levels of earnings and asset quality measures well above industry benchmarks. Banks in Missouri fared better too, with profitability, asset quality and regulatory capital ratio averages largely in line with national peers.
Despite a slight dip between the third and fourth quarters of 2021, return on average assets for U.S. banks increased a robust 51 basis points from its year-end 2020 level to 1.22%. Missouri banks fared even better, with average ROAA increasing from 1.32% in 2020 to 1.41% in 2021.
Missouri Banks Scorecard
Performance Metric ROAA NIM
Loan Loss Provision/AA Noninterest Income/AA
2020:4Q 2021:3Q 2021:4Q 1.32% 1.38% 1.41% 3.25% 3.04% 3.00% 0.31% 0.02% 0.02% 1.36% 1.20% 1.23%
Noninterest Expense/AA 2.59% 2.38% 2.49% Nonperforming Loan Ratio 0.52% 0.44% 0.38% Tier 1 Leverage Ratio
Source: Reports of Condition and Income for Insured Commercial Banks (Call Reports)
9.40% 9.11% 8.95%
PROVISIONS REVERSAL PROVIDES EARNINGS BOOST For a number of banks, one of the biggest contributors to the improvement in earnings in 2021 was the sharp reduction in — and in some cases, reversal of — loan loss provisions. Loan loss provisions were ramped up significantly in early 2020 at the start of the pandemic, when the economy shut down and massive loan losses were feared. As pandemic-related programs like the Paycheck Protection Program bolstered consumers and businesses and economic conditions improved, banks began to unwind some of the precautionary measures they had taken in anticipation of losses.
For U.S. banks overall, loan loss provisions as a percentage of average assets declined 77 basis points between year-end 2020 and year-end 2021, falling from 0.64% to -0.13%; in aggregate, then, 2021 provisions added modestly to banks’ net income rather than subtracting from it. Provisions also fell significantly at Missouri banks. For 2021 as a whole, the average loan loss provision ratio in Missouri dipped to 0.02%.
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