Bank of America has tapped the Federal Reserve‘s March 27 option to defer estimated capital impact under current expected credit loss (CECL) until 2022, Chief Financial Officer Paul Donofrio said during the bank’s first-quarter earnings call today.
The Charlotte-based bank increased its allowances for credit losses $3.3 billion Jan. 1, when it first was required to implement CECL, then set aside an additional $3.6 billion in response to the COVID-19 economic crisis in March; on top of what was already held in reserve, Bank of America now retains $15.8 billion in reserve.
CECL requires lenders to set aside estimated credit losses for the entire lifetime of the loan, spread over a quarter-by-quarter basis. With the extension, Bank of America has the option to delay setting aside any additional capital for credit losses under CECL’s requirements over the next two years, but can elect to set aside additional funds at its discretion.
Under its direct and indirect consumer lending segment, which includes auto loans and leases, the bank reserved an additional $50 million in allowances for credit losses since the beginning of the year to $675 million, representing 0.75% of the total portfolio.
Bank of America’s auto portfolio has remained relatively flat year over year at $51 billion.
Approximately 3% of the bank’s outstanding auto portfolio have deferred payments — or $1.53 billion worth — according to the earnings presentation. CFO Donofrio remains confident in the auto book’s consistent performance, he said, based on Bank of America’s focus on prime credit borrowers.
Meanwhile, Bank of America has seen a 60% decline in auto originations in the first two weeks of April compared with February average levels, Donofrio noted. The bank does not report its auto origination figures specifically.
