Bank of America 2012 Annual Report Download - page 108

106 Bank of America 2012
During 2012, the factors that impacted the allowance for loan
and lease losses included significant overall improvements in the
credit quality of the portfolios driven by improvements in the U.S.
economy and labor markets, proactive credit risk management
initiatives and the impact of recent higher credit quality
originations. Additionally, the resolution of uncertainties through
current recognition of net charge-offs, specifically in the home
loans portfolios, has impacted the amount of reserve needed in
that portfolio. Evidencing the improvements in the U.S. economy
and labor markets are modest growth in consumer spending,
improvements in unemployment levels, a decrease in the absolute
level and our share of national consumer bankruptcy filings, a rise
in both residential building activity and overall home prices. In
addition to these improvements, paydowns, charge-offs and
returns to performing status and upgrades out of criticized
continued to outpace new nonaccrual consumer loans and
reservable criticized commercial loans, but such loans remained
elevated relative to levels experienced prior to the financial crisis.
We monitor differences between estimated and actual incurred
loan and lease losses. This monitoring process includes periodic
assessments by senior management of loan and lease portfolios
and the models used to estimate incurred losses in those
portfolios.
Additions to, or reductions of, the allowance for loan and lease
losses generally are recorded through charges or credits to the
provision for credit losses. Credit exposures deemed to be
uncollectible are charged against the allowance for loan and lease
losses. Recoveries of previously charged off amounts are credited
to the allowance for loan and lease losses.
The allowance for loan and lease losses for the consumer
portfolio, as presented in Table 61, was $21.1 billion at
December 31, 2012, a decrease of $8.6 billion from
December 31, 2011. The decrease in the home equity and
residential mortgage allowance was primarily driven by improved
delinquencies and home prices as evidenced by improving LTV
statistics as presented in Tables 25 and 27. In addition, the home
equity allowance declined due to reduced exposures to current
junior-lien loans that we estimate had a first-lien loan that was 90
days or more past due. Also, the home equity allowance related
to the PCI portfolio declined $2.7 billion primarily due to the
forgiveness of fully reserved home equity loans in connection with
the National Mortgage Settlement.
The decrease in the allowance related to the U.S. credit card
and unsecured consumer lending portfolios in CBB was primarily
due to improvement in delinquencies and bankruptcies. For
example, in the U.S. credit card portfolio, accruing loans 30 days
or more past due decreased to $2.7 billion at December 31, 2012
from $3.8 billion (to 2.90 percent from 3.74 percent of outstanding
U.S. credit card loans) at December 31, 2011, and accruing loans
90 days or more past due decreased to $1.4 billion at
December 31, 2012 from $2.1 billion (to 1.52 percent from 2.02
percent of outstanding U.S. credit card loans) over the same
period. See Tables 22, 23, 25, 27, 33 and 35 for additional details
on key consumer credit statistics.
The allowance for loan and lease losses for the commercial
portfolio as presented in Table 61 was $3.1 billion at
December 31, 2012, a decrease of $1.0 billion from
December 31, 2011. The decrease was driven by continued
improvement in the credit quality of the core commercial portfolio.
For example, the commercial utilized reservable criticized exposure
decreased to $15.9 billion at December 31, 2012 from $27.2
billion (to 4.10 percent from 7.41 percent of total commercial
utilized reservable exposure) at December 31, 2011. Similarly,
nonperforming commercial loans declined to $3.2 billion at
December 31, 2012 from $6.3 billion (to 0.93 percent from 2.04
percent of outstanding commercial loans) at December 31, 2011.
See Tables 39, 40 and 42 for additional details on key commercial
credit statistics.
The allowance for loan and lease losses as a percentage of
total loans and leases outstanding was 2.69 percent at
December 31, 2012 compared to 3.68 percent at December 31,
2011. The decrease in the ratio was largely due to improved credit
quality driven by improved economic conditions and the home
equity PCI loans that were forgiven which led to the reduction in
the allowance for credit losses discussed above. The December
31, 2012 and 2011 ratios above include the PCI loan portfolio.
Excluding the PCI loan portfolio, the allowance for loan and lease
losses as a percentage of total loans and leases outstanding was
2.14 percent at December 31, 2012 compared to 2.86 percent
at December 31, 2011.