Following conflicting earnings reports by JPM, Citi and Wells, Bank of America reported a jump in its quarterly profit, announcing EPS of $0.41, above the expected $0.35, as net income rose 40% Y/Y to $4.86 billion, up from $3.47 billion a year ago. Revenue was $22.25 billion, up from $20.79 billion a year ago, with adjusted revenue printing at $22.45 billion compared, beating estimates of $21.61 billion.

The rebound in Q1 profits was led by Global Banking and Global Markets, with Consumer Banking also posting a modest rebound.

A key driver for the strong performance in Q1 was the apparent rebound in the bank's Net Interest Margin, which rose from 2.23% to 2.39%, the highest in over a year, which in turn sent Net Interest Income sharply higher by $800 million to $11.3 billion. According to BofA, net interest income of $11.1B ($11.3B FTE); increased $729MM (FTE basis) from 4Q16, "reflecting  the benefits from higher interest rates, a
decline in market-related hedge ineffectiveness, seasonal leasing benefits as well as loan growth, partially offset by two fewer interest accrual days."

BofA expects NII to increase in 2Q17, assuming rates remain at current levels and modest growth in loans and deposits.

We remain positioned for NII to benefit as rates move higher: +100bps parallel shift in interest rate yield curve is estimated to benefit NII by $3.3B over the next 12 months, with nearly 75% of the benefit driven by short-end rates.

Also boosting Q1 revenue was stronger performance by the bank's Global Markets group, which saw FICC trading rev. excl DVA $2.93BN, higher than the est. $2.58BN. Equities trading rev. excl DVA $1.10b, also higher than the $1.01BN estimate.

Revenue, excluding net DVA, increased 27% from 1Q16 3, driven primarily by improved sales and trading results and higher capital markets fees

Sales and trading revenue of $3.9B, up 13% from 1Q16:  FICC up 17% to $2.8B and Equities up 5% to $1.1B

Excluding net DVA, sales and trading revenue of $4.0B 3 increased 23% from 1Q16:

  • FICC revenue increased $0.7B, or 29%, from 1Q16, due to a more favorable market environment in credit-related products driving increased client activity
  • Equities revenue increased $0.1B, or 7%, from 1Q16, due to stronger performance internationally in derivatives and client financing on improved investor sentiment

On the expense side, total noninterest expense of $14.8B was flat versus 1Q16, reflecting broad-based reductions in operating and support costs, offset by elevated compensation costs and higher FDIC expense. Non-personnel costs decreased 5%, or $0.3B, from 1Q16, driven by declines across most categories, including litigation, partially offset by higher FDIC insurance expense.

Personnel expense increased 3%, or $0.3B, from 1Q16, and included $0.5B elevated expenses associated with:

  • Annual retirement-eligible incentives and seasonally elevated payroll tax costs of $1.4B (up $0.1B)
  • Higher incentive costs due to the impact of changes in share price on employee stock awards (up $0.2B)
  • Increased revenue-related incentives associated with growth across GWIM, Global Banking and Global Markets (up $0.2B

The one downside to what was otherwise a strong report is that like with JPM, there appeared to be a modest deterioration in Asset Quality, as total charge offs jumped to $934 million, a 0.42% ratio, up from $880mm and 0.39% last quarter. The increase driven by "consumer due to seasonally higher credit card losses, while commercial charge-offs were relatively flat. Net charge-off ratio increased modestly from 4Q16 to 0.42%.

Provision expense of $835MM increased $61MM from 4Q16, driven primarily by consumer. Net reserve release of $99MM in 1Q17 versus $106MM in 4Q16, reflecting continued improvements in consumer real estate and energy exposures. Allowance for loan and lease losses of $11.4B, which represents 1.25% of total loans and leases.

Meanwhile, nonperforming loans (NPLs) decreased $433MM from 4Q16, driven primarily by consumer NPL sales. Reservable criticized utilized exposure decreased $252MM from 4Q16, due to improvements in energy-related exposures.

Overall, a good quarter as not only the shares of BAC reflect in the pre-market but S&P futures in general, which have seen a strong bid tone since the release. The initial stock reaction is a modest rise in the stock in the pre-market.

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Full presentatiton below. (link)