Bank of America, America’s second largest investment bank reported better than expected first earnings Tuesday. Three of the largest U.S. lenders, JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) reported last Friday. Bank of America said its first-quarter net income increased by 15% to $8.2 billion, or 94 cents a share, from $7.1 billion beating the analyst forecast of 81 cents a share, according to estimates compiled by FactSet. Bank of America said its revenue increased 13% to $26.3 billion, ahead of the analyst estimate of $25.16 billion. The bank’s first-quarter net interest income moved up by 25% to $14.4 billion, due to “benefits from higher interest rates and solid loan growth.”
Bank of America Corporation NYSE: BAC Report Earnings Before Open Friday
Bank of America Q1 2023 Earnings
Q1 2023 earnings released at 6:45 a.m. ET; conference call at 9:30 a.m. ET
- First-quarter net income increased by 15% to $8.2 billion, or 94 cents a share, from $7.1 billion, or 80 cents a share, in the year-ago quarter beating the analyst forecast of 81 cents a share, according to estimates compiled by FactSet.
- Revenue increased 13% to $26.3 billion, ahead of the analyst estimate of $25.16 billion.
- Net interest income increased by 25% to $14.4 billion, due to “benefits from higher interest rates and solid loan growth.”
- End of period deposit balances declined $20 billion, or 1%, to $1.9 trillion compared with the previous quarter, with average deposits down $152 billion, or 7%, to $1.9 trillion.
- Increased net reserves by $124 million, compared with a release of $362 million in the year-ago quarter. Its provision for credit losses increased by $901 million to $931 million.
- Consumer banking unit, combined credit and debit card spending rose 6% to $210 billion, added 130,000 net new consumer checking accounts.
- Set a record of 36.1 million consumer checking accounts.
- Record consumer investment accounts of 3.6 million, up by 9%.
- Bank of America changed in how it invests its deposits, with a larger proportion of the total $1.17 trillion for the quarter in cash.
- Bank of America strengthened its cash and cash equivalents to $376 billion in the first quarter from $230 billion in the fourth quarter
- Available-for-sale securities dropped to $173 billion from $230 billion and its hold-to-maturity assets dipped to $614 billion from $633 billion.
- The changes resulted in an increased blended yield on its deposits of 2.9%, including a 4% return in its cash holdings.
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Bank of America’s chief executive Brian Moynihan said; “Our results demonstrate how our company’s decadelong commitment to responsible growth helped to provide stability in changing economic environments,” in a statement.”
Outlook
“Everything points to a relatively mild recession given the amount of stimulus that was paid to people and the money they have left over,” Moynihan said on the bank’s quarterly earnings call. “At the end of the day, we don’t see the activity on the consumer side slowing at a pace that would indicate that, but we would see commercial customers are being more careful.”
Moynihan said that Bank of America’s research team has been consistent in calling for a mild downturn in light of the Federal Reserve’s aggressive rate hikes. The central bank has raised its benchmark interest rate nine times over the past year for a total of 4.75 percentage points, the fastest pace of tightening since the early 1980s.
“The fact that unemployment is still 3.5% [indicates] full employment-plus. And then the wage growth is slowing and tipping over,” he said. “So the signs of inflation are tipping down and it’s still there but that translates into relatively good activity so we see a slight recession and we’ll see what happens.”
“Our stress scenarios are always less than anybody else’s because of how we built the company to go through problems including the pandemic,” Moynihan said.
That is the tenth straight month that existing home sales have fallen. Total sales in November were down 35.4% from a year ago. Median price growth has slowed meaningfully as higher mortgage rates and inflation has enforced affordability pressures.
Bank of America Last Quarter Earnings
Higher Interest Rates Increase Revenue …. But at a Cost
Bank of America is one of the main beneficiaries of the Federal Reserve’s rate-boosting campaign, producing more revenue as rates rise, allowing them to generate more profit from their core activities of taking in deposits and making loans. With higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out.
However, there is a price for this, the clearest is the housing market which with the collapse in affordability through higher rates and inflation has dropped off dramatically ion activity. For banks this means the fee income from home lending has fallen right off.
Rising rates have also had another big impact for Banks, and Central banks alike, the higher rates have seen huge losses on the bond paper they hold. When interest rates go up, bond prices go down, meaning there are significant unrealized losses at current prices.
Source: BAC, TC, WSJ
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