The financial condition of U.S. community banks have strengthened since the onset of the financial crisis, but they needed to take measures to cope with an array of challenges stemming from the anemic economic recovery, U.S. Federal Reserve Chairman Ben Bernanke said on Thursday.

The close ties of community banks to local economies was a source of strength, Bernanke said Thursday in Virginia at an industry meeting sponsored by the Federal Deposit Insurance Corporation, adding that "those close linkages have drawbacks as well, most notably the resulting concentration of exposures to those same local economies".

On the broader scale of U.S. economic recovery, the central bank chief reiterated that despite some recent signs of improvement, the U.S. economic recovery was "frustratingly slow", constraining community banks' opportunities for profitable lending.

"Like larger banks, community banks are also being affected by the state of the national economy," he stressed.

"Measures of the financial condition of community banks appear to have strengthened somewhat," noted Bernanke, adding that profits of smaller banks have risen for the past several quarters and asset quality appeared to be stabilizing.

Community banks needed to continue their ongoing efforts including prudently diversifying their revenue sources, he cautioned.