BofA Reports Record Equity Trading Revenue Thanks To Q1 Vol Surge, As FICC Slides

Stepping away from trading, where BofA surprised is that unlike Wells, its loan book continued to grow, and total loans and leases rose by $4BN sequentially, and 2% Y/Y, even as total deposits hit a new record high of $1.297TN, up 3% Y/Y. Of note: consumer banking average loans/leases of $280BN increased $22BN, or 8%, y/y driven by growth in residential mortgage, credit card debt; meanwhile Q1 average loan balances in business segments rose $45BN, or 5%, to $864BN.

Looking at the bank's asset quality, total net charge-offs of $0.9B declined $0.3B from 4Q17, while total net charge-off ratio improved to 40 bps. As the company notes, the overall credit quality "remained strong across both the consumer and commercial portfolios," leading to the drop in net charge-offs while the provision for credit losses remained stable at $834MM.

BofA also explains that commercial net charge-offs of $0.1B decreased $0.4B, "primarily driven by the absence of a $0.3B single-name non-U.S. charge-off in 4Q17", which as a reminder was the bank's exposure to Steinhoff debt, which plunged overnight in late Q4.

Meanwhile, the bank's net reserve release decreased to $77MM from $99MM Y/Y, driven by continued improvements in consumer real estate, energy exposures, partially offset by continued seasoning in U.S. Card portfolio.

And speaking of said "seasoning" one can see the deteriorating trend in credit card charge-offs in the chart below, something we saw previously with JPM:

Another notable observation: whereas JPM saw its NIM increase, and Wells Fargo's net interest income slumped, BofA's remained perfectly unchanged at 2.39%, which however missed fractionally the estimate of a rise to 2.40%. According to BofA, its NIM "reflects the benefits from spread improvement offset by a reduction in the non-U.S. consumer credit card portfolio (higher-yielding asset), as well as the impact from an increase in Global Markets assets (lower-yielding)."

The bank also notes that a +100bps parallel shift in interest rate yield curve is estimated to benefit NII by $3.0B over the next 12 months, driven primarily by sensitivity to short-end interest rates. BofA did not explain how much it would be hurt by the continued sharp flattening of the yield curve.

Finally, on the expense side, BofA recorded Q1 compensation expenses $8.48 billion, above the estimate of $8.28 billion. At the same time, total noninterest expense of $13.9B declined $196MM, or 1% Y/Y, driven by lower non-personnel costs; this helped the total efficiency ratio to improve to 60% in 1Q18.

Overall, a good quarter if nothing spectacular for BofA, which like all other banks benefited from the surge in vol, which helped boost equity trading revenue to record highs, even as FICC and i-Banking declined sharply. Meanwhile, the bank continued to create loans if at a slower pace, while continued curve flattening threatens to further pressure the bank's NIM.

Full earnings below (pdf link).

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