Bank of America Q3 results

CET1: up 0.5%
Net charge-offs improved
Efficiency ratio: down to 62% in Q3 from 67# in Q2. We run the bank with fewer people than in 2015.

Consumer banking is increasing (number of accounts).
Significant organic growth with the bank.

Merrill Lynch accounts are moving digital.
Sales and trading (global markets) up 13% YoY, with no trading loss days in Q3. Wow.

Consumers continue to spend more, strong spending.
Consumer deposits are very strong, up 2x to 5x over pre-pandemic levels. 
Payments on credit cards are up significantly.
YTD spending of $3.1T is up 12% YoY, with growth in Gas (23%), Travel & Entertainment (20%), Food (10%), Services (9%) and Retail (3%).
Early to late stage card delinquencies are at decade level lows. 1.38% 30+ days past due. However, the last quarter is up in all categories. Is this the beginning of the trend higher for credit card past due amounts?

​

This is a strong quarter. They even bought back $450M of common stock. 

I notice that assets and investments both declined about $50B in Q3.
Shareholder equity is constant at $240B


Stress capital buffer increased the requirement from 9.5% to 10.5% for CET1. They are at 11.0%, which is 0.5% above required level. 11.4% by January 2024 is the increased requirement.

Significant hedges in place protect the bank:
AOCI declines on AFS investments down $1.1B.
Overall AOCI declined $4.4B due to increased interest rates.
Significant loss from derivatives (~$3.1B) to protect AOCI losses. Delayed SWAP starts.
Forward-starting SWAPs, which should pay in Q4 and a little in Q1/23.



Good commercial loan demand.
Sold / syndicated some of their business loans and mortgages (~$1.1B) to reduce their RWA. This looks like good stewardship. Confirmed, not big but a step in the right direction to reduce RWA. Rolling off corporate bonds / loans and replace with UST, which further improves RWA and increases yields too.

Consumer deposits up 7% YoY. $1.1T
Total Corporation deposits down 3%, to $1.96T.
Global Wealth Management and Global Banking declined in deposits.

NII (GAAP) $13.9B
Net interest yield: 2.06%
Customer cost of deposits: 0.03%
Consumer credit card risk-adjusted margin 10.07%
Excluding global markets, net interest yield 2.51%.
Mortgage rate yields are up even higher than deposits.
100bps up in interest rate across yield curve benefits $4.2B over 12 months.
This assumes market based rates, deposits down slightly, and activity adjusting as expected. 

$1.3B rise in NII in Q3, supports the expected growth in profitability.

Efficiency Ratio 62% for the bank
Efficiency ratio for the consumer bank: 51% (which is more in line with a monoline retail bank).

Headcount up 5,000 this quarter.Non-interest expenses are flat since 1Q/22. Wow, why are non-interest expenses flat? No inflation impact.
Mgmt stated it was discipline around expenses, and modest investments in the company.
Consumer bank expenses up 11% in non-interest expenses, including bank renovations. Biggest impact of inflation. Digital banking and operational process improvements help.

Net charge offs 0.20% for a total of $520MM.
Provision for credit losses $898MM, which increases the cushion.

Consumer delinquencies are lower than normal.
Commercial net charge offs are flat, 0.04%, which is almost zero.

Wealth Management
This is the first time since 1976 that both bonds and equities markets were down for the year at the same time, assuming markets end where they are now. (34 minutes). 
Earnings of $1.2B is strong given the weakness of the overall market.

Global banking
Earnings are down 20%, but still strong at 2.03B. Bank rates #3 in global banking.
Adding to the reserves here of $144MM.

Global Markets, excluding DVA.
Earnings: Sales and trading were strong, FICC was strong, equities weaker, and global markets investment banking down almost 50%.
10% return on allocated capital for this business.

Inflation reduction act:
Solar energy investments to select production tax credits vs. old way. There was $150M in tax claw-backs in the short term, but should increase tax credits over the life of the solar investments. Tax rate would have been 24% ignoring special items like solar and ESG.

​Q&A 

Securities run-off at about $15B/quarter. This quarter ran off a little faster, and there were profitable offsets in Q3.

Expense growth, single digits and will see better operating leverage (at some point, a 1% to 2% rise). Non interest expenses have been running $15.3B / Q for the past three quarters with a little 'stuff' in each one. That run rate will hold.

Consumer deposit strength based on the value proposition for clients to be their full service operational / transaction provider. This is why we see so many non-interest accounts. The services are the value proposition.

AOCI:
UST duration between 4-5 years
MBS 7-8 year duration
Derivatives: some of those
It will be faster for any securities that get repaid earlier.

What about recent rises in credit costs?
Origination backward-looking looks good.
Normalization to pre-pandemic levels occuring.

Auto business down 1/2 on a monthly basis.
They built a durable consumer book. Lower risk lending.

Commercial book upgrades and downgrades.
$400M in reserves, and the Net charge offs are about level. Reserves baking in a recession, but the numbers are so low, squinting to see a change here in credit quality. "Squinting" Second best numbers all-time.