Key Takeaways:
The six largest US banks collectively reduced provisions for bad loans in the second quarter, with Goldman Sachs Group Inc. posting a 73% year-over-year decline to about $102 million, the steepest drop among its peers.
"Several risks are shifting below the surface like tectonic plates, including geopolitical tensions and wars, sticky inflation, large global fiscal deficits, and elevated asset prices," Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., said in a statement.
Morgan Stanley's credit provisions fell 50% from a year earlier to $98 million, while Bank of America Corp. and JPMorgan posted declines of 14.2% and 11.7%, respectively. Citigroup Inc. reduced provisions by about 12%, and Wells Fargo & Co. reported a 9% drop to $914 million, citing improvement in its commercial real estate loan portfolio. The synchronized reduction across the six largest US lenders reflects a more optimistic outlook on borrower defaults after a period of elevated provisioning.
Banks set aside money for loan losses as an expense, so lower provisions directly boost bottom-line earnings. The six banks collectively reported higher net income for the quarter, with JPMorgan posting $16.9 billion in adjusted profit and Bank of America reporting $9.1 billion, up 26% from a year earlier. The question for the second half of 2026 is whether credit conditions can remain this benign as elevated interest rates and persistent inflation continue to pressure consumers and businesses.
The provision reductions came as banks reported strong mortgage origination volumes, which rose an average of 32% from the first quarter, well above industry forecasts of a 6% increase, according to BTIG analysts. JPMorgan originated $17.2 billion in mortgages, up 26% quarter over quarter, while Wells Fargo delivered $9 billion, a 43% spike. Bank of America originated $8.2 billion, up 28.4%.
PNC Financial Services Group Inc., which reported results Tuesday, posted a provision for credit losses of $191 million, down from $254 million a year earlier. The Pittsburgh-based lender reported net income of $2.1 billion, or $4.81 per share, compared with $1.6 billion a year ago. Its net interest margin expanded 16 basis points year over year to 2.96%, reflecting the benefit of commercial loan growth and lower funding costs. PNC's return on tangible common equity reached 17.88%, up from 15.55% a year earlier.
The improving credit picture has been accompanied by strong capital positions across the sector. PNC reported a common equity tier 1 ratio of 9.9% and raised its quarterly dividend 18% to $2 per share. The bank also completed the conversion of FirstBank's 780,000 customers across Colorado and Arizona during the quarter.
However, risks remain. Dimon's warning about sticky inflation and elevated asset prices echoes concerns shared by other bank executives. Wells Fargo CEO Charlie Scharf said "favorable conditions do not go on forever," signaling caution about the durability of the current credit cycle. The Federal Reserve has held its benchmark rate at 3.50% to 3.75% since September 2024, and PNC's baseline forecast does not expect a cut before 2027.
This article is for informational purposes only and does not constitute investment advice.
