Bank of America Earnings Likely Stagnated on Slowing Loan Growth

Bank of America (BAC), the nation’s second-largest bank by assets, will likely say earnings growth flattened in the first quarter compared to the same quarter last year, weighed down by recessionary fears, a banking crisis, and a slowdown in lending.

Earnings per share (EPS) is projected at 81 cents, little changed from the same quarter of 2022. That number may be cushioned by a 23.5% surge in net interest income (NII) to just under $14.3 billion. That will bring the company’s net interest margin (NIM), a key profitability metric for banks, to 2.2%, from 1.7% a year earlier. Revenue is projected at almost $25.4 billion, up 9.3% year-over-year. The company will report earnings before markets open on Tuesday, April 18.

While a rising interest rate environment may seem to be good for a bank, as they can charge higher interest rates on loans, Bank of America's sensitivity to rate hikes stems from the higher yields it must pay to its large depositor base to retain those customers.

The Federal Reserve’s rate hikes over the past year have boosted the bank’s interest margins, enabling the company to earn more on loans than it pays out to depositors. Among the six largest U.S. lenders, net interest income is projected to have risen 30%, on average, compared with the same period last year.

Bank lending rose at a healthy pace in the first two months of the year, driven by higher demand for real estate and consumer loans. That reversed in March after the collapse of Silicon Valley Bank and Signature Bank raised fears of contagion throughout the industry, reducing loan demand.

Even so, deposits at many of America’s biggest banks surged during the crisis amid a flight to safety. Bank of America had $15 billion in deposit inflows days after SVB’s collapse.

As of Thursday's market close, Bank of America shares have fallen almost 14% year-to-date, compared with a 5% decline for the S&P 500 financial sector. They’re one of the worst performers among major banks, trailing Citigroup (C) (+4.6%); Goldman Sachs (GS) (-3.2%); JPMorgan Chase (JPM) (-3.8%); and Wells Fargo (WFC) (-3.9%).