Higher interest rates pushed up profits for Bank of America (BofA) in the first quarter of 2023, but much like its depository peers, JP Morgan Chase and Wells Fargo, the mortgage business dropped by double-digits during this period.
The bank posted a net income of $8.2 billion from January to March, rising 15.5% quarter over quarter and climbing from $7.1 billion during the same quarter last year.
“Every business segment performed well as we grew client relationships and accounts organically and at a strong pace,” Brian Moynihan, Chair and CEO of Bank of America, said in a statement.
“We did this as the economy slowed (…). Payments by consumers continue to drive the US economy. We’ve seen debit and credit card spending at about 6% year-over-year growth pace a little slower, but still healthy,” Moynihan told analysts.
Amid the fallout of the Silicon Valley Bank and Signature Bank collapses in March, depositors looked for safer places for their savings, and big banks benefited from some customer flows during the flight to safety. Earnings for JP Morgan Chase and Wells Fargo also beat expectations, easing concerns about the health of the country’s banking system.
Deposits at Bank of America were above $1 trillion for the seventh straight quarter, posting $1.91 trillion in the first quarter of 2023, down 1% from $1.93 trillion during the same quarter in 2022.
Consumer banking division posted a net income of $3.1 billion, a 13.1% decline from the previous quarter’s $3.58 billion, but still up 4.4% from the previous year’s $3 billion, according to its filing with the Securities and Exchange Commission (SEC).
“We had a great quarter for our micro products (…) We have positive returns there. So mortgages, credit, munis, financing, futures, FX, all of them had a pretty good quarter,” Alastair Borthwick, Bank of America’s chief financial officer, told analysts.
Mortgage, home equity business
Its mortgage business, however, reported disappointing numbers, an issue led by elevated 30-year fixed mortgage rates.
Mortgage originations totaled $3.9 billion during the first quarter, a 25% drop from $5.2 billion posted in the second quarter, and 76.2% below the $16.4 billion in the first quarter of 2022.
BofA’s production decline follows the track of JPMorgan Chase and Wells Fargo, which also posted double-digit mortgage loan production decreases during the first quarter.
The bank’s home equity originations remained flat in the first quarter, posting $2.6 billion from the previous quarter. That’s up from the first quarter of 2022, when BofA originated $2.0 billion in home equity loans.
Bank of America had $229.3 billion in outstanding residential mortgages on its books through March 31, down from $229.4 billion from Q4 2022 and $224 billion in the first quarter of 2022.
The home equity portfolio was $26.5 billion at the end of the first quarter, down from $27 billion from the previous quarter — and a decline from $$27.8 billion a year prior.
Bank of America’s total mortgage-backed securities reached a $32.1 billion fair value as of March 31, compared to $32.5 billion as of December 31, 2022.
Looking forward, Borthwick expected the Federal Reserve to raise interest rates one more time, followed by a couple of cuts this year.
“That obviously assumes our current client positioning and the forward rate expectations. We continue to expect modest loan growth (…) driven by credit card, and to a lesser degree, commercial,” Borthwick said.
The bank expects further Fed balance sheet reductions to continue to reduce deposits for the industry, leading to lower deposits and rotational shifts.
