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Bank Of America Beats Helped By $0.9 Billion Loan Loss Reserve Release

Tyler Durden's picture




 

Moments ago Bank of America was the last TBTF bank to report earnings, which came in at $4 billion or $0.32 per diluted share compared to expectations of a $0.26 print. Revenue was $22.9 billion net of interest expense which was just a fraction above the $22.7 billion expected. The immediate reason for the beat: the usual accounting fudge to net interest losses which came in at $1.2 thanks to yet another $900 Million (well above the $804MM in Q1 and the same as Q4 2012) loan loss reserve reduction to the total net charge off number of $2.1 billion. And with $21.2 billion in credit loss "buffer" allowance still left on the books from those torrid days of 2008, expect the accounting fudges to continue for a long time.

The loan-loss reserve fudge continues:

As a result, the ratio of allowances to net charge offs continues to rise.

Looking at performing segments, and following yesterday's weak Goldman FICC results, it is no surprise that Bank of America saw a major drop in its FICC revenue sequentially:

The good news for BAC, in as much as any of its credit portfolio metrics can be trusted in a non-MTM world, is that its Net Interest Margin/Yield continued to rise, and hit 2.44% in Q2. One wonders just how this is possible when all the other banks NIMs continue to decline. This is how BAC explains it:

2Q13 reported NII decreased modestly to $10.8B, while the net interest yield improved slightly from 1Q13 due to

  • Benefits from:
    • – Reduction in long-term debt
    • – Higher commercial loan balances
    • – Positive impacts from market-related premium amortization expense
    • – One additional interest accrual day
  • Primary offset by:
    • – Lower consumer loan balances and yields
    • – Less trading NII due to a reduction in balances and shift in composition

On the expense side, the firm's recurring expenses (ex LAS andlitigation) dropped from $13.8 billion to $13.2 billion mostly due to a 5.6K (2.1%) reduction in FTEs to 257,158, the lowest in years.

On the balance sheet side, total loans increased by $10 billion to $921 billion while deposits dropped from $1.095 trillion to $1.080 trillion.

The key loan quality indicators of note is that LTVs for both average and 90% loans continues to drop, and hit 73% and 23% respectively. In the % of loans below 620 FICO, BAC reported a total of 13% in notional.

Finally, for those interested in the firm's ongoing Reps and Warranties battle, even following the MBIA settlement, the breakdown is as follows:

 

Full presentation slideshow

 

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