Bank of America’s quarterly earnings fall 12%, much less than its peers

Bank of America posted a 12% year-over-year drop in profit in the first quarter, a decline that was much smaller than what its peers reported the previous week. The country’s second largest bank benefited from higher net interest income and a very modest exposure to Russian assets.

The Charlotte, North Carolina-based bank said it posted earnings of $7.1 billion, or 80 cents a share, compared to earnings of $8.05 billion, or 86 cents a share, for the same period period of the previous year. According to FactSet, the results were better than analysts had predicted.

While BofA’s profits declined this quarter like the other Big Five Wall Street banks, its results were supported by a few factors that helped the bank outperform its peers.

The bank saw net interest income increase 13% to about $1.4 billion in the quarter. BofA’s balance sheet is more heavily weighted toward shorter-dated bonds, so short-term interest rate movements quickly impact the bank’s bottom line.

BofA’s consumer banking division, the bank’s largest business in terms of revenue and profit, also helped boost results. The division’s net income increased 11% year over year, helped by higher income from loans and interest. Deposits also rose sharply, up 14% to $1.06 trillion.

“This is not a bad result for Bank of America, particularly with continued solid loan growth,” said David Wagner, a portfolio manager at Aptus Capital Advisors, which owns BofA stock, in an email.

The bank also didn’t have to set aside much money to cover potential losses this quarter, unlike JPMorgan Chase and Citigroup, which had to set aside money to cover recession risk as well as their exposures in Russia. BofA had to set aside $700 million to cover its exposure to Russia, compared to the $1.9 billion set aside by Citigroup.

Wagner believes it is possible that BofA will have to increase its credit reserves this year. JPMorgan has been aggressive in providing for loan losses during the pandemic and now appears to be doing so again as inflation makes it likely that the Federal Reserve will need to raise interest rates aggressively.

Banks only (reserve for losses) if they expect current low default rates to increase. And JPMorgan admitted as much during the call, saying it’s a “preventive step” should the economy slow down.”

Like other banks, BofA saw its investment banking revenues and fees decline during the quarter as companies refrained from doing business due to market volatility. Trading revenues declined during the quarter, also due to market volatility.