Provisions for expected credit losses at banks based in the U.S. continued an upward trend in positive territory for the second consecutive quarter during the first three months of 2022. The banking sector recorded negative provisions in the first three quarters of 2021.
The sector recorded total positive provisions of $4.78 billion in the first quarter, following positive provisions of $302 million in the fourth quarter of 2021, according to S&P Global Market Intelligence data.
With the onset of the COVID-19 pandemic in 2020, banks increased provisions in anticipation of potential losses from credit and asset deterioration. However, that trend reversed as the economy started to regain its strength and fiscal stimulus helped credit quality to remain stellar.
2 out of top 6 banks still record negative provisions
Out of the top six banks in the U.S., based on total assets as of March 31, Wells Fargo Bank NA, a subsidiary of Wells Fargo & Co., and PNC Bank NA, a unit of PNC Financial Services Group Inc., recorded negative provisions during the quarter.
Wells Fargo recorded a 205.52% negative provision to net charge-offs during the quarter. Wells Fargo President and CEO Charles Scharf said loan loss reserves at the company are reflective of the conservatism in their models. "I think what we've seen consistently in our reserving levels is we've been on the more conservative side relative to others," Scharf said during the company's first-quarter earnings call.
Wells Fargo's provision was negative $633 million during the quarter.
PNC recorded a 126.03% negative provision to net charge-offs during the first quarter. The company's provision during the quarter was negative $172.5 million.
Reserves continue slide
Total reserves recorded at U.S. banks have been declining for the past few quarters, and the first quarter was no exception. The industry booked a total of $175.45 billion in total reserves, down from $178.20 billion in the linked quarter, and reserves as a percentage of total gross loans and leases also declined to 1.54% from 1.58%.
