Reserve Releases Keep Feeding EarningsWith asset quality continuing to improve, the industry's combined second-quarter provision for loan losses dropped to $8.6 billion, from $11 billion the previous quarter and $14.2 billion a year earlier. The FDIC said that provisions for reserves were at their lowest point since the third quarter of 2006. The industry's combined loan loss reserves declined by $6.4 billion during the second quarter. While most banks continue to set aside reserves each quarter, if the provision for reserves is outweighed by net loan charge-offs, a bank "releases" loan loss reserves, which provides a boost to pretax earnings. The industry's annualized ratio of net charge-offs to average loans for the second quarter was a low 0.78%, while reserves covered 1.93% of total loans, setting the stage for a continued release of loan loss reserves, although many analysts have recently said that for large banks, the reserve releases must soon be curtailed.
- Citibank, NA-- the main banking subsidiary of Citigroup (C) -- saw its loan loss reserves decline by $1.6 billion during the second quarter. The bank's ratio of nonperforming assets to total assets was 1.33% as of June 30. Citibank's loan loss reserves covered 3.00% of gross loans as of June 30, while the bank's second-quarter net charge-off ratio was just 1.91%.
- JPMorgan Chase's (JPM) main banking subsidiary JPMorgan Chase Bank, NA, saw its allowance for loan losses decline by $775 million during the second quarter. The bank's NPA ratio as of June 30 was 1.14%. Reserves covered 2.52% of total loans, while the second-quarter net charge-off ratio was a very low 0.46%.
- Bank of America's (BAC) main banking subsidiary Bank of America NA released $723 million in loan loss reserves during the second quarter. The bank's NPA ratio was 2.17%, while its second-quarter net charge-off ratio was 0.56%. Reserves covered 1.91% of total loans as of June 30.