FDIC-insured banks and savings institutions earned $18.5 billion in the first quarter of 2020, a 69.6% decline from a year prior, the FDIC reported today. The decline reflected the sharp economic downturn that took place as the coronavirus pandemic began in the U.S., causing an increase in provision expenses and goodwill impairment changes. FDIC Chairman Jelena McWilliams noted, however, that despite the decline in profitability, “the banking industry has been a source of strength for the economy in the first quarter despite unexpected shocks.”
Among the 5,116 FDIC-insured institutions, net interest income fell by $2 billion, or 1.4%, from a year before. Meanwhile, noninterest income rose 2.3%, with almost two-thirds of banks reporting an increase. While noninterest expense increased $13.6 billion, or 11.8%, in the first quarter, the increase was driven by $8.4 billion in impairment charges at a few institutions. Average return on assets fell from 1.35% in the first quarter of 2019 to 0.38% in the first quarter of 2020, and average net interest margin fell 29 basis points to 3.13%. Deposit balances rose 8.5% from the fourth quarter.
Community banks earned $4.8 billion, a 20.9% decline from the same period last year. Provision expenses at community banks tripled year-on-year, which constrained profitability even as net operating revenue increased. Meanwhile, loan growth at community banks held steady at 5.8%, despite deteriorating economic conditions.
“Prudent risk management measures were largely responsible for sharply lower industry earnings in the first quarter as banks provisioned for the anticipated impact of the coronavirus on their loan portfolios,” noted American Bankers Association Senior Economist Rob Strand. “With significantly higher loan-loss reserves, banks remain well prepared for the evolving outlook. Nearly all banks–99.8%–have capital ratios that exceed the most rigorous regulatory standards.”
Loan balances among FDIC-insured banks saw strong quarter-over-quarter growth, rising 4.2% as more than half of all banks reported increasing their loan and leases balances. Year-on-year, total loan and lease balances were up 8%, the highest annual growth rate since the first quarter of 2008, the FDIC said.
Net charge-offs rose 14.9% from a year ago, and the number of loans that were 90 or more days past due also rose by 7.3% from the first quarter. The number of institutions on the problem bank list ticked up from 51 to 54 during the first quarter, though that figure remained near historic lows. Two de novo banks were added during the first quarter. The Deposit Insurance Fund balance rose by $2.9 billion to total $113.2 billion.