NEW YORK (AP) – Bank of America Corp. said its profits grew 15% last quarter, the latest of the big banks to do exceptionally well this earnings season as investors and consumers flock to Wall Street for safety after the failure of Silicon Valley Bank and Signature Bank.
The nation’s second-largest bank by assets posted a profit of $8.2 billion in the first quarter of 2023, up from $7.1 billion in the same period a year earlier. On a per-share basis, BofA earnings rose to 94 cents from 80 cents. The results beat analysts’ expectations.
Like its major competitors, BofA has benefitted from wealthy clients, businesses and other customers running to the bank as a place of safety after last month’s bank failures. The nation’s biggest banks are seen as having an implicit government backstop, due to their “too big to fail” status among the country’s financial institutions.
“Every business segment performed well as we grew client relationships and accounts organically and at a strong pace,” BofA Chairman and CEO Brian Moynihan said in a statement. “We further strengthened our balance sheet and maintained strong liquidity.”
The Charlotte, N.C.-based bank added customers in its business and consumer banking divisions. While deposits across the firm were down 1% from the beginning of the year, executives said that deposit outflows would have been larger had new clients hadn’t started banking with BofA in March.
Interestingly, consumers continued to embrace Zelle – the digital payments network partly owned by BofA – greatly reducing the number of checks they wrote. Zelle transactions have risen from 70 million during the first quarter of 2020 to more than 179 million in the first quarter of 2023. The number of checks written during the same period fell from 157 million to 111 million.
Consumer banking client balances of $1.6 trillion declined $33 billion, or 2%, compared with the fourth quarter of 2022, according to BofA’s earnings statement. Average deposits remained above $1 trillion, declining $20 billion, or 3%.
Banks across the industry have been broadly seeing deposits decline as inflation makes customers and businesses tap savings to pay expenses.
BofA’s results were driven by higher interest rates, propelled by the Federal Reserve aggressively hiking the federal funds rate from near 0% to 5% during the past year to stop inflation. That has allowed BofA to charge more for customers to borrow. BofA’s balance sheet is more skewed to bonds with shorter maturities, so short-term moves in interest rates tend to quickly impact the bank’s bottom line.
But BofA is also paying more to depositors, making it the latest bank to have to compete to keep deposits as customers look for other places to store their cash in higher-yielding certificates of deposit, money market accounts or online savings accounts. The bank was paying on average 1.38% to customers for their deposits, up from 0.96% a year earlier.
The bank set aside roughly $930 million to cover potentially bad loans in the quarter. Many banks have been increasing their so-called loan loss reserves the last few quarters as customers start borrowing again after not doing so during the pandemic, and inflation starts stretching household budgets. But the bank said it’s not concerned about consumer health as charge-offs remain below where they were before the pandemic.
Total net charge-offs increased $118 million from the fourth quarter of 2022 to $807 million in the first quarter of 2023. In addition, consumer net charge-offs increased $122 million to $653 million in that time, driven primarily by higher credit card losses. Commercial net charge-offs declined $4 million to $154 million.
Noninterest expense increased $900 million, or 6%, to $16.2 billion year over year in the first quarter, generating operating leverage for the seventh consecutive quarter.
Revenue was $26.3 billion in the first quarter, up 13% year over year. Net interest income increased 25% to $14.4 billion in that time.
“Revenue growth reflected strong net interest income improvement coupled with one of our best quarters of sales and trading,” BofA Chief Financial Officer Alastair Borthwick said in a statement. “Net interest income increased $2.9 billion versus the year-ago quarter driven by higher rates along with loan growth. Capital strength allowed us to return $4 billion to shareholders, and we continued to invest in our people and businesses.”
The bank paid out $1.8 billion in common dividends and repurchased $2.2 billion of common stock in the first quarter of 2023, including repurchases to offset shares awarded under equity-based compensation plans.
BofA has 29 branches in Rhode Island and the second-highest share of in-state deposits as of June 30, 2022, according to the Federal Deposit Insurance Corp.
(Update: The story has been updated throughout.)
PBN staff writer Sam Wood contributed to this story.