Even as banks continue to set aside billions of dollars for pandemic-related loan losses, they can take some comfort in the fact that fewer and fewer of their borrowers are seeking forbearance on monthly mortgage, car and other consumer loan payments.
PNC Financial Services Group said Wednesday that weekly loan modification requests have declined by 97% since mid-April, when much of the country was in lockdown.
U.S. Bancorp, meanwhile, said Wednesday that about 70% of its borrowers who skipped a payment or two during the early stages of the coronavirus pandemic have resumed making payments.
The surprising health of the consumer is emerging as a theme early in this bank earnings season. On Tuesday, JPMorgan Chase revealed that requests for payment deferrals have declined by about 95% since their April peak, while Citigroup said that clients who were granted forbearance on their debt obligations
Still, bankers acknowledge that the consumers’ finances have been propped up by loan forbearance and government stimulus efforts and that many loans could fall into delinquency or even default if virus cases continue to surge and economic activity is once again halted. That explains why five of the nation’s seven largest banks — JPMorgan, Citi, Wells Fargo, U.S. Bank and PNC — set aside a combined $32.1 billion for potential loan losses in the quarter that ended June 30.
“There’s more we don’t know than we do,” PNC Chairman and CEO William Demchak said Wednesday, echoing comments by JPMorgan Chairman and CEO Jamie Dimon and Citigroup CEO Michael Corbat a day earlier.
“It is really unclear what the long-term damage is going to be to the economy and how long it's going to take to grow back,” Demchak added.
For now, PNC executives believe that the $459 billion-asset company has adequate reserves to cover future loan losses, and analysts at Keefe, Bruyette & Woods said in a note to clients Wednesday that, based on what it’s seeing in banks’ earnings reports, it believes loan-loss provisions at major banks have likely peaked.
“The worst of reserve builds are likely behind us,” KBW said.
The $459 billion-asset PNC set aside $2.5 billion for loan losses in the second quarter, more than double the $914 million in the first quarter.
PNC still reported a $3.6 billion profit for the second quarter, up from $1.3 billion during the same period last year. The increase was largely due to the divestment of its stake in BlackRock, which landed the bank $14.2 billion in net proceeds and an after-tax gain of $4.3 billion on the investment.
There are signs that some consumers are finding their financial footing again. PNC reported three in four credit card holders who received assistance have begun making payments again in the past two months, according to its earnings presentation Wednesday.
The improvement has allowed PNC to be more selective about whom it grants further assistance to after taking widespread requests for relief at the start of the economic crisis.
“We have a pretty detailed treatment plan that looks, amongst other things, to cash flow available to them from the balances we see and so forth, and we'll work to come up with something that makes sense for the client,” Demchak said on the call Wednesday. “It's different the second time around than it was in the initial requests where effectively you just say, fine and move on to the next phone call.”
U.S. Bank set aside more than $1.7 billion in provisions for credit losses during the second quarter, up from $913 million during the previous three months, the Minneapolis bank said Wednesday. The bank reported net income of $695 million for the second quarter, down 62% from the same period last year.
But the $546.6 billion-asset bank reported that only about one in 10 of customers who are reaching the end of their forbearance or modification plans are falling into delinquency. The rest are either making payments again or were able to re-enroll into a new round of relief.
“So, so far, so good on customer performance,” U.S. Bank's chief credit officer Mark Runkel, said on a call with analysts Wednesday.
