Bank of America profits rose as deposits fell

Bank of America (BAC) said its net income and revenue rose during the first quarter even as its deposits fell, demonstrating the resilience of one of the nation’s largest banks during one of the most challenging periods for the industry since the 2008 financial crisis.

Gross earnings of $8.2 billion were up 15% from the first quarter of 2022. Deposits decreased by $20 billion during the first three months of the year. Its stock rose 2.6% in pre-market trading.

One of the main drivers of earnings for America’s second-largest lender has been net interest income, which is the difference between what the bank earns on its loans and what it pays out on its deposits.

The Fed’s big rate hikes over the past year have boosted this measure of income for Bank of America and other giant banks, including JPMorgan (JPM) and Wells Fargo (WFC), because it has allowed them to charge more fees on their loans. Bank of America’s net interest income was up 25% compared to the same quarter last year.

The concern now is that these margins could start to fall across the industry as banks start paying more aggressively for deposits and attract new customers at higher rates. Bank of America’s net interest income has remained roughly the same since the fourth quarter, down just $233 million. But the company has revised its forecasts, saying it now expects less income from this measure in the future for every 100 basis point price increase.

Interest expense at Bank of America increased by $12.8 billion from the same period last year and $3.8 billion from the fourth quarter, a sign that the bank is paying much more for its deposits.

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Even before the March turmoil, lenders big and small were losing depositors to money market funds that were willing to offer higher returns. Bank of America could not escape this trend. Its deposits at the end of the quarter were $1.9 trillion, down $162 billion from a year earlier.

“Banks have a deposit dilemma,” Stephen Biggar, director of financial services research at Argus Research, told Yahoo Finance on Monday.

This is an urgent story. More is coming.

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