Reserve Releases ContinueCredit leverage continues to be a major theme for the industry, with quarterly provisions for loan losses falling to a six-year low. The provision is the amount added to loan loss reserves each quarter. If the provision is less than the amount of loans charged off, a bank "releases" loan loss reserves, which provides a direct boost to pretax earnings. The FDIC said that loan loss provisions fell to a six-year low during the first quarter to $11 billion, compared to $14.3 billion during the first quarter of 2012. According to data supplied by Thomson Reuters Bank Insight, 16 of the nation's 19 banks with total assets exceeding $100 billion released loan loss reserves during the first quarter. Among the exceptions, the only bank adding reserves of any significance was BB&T ( BBT) subsidiary Branch Banking & Trust Co. of Winston-Salem, N.C., which added a net $32.9 million in loan loss reserves. The following figures for several of the nation's largest banks underscore the likelihood of continued reserve releases, since reserve coverage of nonperforming loans remains quite strong:
- Citibank, NA -- the main banking subsidiary of Citigroup (C) -- saw its loan loss reserves decline by $1.4 billion during the first quarter. The bank's March 31 ratio of nonperforming assets to total assets was 1.44%. Its annualized ratio of net charge-offs to average loans was 1.97%, while the ratio of reserves plus allocated risk-transfer reserves for loans held-for-sale was 3.29% as of March 31.
- Bank of America (BAC) main subsidiary Bank of America, NA released $1.4 billion in reserves during the first quarter. Bank of America NA's nonperforming assets ratio (NPA) was 2.23% as of March 31. Its reserves covered 2.05% as of March 31, while the first-quarter net charge-off ratio was just 0.64%. Bank of America's FIA Card Services, NA subsidiary released $272 million in loan loss reserves during the first quarter.
- JPMorgan Chase's (JPM) main banking subsidiary JPMorgan Chase Bank, NA, saw its allowance for loan losses decline by $792 million during the first quarter. The bank's NPA ratio as of March 31 was 1.21%. Reserves covered 2.63% of total loans, while the first-quarter net charge-off ratio was 0.54%.
The FDIC said noncurrent loans (90 days or more past due or in nonaccrual status) declined to $261.2 billion as of March 31, to "the lowest level since year-end 2008." "Insured institutions reduced their loss reserves by $6.6 billion (4 percent) in the quarter, as the $16 billion in charge-offs taken out of reserves exceeded the $11 billion in loss provisions added to reserves," the FDIC said. "This is the 12th consecutive quarter in which banks have lowered their reserves."