Loss provisions at US banks come in below estimates

A number of US banks booked lower-than-expected provisions for credit losses in the fourth quarter of 2024 against a backdrop of easing credit quality concerns.

Of the 64 banks that released results as of Jan. 24, more than 60% logged provisions for credit losses below their consensus estimates, according to S&P Global Market Intelligence data. Additionally, 41 banks recorded lower-than-estimated net charge-offs (NCOs).

While banks' credit quality continued to decline in the fourth quarter of 2024, the pace of that weakening slowed, Jefferies analysts wrote in a Jan. 24 research note. Investor worries about credit quality further eased, helped by "benign credit commentary," Piper Sandler analysts said in a Jan. 28 note.

"We hadn't expected any major credit deterioration, nor did we see any with [fourth-quarter 2024] large bank earnings," the Piper Sandler analysts wrote. "Even in the cases where [nonperforming assets] jumped, they generally did so off a very low base. Plus, few surprises in NCO expectations for the coming year."

$50B-plus banks

Old National Bancorp executives said during a Jan. 21 earnings call that credit remained strong in the final quarter of 2024. The company provisioned $27.0 million, about $800,000 lower than the consensus estimate.

"We feel good about credit. It's continued to normalize, and our activity was kind of equal on both sides," President and COO Mark Sander said. "We moved some things out and continue to see some migration as we get through the annual review cycle, so kind of a quiet quarter on credit right where we expected it to be."

PNC Financial Services Group Inc., which logged a lower-than-expected provision of $156.0 million, believes that it is adequately reserved for its credit risk. Commercial loans that are not commercial real estate (CRE) improved during the quarter, while consumer loans were "pretty good," CFO Robert Reilly said during a Jan. 16 earnings call.

"Within the CRE office space, we've got some moving parts there," Reilly added. "The good news is that the outstandings are coming down. We're managing it."

PNC's office outstanding loans declined 16.4% year over year.

Valley National Bancorp and Webster Financial Corp., where CRE remains a pressure point, recorded higher provisions than the consensus estimate. While its provision of $106.5 million was $21.5 million above consensus, Valley sees itself entering 2025 with "the cleanest slate from a credit perspective" after addressing certain CRE loans in the fourth quarter of 2024, Chairman and CEO Ira Robbins said during a Jan. 23 earnings call.

"We are confident that our proactive efforts throughout 2024, and in the fourth quarter specifically, will lead to a meaningfully lower credit cost in 2025," Robbins said.

Webster's provision of $63.5 million was $12.9 million higher than estimated, but the company is eyeing a positive provisioning impact from more balance on upgrades and downgrades in its credit portfolio in mid-2025, Chairman and CEO John Ciulla said during a Jan. 17 earnings call.

$20B to $50B banks

Among banks with assets between $20 billion and $50 billion, Bank OZK recorded the highest provision for credit losses at $37.2 million, but that was $5.1 million lower than expected.

Over the previous 10 quarters, Bank OZK built its allowance for loan losses by a net of $319 million due to loan growth and a cautious outlook on macroeconomic conditions.

F.N.B. Corp. booked the second-highest provision among the banks within the group at $22.3 million, $1.8 million lower than expected. Customers Bancorp Inc. followed with $20.5 million, about $700,000 higher than projected.

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$10B to $20B banks

Among banks with assets between $10 billion and $20 billion, Live Oak Bancshares Inc.'s provision of $33.6 million was the highest and was $18.5 million above the consensus estimate. The heightened provision was "the lone disappointment" in the year, President William Losch said.

"While our reserves to our unguaranteed loan portfolio ratio have remained relatively steady over the past five quarters, we have seen an increase in our second-half provision expense, partly due to the approximately $1 billion of loan balance growth in the last two quarters as well as the increase in classified assets and nonaccrual trends," CFO Walter Phifer said during a Jan. 23 earnings call.

OFG Bancorp posted the second-largest provision within this group at $30.2 million, followed by First BanCorp. with a $20.9 million provision.