Bank profits slouched 70% in the first quarter as lenders set aside billions for default protection

Cash held to protect against soured loans jumped to $197 billion from $125 billion in the year-ago period as lenders braced for intense pandemic fallout.
While the profit shock contributed to bank stocks' plunge in March, "banks effectively supported individuals and businesses during this downturn through lending and other critical financial services," Jelena McWilliams, chairman of the FDIC, said in a statement.
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Profits across 5,116 banks slid roughly 70% in the first quarter as the coronavirus halted economic activity and forced firms to boost loan-loss defenses, the Federal Deposit Insurance Corporation said in a Tuesday report .

Wall Street giants saw revenue and profits diverge through the period. Wild volatility in the stock and debt markets drove massive sales across trading desks. Yet firms were forced to divert much of the earnings to protections for newly risky loans as the coronavirus tanked credit health and plunged the US into a recession. Defensive reserves leaped to $197 billion from $125 billion in the year-ago period, according to the FDIC.

The profit shock contributed to bank stocks' sharp first-quarter declines, but the bolstering of loss protections shows firms doing their job to mitigate a wave of bankruptcies, Jelena McWilliams, chairman of the FDIC, said in a statement.

"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 said.

Just over half of FDIC-covered firms reported year-over-year net income declines, and the total share of unprofitable institutions jumped to 7.3%.

Despite the profit scare, the number of firms on the agency's "Problem Bank List" remained near historic lows, climbing to 54 from 51. Total assets held at such banks declined to $44.5 billion from $46.2 billion.

Community banks followed the broad industry trend with profits diving over the period, yet net operating revenue increased. The boost was largely overshadowed by provision expenses jumping to $1.8 billion, three times the level reported in 2019, the agency said. Overall net income for community banks sank 20.9% from the year-ago period.

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