Loan-loss provisions

The Birmingham, Ala., company more than doubled its loan-loss provision from three months earlier and its chief financial officer said that more than half of its loans to oil and gas companies could eventually become criticized.

The company said it recorded a large loan-loss provision in the second quarter to reflect Coex Coffee International's pending liquidation.

Second-quarter earnings fell by more than 50% from the same period last year after the company allocated $5.1 billion for potential loan losses.

The Pittsburgh bank says fewer borrowers are asking for help and that many borrowers who received assistance are making payments again. But with the coronavirus pandemic still raging in much of the country, CEO William Demchak and other bankers are tempering their optimism.

The energy sector, retail and hospitality are among the industries that are faring poorly during the pandemic. The bank expects loan losses to remain elevated well into 2021.

Megabanks like JPMorgan Chase boosted loan-loss provisions to record levels in the second quarter in preparation for what could be a wave of loan defaults.

The firm set aside a record $9.5 billion for credit losses, about $4 billion more than analysts had expected, as it braces for a wave of coronavirus-related defaults.

Bankers had asserted in April that they could handle a slump in oil prices tied to the coronavirus pandemic. Continued volatility, combined with declining collateral values and a rise in bankruptcies for exploration companies, is denting their confidence.

While elevated loan-loss provisions are expected to eat into all banks’ earnings, midsize banks could suffer more than their big-bank rivals because they have fewer revenue drivers. Meanwhile, investors will be watching closely for any signs of dividend cuts stemming from the Federal Reserve’s caps on payouts.

Deferral periods on scores of commercial loans will soon be ending, and many banks’ profits this year could turn on whether borrowers can resume making payments or will seek extensions.