Bank of America, one of the largest banks in the United States, has reported better-than-expected first-quarter earnings. The bank surpassed analysts’ estimates for both profit and revenue, driven by strong interest income and investment banking performance.
In terms of earnings, Bank of America reported adjusted earnings of 83 cents per share, beating the expected 76 cents per share. The company’s revenue also exceeded expectations, coming in at $25.98 billion compared to the estimated $25.46 billion. However, despite these positive results, the bank’s profit actually fell by 18% to $6.67 billion, or 76 cents per share, when including a $700 million Federal Deposit Insurance Corporation (FDIC) assessment. Excluding this assessment, profit was 83 cents per share.
One area that stood out in Bank of America’s report was its net interest income (NII). Net interest income is the difference between what the bank earns from loans and investments and what it pays customers for their deposits. Bank of America’s NII was $14.19 billion, higher than the estimated $13.93 billion. This was seen as a “slight positive surprise” by analysts, with some speculating that it could indicate an earlier-than-expected improvement in this metric.
However, not all aspects of the report were met with enthusiasm. The bank’s total deposits remained flat at $1.95 trillion, and loans were essentially unchanged at $1.05 trillion. Some analysts expressed disappointment with this stagnation, suggesting that Bank of America did not perform as well in these areas compared to its peers.
Bank of America’s Chief Financial Officer (CFO), Alastair Borthwick, addressed concerns about future performance during a conference call with analysts. He stated that NII is likely to dip in the second quarter to around $14 billion due to drops in wealth management and markets interest income. However, Borthwick also expressed optimism that NII could grow in the second half of the year. It is worth noting that NII has been declining in recent quarters as funding costs have increased alongside rising interest rates.
Following the release of the earnings report, shares of Bank of America fell more than 3%. Analysts attributed this decline to the rise in the 10-year Treasury yield rather than the first-quarter results. The performance of bank shares is often tied to yields, as rising yields can lead to a decrease in the value of bond and loan holdings.
Despite the decline in share prices, Bank of America’s investment banking division recorded a significant increase in revenue. Investment banking revenue jumped 35% to $1.57 billion, surpassing the estimated $1.36 billion. This growth aligns with similar increases seen at rival banks such as Goldman Sachs and JPMorgan Chase. Furthermore, the bank’s trading operations also outperformed expectations, with fixed income revenue slightly beating estimates and equities revenue experiencing a 15% rise.
In conclusion, Bank of America’s first-quarter earnings surpassed expectations due to strong interest income and investment banking performance. While there were concerns about flat deposits and loans, the bank’s NII exceeded estimates, indicating a potential improvement in this area. Despite a decline in share prices, the bank’s investment banking division and trading operations performed well, contributing to the overall positive results.
