US banks exit Q1 2024 with lower net charge-offs across several loan segments

Net charge-off rates at US banks declined across multiple loan segments in the first quarter from record highs at the end of 2023.

The commercial and industrial (C&I) net charge-off (NCO) rate dropped for the first time in two years, declining 6 basis points quarter over quarter but up 14 basis points year over year to 0.40% in the quarter ended March 31, according to S&P Global Market Intelligence data. The C&I loans net charge-off rate rose 32 basis points from 0.14% in the 2022 second quarter to a three-year high of 0.46% in the 2023 fourth quarter.

The auto loan NCO rate fell 5 basis points from the previous quarter to 1.21%, after climbing for two consecutive quarters. The NCO rate on construction loans declined 5 basis points sequentially.

The NCO rate for the other consumer loan category declined for the first time since the 2022 first quarter. The NCO rate for the category was down 7 basis points quarter over quarter and up 19 basis points year over year to 0.61%.

Banks continued to see higher NCOs in the credit card segment. The credit card NCO rate rose 55 basis points quarter over quarter and 162 basis points year over year to 4.70%, surpassing the previous high of 4.38% in the 2019 second quarter.

Bank credit quality metrics worsen YOY

Overall, US banks reported deterioration in their credit quality metrics on a year-over-year basis.

Total NCOs at US banks amounted to $20.30 billion, up 63% from $12.43 billion in the 2023 first quarter. NCOs as a percentage of average loans and leases were 0.66%, 15 basis points higher from the year-ago period.

Early-stage delinquencies, or loans and leases past due between 30 days and 89 days, increased 14.8% year over year to $63.51 billion at March 31. Loans and leases past due 90 days or more increased by 35% to $23.59 billion.

CRE NCO rate down QOQ, up YOY

Commercial real estate (CRE) credit quality concerns continue to weigh on the industry.

First-quarter NCOs in US banks' CRE loan portfolios fell from the previous quarter but remained up from the same period a year ago.

CRE loans' total NCO rate declined 7 basis points from the previous quarter to 0.27% in the first quarter, which was 18 basis points higher than the 2023 first quarter. Total CRE loan net charge-offs stood at $1.22 billion in the first quarter, up 214% from $388 million in the year-ago period.

Of the top 20 US banks by CRE NCOs, Bank of America Corp. logged the highest CRE NCO in the first quarter. The bank's CRE NCOs for the quarter amounted to $304 million, or 2.0% of average CRE loans. Delinquent CRE loans represented 4.6% of the bank's total CRE loans.

"Commercial net charge-offs increased $191 million versus the fourth quarter [of 2023], driven by commercial real estate losses and office exposures. And on office losses this quarter, we recorded charge-offs on 16 office loans: four were a result of sales activity, i.e., final resolution; seven were from losses that we expect on exposures that are in the process of expected resolution in the course of the next 90 days; and the rest we took as a result of refreshed valuations," Bank of America CFO Alastair Borthwick said on a call to discuss first-quarter earnings, according to the transcript.

Canadian Imperial Bank of Commerce's Chicago-based unit CIBC Bancorp USA Inc. retained the No. 2 spot on the list, with CRE NCOs at $181.1 million. The bank's CRE NCO rate jumped 588 basis points year over year to 6.0%, the largest jump among the banks on the list.

YOY decline in CRE delinquencies

US banks' total delinquent CRE loans jumped 62% year over year in the first quarter to $27.44 billion. The CRE loan delinquency ratio was up 55 basis points year over year to 1.50%.