the second-largest U.S. lender, reported first-quarter earnings that bested expectations as it benefited from higher borrowing costs sending net interest income higher than Wall Street anticipated.
BofA reported net income of $6.7 billion, or 76 cents a share, on revenue of $25.8 billion. Earnings on an adjusted basis were 83 cents per share, topping expectations of 76 cents, according to FactSet, while revenue came in higher than the $25.5 billion that analysts expected.
The bank’s shares are up 1.5% in Tuesday premarket trading, while
futures are up 0.2%.
Net interest income—the revenue banks make off interest-bearing assets, less interest expenses they pay customers—of $14.2 billion fell from $14.6 billion a year ago. Still, that showing topped analysts’ expectations for NII for the first quarter.
Alistair Borthwick, BofA’s chief financial officer, said on a call with analysts on Tuesday that second-quarter NII could approach $14 billion in what he expects to be the low point for this year, rising in the second half of 2024.
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Investors are laser-focused on the impact of higher interest rates for all banks, but particularly for BofA, which some analysts describe as the most rate-sensitive bank that they track because it has a larger customer deposit base than other large U.S. banks.
As expected, BofA pointed to higher deposit costs eating into higher yields and “modest” loan growth as driving the NII decline. Like its rivals, the bank benefits from clients’ higher interest payments—but also must pay out more for customer deposits.
“Customers continue to shift funds into higher-cost products and demand higher rates for their funds, while regulators are encouraging banks to hold more liquidity, leading to pressure on net interest margins,” Nathan Stovall, the director of financial institutions research at S&P Global Market Intelligence, wrote in a report on Tuesday.
The bank’s overall results fell from year-ago earnings per share and revenue of 94 cents and $26.4 billion, respectively.
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BofA’s earnings reflected a $700 million payment in the first quarter to the Federal Deposit Insurance Corp., a charge investors had expected. Following the regional-banking crisis last spring, banks in the U.S. have paid to refill an insurance fund the regulator maintains. The bank already paid the regulator $2.1 billion in the fourth quarter.
The investment bank drove fees up by 35% from a year ago to $1.6 billion. Merrill Lynch, the wealth-management arm that is among the world’s largest, and typically provides a steady revenue stream, reported record-high client balances of $3.3 trillion- and record revenue of $5.6 billion, driven by surging markets that boosted clients’ wealth.
Bank of America CEO Brian Moynihan said in a statement that the sales and trading business turned in its best first quarter in more than a decade, with revenue of $5.1 billion.
Fixed income, currencies, and commodities trading, known together as FICC, fell to $3.2 billion while revenue from equities rose to $1.9 billion.
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results from Bank of America tend to shed light on the wider U.S. economy. Outside of discussion on the interest-rate environment, analysts will be listening to executives on the earnings call on Tuesday for updates on consumer spending, investment banking pipelines, and commentary on the bank’s bond portfolio.
Shares of BofA have risen 18% in the past year, slightly outperforming the KBW Nasdaq Bank Index’s 17% climb in the same time.
Write to Rebecca Ungarino at rebecca.ungarino@barrons.com
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