Bank of America reported a 12% drop in its first quarter profits compared to a year ago. This was a much smaller decline than those of its competitors. Higher net interest income and a very limited exposure to Russian assets helped the nation’s second largest bank.
According to the bank, Charlotte, North Carolina, earned $7.1 billion or 80 cents per share. This compares with $8.05 billion or 86cs per share in the same time period last year. According to FactSet, the results were higher than expected.
BofA’s profit fell as the other five Wall Street banks s in this quarter. However, there were a few factors that made their results better than those of its competitors.
Net interest income increased 13% to $1.4 billion in the quarter. BofA’s balance sheets are more heavily influenced by bonds with shorter maturities. Therefore, short-term movements in interest rates can quickly have an adverse impact on the bank’s bottom line.
The bank’s largest revenue- and profit-generating business, BofA’s Consumer Banking Division, helped to boost the results. The higher interest rate and loans revenue helped to increase net income by 11%. Deposits also increased by 14% to $1.06 trillion.
Aptus Capital Advisors portfolio manager David Wagner said that “this is not a poor result for Bank of America,” pointing out the solid loan growth and continued strong loan growth. He also owns BofA shares.
This quarter, the bank didn’t have to put aside any funds to cover possible losses. That contrasts with JPMorgan Chase or Citigroup who had to reserve money for both the possibility of a recession and their exposures to Russia. BofA needed to reserve $700 million for Russia while Citigroup had $1.9 billion.
Wagner believes it is possible that BofA will need to increase its credit reserves in the future. JPMorgan was very aggressive in setting aside loan losses for the pandemic and appears to be doing the same now that inflation is making it more likely that the Federal Reserve will raise rates.
When they believe that default rates will rise, banks only reserve for losses. JPMorgan acknowledged such during the call and said it was a “preemptive move” if the economy slows.
BofA experienced a decrease in investment banking revenues, and fees, as businesses resisted making deals due to market volatility. Market volatility also had a negative impact on trading revenues.