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BofA says CECL provisions will run higher than charge-offs

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BofA says CECL provisions will run higher than charge-offs

Bank of America Corp. expects credit loss provisions to be "a little bit higher" than net charge-offs in 2020 under new accounting rules, CFO Paul Donofrio said on a call to discuss fourth-quarter 2019 earnings.

The guidance on provisions under the current expected credit loss standard, which requires banks to set aside for projected lifetime losses, implies an increase relative to the previous rules. In 2019, BofA recorded a provision for credit losses of $3.59 billion, below its total net charge-offs of $3.65 billion. In 2018, BofA's provision of $3.28 billion was also below its charge-offs of $3.76 billion.

BofA's credit performance has been strong, with net charge-offs amounting to 0.38% of average loans in 2019. Donofrio said he expects the healthy performance to continue.

"We've been running at net charge-offs [of] approximately $1 billion a quarter," he said. "We don't see that changing much in the future."

Donofrio also disclosed that the bank had recorded a one-time, $3.3 billion increase to its allowance for loan losses at Jan. 1 when it adopted CECL, which he said was "in line" with its previous guidance. In BofA's most recent Form 10-Q, it estimated that it would have to increase its allowance by up to about 30%. That was higher than the bank's previous estimate of an increase of 20%. BofA said the change was driven by refinements to its models and methods, and loan sales that reduced expected future recoveries.

BofA's total allowance at Dec. 31, 2019, was $9.42 billion, nearly unchanged from $9.43 billion at Sept. 30.