Bank of America (BAC) said its net income and revenue rose during the first quarter even as its deposits fell, showing the resiliency of one of the nation’s largest banks during one of the most challenging periods for the industry since the 2008 financial crisis.
Overall earnings of $8.2 billion were up 15% from the first quarter of 2022. Deposits fell by $20 billion during the first three months of the year. Its stock was up 2.6% in pre-market trading.
One key driver of earnings for the second largest US lender was net interest income, which is the difference between what a bank earns on its loans and pays out on its deposits.
The Federal Reserve’s aggressive rise in interest rates over the past year boosted this measure of income for Bank of America and other giant banks, including JPMorgan (JPM) and Wells Fargo (WFC), because it allowed them to charge more for their loans. Bank of America’s net interest income was up 25% compared to the year-ago quarter.
The concern now is that those margins could begin to fall across the industry as banks begin to pay more aggressively for deposits and lure new customers with higher rates. Bank of America’s net interest income stayed roughly the same from the fourth quarter, dropping by just $233 million. But the company did revise its forecast, saying it now expects less income from this measure going forward for every 100 basis point increase in rates.
Bank of America’s interest expense rose by $12.8 billion from the year-earlier period and $3.8 billion from the fourth quarter, a sign that the bank is paying considerably more for its deposits.
Even before the turmoil in March, lenders big and small had been losing depositors to money market funds that were willing to offer higher yields. Bank of America couldn’t escape that trend. Its deposits at the end of the quarter were $1.9 trillion, down $162 billion from a year earlier.
“Banks do have a deposit conundrum,” Stephen Biggar, director of financial services research for Argus Research, told Yahoo Finance on Monday.
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Source: https://finance.yahoo.com/news/bank-of-america-profit-surges-as-deposits-fall-112543749.html