The overall market is down big today, so it's hard to tell whether the reduced provisions had a positive impact. But there is always a great deal of skepticism about earnings generated thorough lowered loan loss provisions, particularly for "negative" provisions.(I assume this happened because recoveries allegedly exceeded chargeoffs)
The ratio of the loan loss reserve to nonperforming loans is a better measure of whether management is manipulating their income. If management can lower their quarterly provisions WITHOUT lowering that ratio, then the reductions represent a genuine increase to income. If the provision reductions lower that ratio below 65%, then management is playing games to juice income(and their own bonuses). Its a grey area when the provision reductions reduce the ratio but keep it above 80%.
Geez, this metric is such a non-issue. The market has already priced the impact of loan losses stemming from pre-crash lending. No one cares anymore. I appreciate Norm's thoughtful analysis, but loan loss reserves and the velocity of change of same is not going to take this stock to $40. NIM, balance sheet growth, div growth and yield, will take this stock to $40. Concentrating on this type of analysis always produces frustration on the part of the "we dont get any love from the Street" crowd. The point is, the street is focusing on things you are not.
Queefoo, I agree. The market seems to be turning its attention to revenue generation. Outsized loan loss provisions are presumed to be part of history and charge-off ratios are viewed as little more than a timing issue. Companies that do not report a reduction in their loss allowance will likely be seen as laggards in addressing loan problems and punished by the market.
Stocks are valued based largely on foward-looking expectations and charge-off ratios that do not effect loss provisions and recapturing excess loss allowances are largely ignored in the "normalized earnings" calculations. Net-interest income, non-interest income and non-interest expenses become even more important as predictors of future results.