Bank of America reported a 12% drop in first-quarter profit from a year ago, which was much lower than its rivals last week. The country’s second largest bank received higher net interest income and little help Risk to Russian property,
Charlotte, a North Carolina-based bank, said it posted a profit of $7.1 billion, or 80 cents per share, compared to a profit of $8.05 billion, or 86 cents per share, in the same period a year ago. According to FactSet, the results were better than what analysts had predicted.
While BofA’s profits fell like no other Big Five Wall Street Banks In the quarter, their results were helped by a few factors that helped the bank outperform its rivals.
The bank saw a 13% increase in net interest income in the quarter, to about $1.4 billion. BofA’s balance sheet is more skewed to bonds with shorter maturities, so short-term moves in interest rates quickly affect the bank’s bottom line.
The consumer banking division of BofA, the bank’s largest business in terms of revenue and profits, also helped boost the results. Net income in the division was up 11% from a year ago, helped by higher revenue from loans and interest rates. Deposits also increased significantly by 14% to $1.06 trillion.
“This is not a bad outcome for Bank of America, especially continued solid loan growth,” said David Wagner, portfolio manager at Aptus Capital Advisors, which owns BofA shares.
On the contrary, the bank did not have to keep much funds to cover the possible losses in this quarter. JPMorgan Chase and Citigroup, which had to set aside money to cover recession risk as well as its exposure to Russia. BofA had to set aside $700 million to cover its exposure in Russia, compared to Citigroup’s $1.9 billion.
Wagner thinks it’s possible that BofA may have to increase its credit reserve later this year. JPMorgan was aggressive in reserving for loan deficits in the pandemic, and appears to be doing so again now with inflation that could prompt the Federal Reserve to increase rates aggressively.
Banks only (reserve for loss) when they feel that default rates, which are currently low, will start rising. And JP Morgan acknowledged this during the call, saying it was a ‘preemptive step’ if the economy slows down.”
Like other banks, BofA saw a decline in investment banking revenue and fees in the quarter as businesses avoided deals due to market volatility. Trading revenue declined in the quarter, that too due to volatility in the market.