While the vast majority of the largest U.S. banks reported positive earnings in 1Q20, profitability will become more challenging going forward as the impact of the coronavirus pandemic sets in, according to Fitch Ratings latest U.S. Banking Quarterly dashboard. Fitch expects significant pressure to be placed on profitability into 2021 due to higher provisioning levels given the weaker economic outlook. In addition, profitability will be weakened from lower net interest margins and costs remain elevated as banks work through client needs and enhance infrastructure tied to a remote workforce due to social distancing.

All of the largest banks increased loan loss provisioning in the quarter to account for the implementation of the Current Expected Credit Loss (CECL) accounting methodology. However, allowance coverage increased with greater expectations for an impending recession. Some banks including JPMorgan, Bank of America and Wells Fargo more than doubled their provisioning from 4Q19. In addition, nonperforming loans increased notably quarter-over-quarter mainly driven by energy exposure as oil prices sunk.

"The full impact of the coronavirus pandemic on U.S. banks and credit quality remains to be seen as forbearance and government support programs will mitigate losses for banks in the near term," said Bain Rumohr, senior director, Fitch Ratings. "As support programs and government stimulus unwind, we expect credit losses to meaningfully increase across nearly all asset classes toward the end of 2020 and into 2021."

Capital levels for most of the largest U.S. banks declined from 4Q19 to 1Q20 due to meaningful asset growth as banks conducted share buyback programs through early March before economic conditions deteriorated. The implementation of CECL also weighed on capital levels despite immediate regularly capital relief.