U.S. community bank earnings plunged in the first quarter, as loan loss provisions surged due to the economic impact of the Covid-19 outbreak, the U.S. Federal Deposit Insurance Corp. (FDIC) says.
Combined net income for the 5,116 banks and savings institutions dropped by 69.6% in the first quarter to $18.5 billion (all figures in U.S. dollars), the FDIC reported.
“The decline in net income is a reflection of deteriorating economic activity, which resulted in the increase in provision expenses and goodwill impairment charges,” the agency said.
The FDIC noted that the decline in earnings was broad-based, with 55.9% of all institutions recording year-over-year declines in net income.
Despite the weakening economic conditions and the surge in credit provisions, loan growth remained strong and asset quality held up too, the FDIC said.
“The banking industry has been a source of strength for the economy in the first quarter despite unexpected shocks,” said FDIC chair, Jelena McWilliams.
“Although bank earnings were negatively affected by increases in loan loss provisions, banks effectively supported individuals and businesses during this downturn through lending and other critical financial services,” she added.
“Notwithstanding these disruptions, at the end of the first quarter, bank capital and liquidity levels remain strong, asset quality metrics are stable, and the number of ‘problem banks’ remains near historic lows,” she said.