NEW YORK (AP) – Bank of America’s fourth-quarter profits rose slightly from a year ago, as higher credit costs and potentially bad loans more than offset the bank’s sharp rise in interest revenue.
The Charlotte, North Carolina-based bank said Friday that it earned a profit of $7.13 billion, or 85 cents a share in the three months ended Dec. 31, compared to a profit of $7.01 billion, or 82 cents a share, in the same period a year earlier. The results were better than analysts’ forecast of a profit of roughly 77 cents per share, according to FactSet.
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However, yearly earnings declined 13.9% year-over-year to $27.6 billion for 2022 amid an increase in credit reserves and higher income taxes due to federal tax changes.
Like its major competitors, Bank of America saw a sharp rise in interest income, helped by the Federal Reserve aggressively raising interest rates last year to stop inflation. Annual interest income of $72.6 billion marked a 52.2% increase over 2021, with the biggest gains in interest on loans and leases, debt securities and “other ” interest income.
This was partially offset by higher interest expenses, which increased more than four-fold year-over-year, to $20.1 billion.
Like JPMorgan Chase and others, BofA saw a slowdown in its investment banking business and had to set aside more money to cover potentially bad loans. The bank had $1.1 billion in credit reserves added this quarter; a year earlier, the bank released $500 million from that account.
For 2022 as a whole, the bank set aside $2.5 billion in provisions for bad loans, versus the $4.6 billion it released in 2021.
Banks put money aside to cover potentially bad loans as their economists try to figure out where the U.S. and global economies are headed and use computer models to simulate how much in potential losses they may take in those scenarios. Most banks have predicted that there might be a recession this year as a result of the Fed’s rate hikes.
JPMorgan Chase told investors Friday that it is now predicting a “mild” recession as part of its outlook.
Annual non-interest income dropped 8.0% to $42.5 billion, with investment banking fees cut nearly in half along with declines in service charges and card income.
Non-interest expenses ticked up 2.9% year-over-year to $61.4 billion, with slight rises in employee compensation and benefits and “other general operating” costs. Income tax expenses also increased 72.2% to $3.4 billion, reflecting higher taxes based on the Inflation Reduction Act.
Net interest margin – the difference between interest income generated and the amount paid out – rose 30 basis points to 1.96%, compared with the prior year.
Total year-end assets stood at $3.1 trillion, down 3.7% over the prior year, due to losses in debt securities and loans held-for-sale. This was partially offset by a 6.8% rise in loans and leases, to $1.0 trillion, due to commercial loan growth and higher credit card balances, the bank stated.
Average deposits fell 6.5% to $1.9 trillion.
“We ended the year on a strong note growing earnings year over year in the (fourth) quarter in an increasingly slowing economic environment,” said Brian Moynihan, CEO and chairman of Bank of America, in a statement.
Bank of America has the second-highest share of in-market deposits in Rhode Island, capturing 21.7% of the market as of June 30, according to the Federal Deposit Insurance Corp. The company has 34 branches in Rhode Island, according to PBN’s 2023 Book of Lists.
Providence Business News reporter Nancy Lavin contributed to this report
