Balance sheet expansion
Bank of America’s (BAC) balance sheet has been improving every quarter. Its total assets grew ~3.3% YoY (year-over-year) in Q2 2018 and reached ~$2.33 trillion. It was mainly driven by higher deposits, new assets, increased lending, rate spreads, and broking assets.
Bank of America’s deposits in Q2 2018 grew 5.2% YoY to $1.33 trillion. An improving US economy as shown by the GDP growth rate and a healthy jobs market has helped boost its deposits. Additionally, the company’s earnings from trading activities increased due to a highly volatile market.
Loans for the quarter grew ~2% YoY to $934.1 billion, mainly driven by increased credits to the commercial sector, which was partially offset by a decline in credits to the consumer sector. Credits to the commercial sector grew 4.7% YoY to $483.6 billion, while consumer loans inched down 0.6% to $449.8 billion.
The bank’s sustained focus on expanding its balance sheet with quality assets and share repurchase programs is helping it attain a higher ROE (return on equity) and ROA (return on assets). Return on average equity rose to 10.26% in Q2 2018 from 7.56% in Q2 2017, mainly due to higher revenues, lower credit costs, and lower taxes. Its second-quarter return on average assets improved 27 bps (basis points) YoY to 1.17%, from 0.90% in Q2 2017.
Almost all major US banks (XLF) have expanded the size of their balance sheets in the last couple of years, helped by macroeconomic growth driving deposits, loans, and markets. Banks have been benefiting from increased volatility in the market, which is boosting their trading revenues.
Bank of America’s major competitors, including Citigroup (C), Goldman Sachs (GS), and JPMorgan Chase (JPM), have been seeing strong credit and deposit growth and higher spreads over the last few quarters. All these factors have enhanced their ROEs. In the second quarter, Citigroup’s ROE of 9.2% for the second quarter was 240 bps higher YoY. Goldman Sachs’s ROE expanded 230 bps to 11%. JPMorgan’s ROE improved 360 bps YoY to 14%.