U.S. bank profits dropped 6.5% in the first quarter of 2022 to $59.7 billion, as larger firms grew their loan loss provisions in response to heightened economic and geopolitical uncertainty, the Federal Deposit Insurance Corporation reported Tuesday.
Bank profits were down 22.2% compared to the first quarter of 2021, and was driven by banks with over $10 billion in assets setting aside more funds to guard against loan losses.
The growth in loan loss provisions marks a reversal from recent history, which saw banks enjoy higher profits as they shrank large cushions built up during the pandemic. Growing uncertainty drove firms to resume growing those reserves, which climbed $19.7 billion from the first quarter of 2021.
“Inflationary pressures, rising interest rates, and geopolitical uncertainty could hamper bank profitability, weaken credit quality, and reduce loan growth,” said acting FDIC Chairman Martin Gruenberg in a statement.
That reserve growth was also primarily driven by larger banks with over $10 billion in assets, as only 25% of all banks reported higher loan loss provisions.
However, banks reported loan balances grew another 1% in the first quarter, driven primarily by increased lending in commercial and industrial loans. And noncurrent loan balances continued to fall, dropping 4.5% in the first quarter to a noncurrent loan rate of just 0.84%.