More than half of banks saw earnings drop in first quarter ’20, although $18.5 billion net income still recorded

Banks were still profitable in the first quarter of the year but much less so compared to the same period a year before, as net income dropped by $42.2 billion or 69.6%, the federal insurer of bank deposits reported Tuesday.

And more than half of all banks saw their earnings decline in the first three months of the year, the agency said.

The Federal Deposit Insurance Corp. (FDIC) said banks reported aggregate net income of $18.5 billion as of March 31, 2020 – considerably down from the $60.7 billion recorded the year before. “The decline in net income is a reflection of deteriorating economic activity, which propelled the increase in provision expenses and goodwill impairment charges,” the FDIC said in a release. “The decline was broad-based, as slightly more than half (55.9%) of all institutions reported year-over-year declines in net income.”

First quarter 2020 bank net income (and previous quarters)

The agency said the share of unprofitable institutions increased from a year ago to 7.3% (the share of unprofitable banks at the same point last year was 3.9%). The average return on assets ratio fell to 0.38% in first quarter 2020, down from 1.35% in first quarter 2019, the FDIC said.

However: The number of banks on the FDIC’s “problem bank list” rose only slightly, the FDIC reported, with three banks added during the first quarter, raising the total to 54. Nevertheless, that was the first increase of banks on the list since 2011 (although total assets of banks on the list actually fell to $44.5 billion from $46.2 billion at year-end 2019).

The FDIC also reported that the ratio of reserves in its Deposit Insurance Fund (DIF), the main fund that insures deposits in banks, relative to total deposits insured fell during the first quarter, to 1.39%. “The reserve ratio declined 2 basis points from fourth quarter 2019 to 1.39%, due to the growth in estimated insured deposits,” the agency said.

However, that ratio remains relatively high, compared to recent quarters (for example, at the end of the first quarter 2019, it was 1.36%). Yet, it was the first time that the reserve ratio has fallen since the Great Recession in 2009 (where it ultimately bottomed out at -0.39%).

FDIC-Insured Institutions Reported Reduced Profitability but Strong Loan Growth and Stable Asset Quality in First Quarter 2020