Bank of America Remains Profitable in Q1 as Mortgage Production Tumbles

Higher interest rates boosted earnings at Bank of America (BofA) in the first quarter of 2023, but like its depositary peers, JPMorgan Chase and fargo wells, the mortgage business fell by double digits during this period.

The bank posted net income of $8.2 billion from January to March, an increase of 15.5% quarter-over-quarter and an increase of $7.1 billion over the same quarter last year.

“Each business segment performed well as we grew customer relationships and accounts organically and at a strong pace,” Brian Moynihan, Bank of America president and chief executive officer, said in a statement.

“We did this as the economy slowed down (…). Consumer payments continue to drive the US economy. We’ve seen debit and credit card spending growing around 6% year-on-year, a bit slower but still healthy,” Moynihan told analysts.

Amidst the consequences of the Silicon Valley Bank and signature bank collapses in march, depositors sought safer places for their savings and large banks benefited from some client flows during the flight to safety. Earnings for JPMorgan Chase and fargo wells it also beat expectations, easing concerns about the health of the country’s banking system.

Deposits at Bank of America exceeded $1 trillion for the seventh consecutive quarter, registering $1.91 trillion in the first quarter of 2023, down 1% from $1.93 trillion in the same quarter of 2022.

The consumer banking division posted net income of $3.1 billion, a 13.1% decrease from $3.58 billion in the prior quarter but an increase of 4.4% from $3.0 billion a year earlier, according to his presentation before the National Stock Market Commission (SECOND).

“We had an excellent quarter for our microproducts (…) We have positive returns there. So mortgages, credit, municipalities, financing, futures, foreign exchange, all had a pretty good quarter,” Alastair Borthwick, Bank of America’s chief financial officer, told analysts.

Mortgages, businesses with mortgage guarantee

Its mortgage business, however, reported disappointing numbers, a problem led by high Fixed 30-year mortgage rates.

Mortgage originations totaled $3.9 billion during the first quarter, a 25% drop from the $5.2 billion recorded in the second quarter, and 76.2% below $16.4 billion in the first quarter of 2022.

The drop in BofA production follows the trail of JPMorgan Chase and Wells Fargowhich also posted double-digit declines in mortgage loan production during the first quarter.

The bank’s home equity originations were flat in the first quarter, registering $2.6 billion from the prior quarter. That’s more than 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 as of March 31, down from $229.4 billion in the fourth quarter of 2022 and $224 billion in the first quarter of 2022.

The mortgage-backed portfolio was $26.5 billion at the end of the first quarter, down from $27.0 billion the prior quarter, and a decrease from $27.8 billion a year earlier.

Bank of America’s total mortgage-backed securities had a fair value of $32.1 billion as of March 31, compared with $32.5 billion as of December 31, 2022.

Looking ahead, Borthwick hoped that the Federal Reserve raise interest rates once more, followed by a couple of cuts this year.

“That obviously assumes our current client positioning and future rate expectations. We continue to expect modest loan growth (…) driven by credit cards and, to a lesser degree, commercial,” Borthwick said.

The bank expects that further balance sheet reductions from the Fed will continue to reduce deposits for the industry, leading to lower deposits and rotating exchange rates.

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