US banks log lower-than-expected provisions in Q2 2024 amid normalizing credit

A majority of US banks that reported second-quarter earnings through July 26 recorded lower provisions for credit losses than analysts expected as credit trends continue to normalize.

Of the 94 banks that had released their financial results, 64 had provisions that were lower than the consensus estimate, according to S&P Global Market Intelligence data. Additionally, 67 banks reported lower-than-expected net charge-offs. In the second quarter, credit continued to normalize but did not bleed into new spaces, according to Piper Sandler analyst R. Scott Siefers.

"Credit trends are normalizing. But we continue to consider 'normalization' the best description of what we're seeing, rather than outright 'deterioration,'" Siefers wrote in a July 26 note on large regional banks. While lower-end consumers are facing more pressure and office commercial real estate is a long-term problem area for many institutions, banks are well reserved, Siefers added.

Banks' solid second-quarter earnings reports alleviated concerns about credit risk problems, though commercial real estate risks remain, Janney Montgomery Scott analyst Christopher Marinac said. Pre-provision net revenue has been stable in the past quarter, which supports future reserve-building when necessary to cover new credit losses, Marinac wrote in a July 29 note.

At $50B-plus banks

JPMorgan Chase & Co. booked the highest provision for credit losses in the second quarter among reporting banks at $3.05 billion, which was $251.4 million higher than the consensus analyst estimate. Citigroup Inc. reported the second-highest provision at $2.46 billion, which was $146.3 million lower than expected.

Truist Financial Corp.'s provision was also among those that came in better than expected, at $451.0 million, compared to the consensus estimate of $505.2 million. The company's allowance for loan loss ratio increased by 1 basis point quarter over quarter and 14 basis points year over year to 1.57%, reflecting ongoing credit normalization and stress in the office sector, according to CFO Mike Maguire

"We expect stress to remain in the office sector and believe that the size of our portfolio is manageable and well reserved, but our position is to be very proactive in identifying and resolving issues in this portfolio," Maguire said on an earnings call.

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New York Community Bancorp Inc. reported a provision of $390.0 million, higher than the estimated provision of $208.2 million. For the full year, the company projects a provision expense of between $900 million and $1 billion due to loan growth.

"Because we do expect loan growth, we do have an anticipation that we will have increased provisioning, not only through 2025 related to current market conditions but into 2026 as we have loan growth in the [commercial and industrial] portfolio and have to provision for that loan growth," CFO Craig Gifford said on an earnings call.

At $20B to $50B banks

Among banks with assets between $20 billion and $50 billion, Provident Financial Services Inc., booked the highest reported provision at $69.7 million. The company attributed the provision, which was $27.6 million higher than analysts expected, mainly to an initial provision on $60.1 million of loans recorded as part of its merger with Lakeland Bancorp Inc.

SouthState Corp. and Fulton Financial Corp. logged provisions of $3.9 million and $32.1 million, respectively, which were more than $12 million lower than estimated.

At $10B to $20B banks

First Merchants Corp. reported the highest provision among banks with $10 billion to $20 billion in assets at $24.5 million, $19.2 million higher than the consensus estimate. The company's provision expense was driven by charge-offs that were higher than normal, CEO Mark Hardwick said in an earnings release.

Some banks within the group with lower-than-expected provisions included Renasant Corp., which is in a pending deal to acquire First Bancshares Inc., and Independent Bank Group Inc., which is in a pending deal to be sold to SouthState.