Bank of America profit tops estimates as lender releases reserves for soured loans

Bank of America posted first-quarter profit on Monday that exceeded analysts’ estimates, helped by the better-than-expected credit quality of its borrowers.

Here are the numbers:

• Earnings:  80 cents a share vs 75 cents a share Refinitiv estimate.
• Revenue:  $23.33 billion vs $23.2 billion estimate

The bank said that profit declined 12% to $7.07 billion, or 80 cents per share, exceeding the 75 cent estimate of analysts surveyed by Refinitiv. Revenue climbed 1.8% to $23.33 billion, roughly matching expectations.

Shares of the bank climbed 1.3% in premarket trading.

Bank of America said that a run of strong credit at the second biggest U.S. lender by assets continued into the first quarter. Net loan charge-offs, an industry term for what happens when borrowers fall behind on their payments, dropped 52% from a year earlier to $392 million. That was less than half of the $848.7 million StreetAccount estimate.

The bank posted a mere $30 million provision for credit losses, which is tied to management’s view of potential future losses, far less than the $468 million expected by analysts. It also released $362 million in reserves the bank had previously set aside for expected defaults.

“First-quarter results were strong despite challenging markets and volatility, which we believe reflect the value of our `Responsible Growth’ strategy,” CFO Alastair Borthwick said in the release. “Asset quality continued to remain strong with net charge-offs about half of the year-ago quarter amount.”

Bank of America’s moves are in contrast to rival JPMorgan Chase, which disclosed last week that it took a $1.46 billion provision for credit losses, including adding to loan-loss reserves by $902 million, on concern over the increasing odds of a recession.

Bank of America, led by CEO Brian Moynihan, had enjoyed tailwinds as rising interest rates and a rebound in loan growth promised to boost income. But bank stocks got hammered this year amid concerns that higher inflation would help spark a recession, which would lead to higher defaults.

While longer-term rates rose during the quarter, short term rates rose more, and that flat, or in some cases inverted, yield curve spurred concerns about an economic slowdown ahead.

“The BAC story is about Main St. banking (strong) vs. Wall St. banking (weak),” banking analyst Mike Mayo of Wells Fargo said Monday in a research note. The company beat expectations “largely from credit” as loan losses were close to a record low, he added.

Bank of America’s trading operations didn’t generate as much outperformance as those at Goldman Sachs and JPMorgan in the quarter, which managed to take advantage of surging volatility created by the Ukraine war.

Bank of America’s fixed income traders posted revenue of $2.65 billion, roughly matching the $2.69 billon StreetAccount estimate. Equities revenue of $2 billion exceeded the estimate by almost $400 million, thanks to higher client activity and strong derivatives results.

Investment banking fees dropped by a steeper-than-expected 35% to $1.5 billion, beneath the $1.74 billion estimate, reflecting a slowdown in mergers and IPOs in the quarter.

Bank of America shares have fallen 15% this year before Monday, worse than the 11.6% decline of the KBW Bank Index.

Last week, JPMorgan said profit slumped as it posted losses tied to Russia sanctions and set aside money for future loan losses. Goldman, Morgan Stanley and Citigroup each topped expectations with stronger-than-expected trading results, and Wells Fargo missed on revenue amid a decline in mortgage lending.