BofA slows credit loss reserve build

Bank of America Corp. added $124 million to its credit loss reserve in the first quarter, down from $403 million in the 2022 fourth quarter. The bank said the build reflected modest loan growth and a slightly better macroeconomic outlook.

The bank's provision expense fell $161 million sequentially to $931 million as net charge-offs (NCOs) increased $118 million to $807 million. The consensus analyst forecast for BofA's provision was about $1.15 billion as of April 11.

About $501 million of the NCOs in the first quarter were from the credit card business, up from $386 million in the 2022 fourth quarter. The NCO rate in cards increased 50 basis points sequentially to 2.21% but was still considerably below 3.03% in the 2019 fourth quarter, before the pandemic.

BofA recorded a negative provision expense of $14 million for commercial loans, where NCOs fell from $158 million sequentially to $154 million. The release in commercial reflected roughly stable loan balances, strong asset performance and a blue chip economic consensus that "was ever so slightly better," CFO Alastair Borthwick said during a conference call on first-quarter results.

Chairman and CEO Brian Moynihan noted that the bank's economics research team expects a shallow recession starting in the third quarter.

"Commercial customers are being more careful," he said. "Everything points to a relatively mild recession" given the amount of support the government provided to the economy during the pandemic.

The bank also forecast that its net interest income on a fully taxable equivalent (FTE) basis to fall about another 2% sequentially to $14.3 billion in the second quarter. The forecast reflects the bank's expectation for modest loan growth and market expectations for interest rates.

BofA's FTE net interest income fell 1.5% sequentially to $14.58 billion in the first quarter, topping the bank's January guidance of $14.4 billion, which Borthwick attributed to better-than-expected deposit performance.

Broadly, Borthwick said deposits "continued to behave as we would expect." Ending period deposits fell 1.0% sequentially to $1.910 trillion. The bank anticipates lower deposits in the second quarter as the Federal Reserve continues to shrink its balance sheet. It also expects outflows from wealth management customers paying taxes and "to a lesser degree now, a continuation of balance movement seeking better yields off balance sheet."

The bank declined to provide net interest income guidance for the full year because of the difficulty in predicting what the Fed will do over the next six to nine months.