Bank of America Q123 Earnings Analysis
Note: A version of this article originally appeared on LibertyFinancialNews.com in April 2023.
Earnings Release
Bank of America (BAC), the second largest bank in the United States, announced Q1 FY23 earnings on Tuesday. The company reported revenues net of interest expense of $26.3 billion, up 13% YoY, driven mainly by an increase in consumer and business lending paired with higher rates.
Net interest income increased to $14.4 billion, representing 25% YoY growth, although this is a slight decline on a quarterly basis. Noninterest income managed to rise by 1% YoY to $11.8 billion, with increased sales and trading revenue supporting a weak investment and deal market.
Overall, net income was up 15% YoY to $8.2 billion. Diluted earnings-per-share was $.94, handily beating analyst expectations of $.83. The firm’s provision for credit losses increased by $901 million, while average loan and lease balances increased by 7% to $1,041.1 billion.
Unsurprisingly, given the key revenue drivers this quarter, the firm’s Consumer Banking division grew. Consumer Banking net income rose 3% to $3.1 billion. Global Wealth & Investment Management lagged due to weak market valuations, with net income declining by 17%. Despite the weak investment banking market, Global Banking net income rose 53%, supported by strong growth in corporate transaction services. Global Markets net income increased slightly by 6%, with high volatility improving trading revenues.
Bank of America CEO Brian Moynihan noted that the firm’s earnings were up 18% YoY, despite modestly slower economic growth. Moynihan attributed this to the company’s decade-long commitment to responsible growth in changing environments.
Conference Call
CEO Brian Moynihan said that while the Bank of America research team continues to predict a shallow recession in Q3 2023, consumer financial positions are generally healthy, with strong balances and good access to credit. Credit and debit card spending grew at about 6% YoY, which is "a little slow, but still healthy." Moynihan said that he expects to continue Bank of America's buyback program despite macroeconomic uncertainty.
CFO Alastair Borthwick noted that commercial loan growth slowed in Q1, which he expects to continue due to higher rates. Regarding deposits, Alastair commented that while the firm saw some benefit from the flight-to-quality episode in March, customer preferences for investment cash rather than transaction cash overshadowed this benefit. Still, Bank of America was able to direct some of these flows to its own brokerage platform and money market funds.
Looking forward, Borthwick expected Q2 net interest income to fall by about 2% as a result of deposit shifts and modest loan growth. He declined to provide full-year guidance for NII due to uncertainty about the Fed's actions. Headcount is expected to fall to 213,000 by the end of Q2, and expenses should decline by about $400 million over the same period.
Regarding portfolio composition, Borthwick emphasized that the firm is focused on managing risk by sweeping maturing holdings back into cash. Rather than take active movements, Bank of America will roll off securities and loans to make a "smaller and shorter" portfolio. The executive team believes this will help the firm weather near-term uncertainty.
Share Price
BAC shares are up 8.3% over the past month but down 21.8% over the past year, while the S&P 500 is up 5.0% monthly and down 5.5% annually. At the time of writing, BAC shares are up 2.3%.