Bank of America Corp. (BAC, Financial) reported first-quarter earnings on Wednesday morning, noting that its profit slumped 45% on the back of setting aside $3.6 billion for loan-loss reserves due to the coronavirus outbreak.
The Charlotte, North Carolina-based bank posted a net profit of $4.01 billion, or earnings of 40 cents per share, falling slightly short of Refinitiv’s estimates of 46 cents. Revenue declined 1% from the prior-year quarter to $22.8 billion, but was in line with expectations of $22.9 billion.
The company also posted $12.3 billion in net interest income, which declined 2% from a year ago but was above the $11.7 billion analysts were anticipating.
In a statement, Chairman and CEO Brian Moynihan commented on the company’s performance.
“Our results reflect the strength of our balance sheet, the diversity of our earnings, and the resilience of our teammates to serve clients around the world,” he said. “Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began.”
Regardless, the Covid-19 pandemic caused Bank of America to register sharp declines in three of its four main divisions. The consumer banking segment’s profit decreased 45% to $1.79 billion on the back of higher loan loss reserves and lower interest income. Similarly, the wealth management business posted a 17% decline in earnings to $866 million and the global banking division recorded $136 million in net income as the company built up its reserves to support commercial loan losses.
The only segment that increased its profit was the trading division, gaining 33% to $1.48 billion, due to greater market volatility and stronger client activity. In addition, fixed income traders generated $2.7 billion in revenue, while equities traders produced $1.7 billion. This was $200 million and $300 million more than analysts were projecting.
Looking ahead, Chief Financial Officer Paul Donofrio said during the conference call that lower interest rates, which the Federal Reserve implemented last month, will weigh on Bank of America’s net interest income in the second quarter. He noted the bank is expecting that figure to be about $11 billion for the quarter, and will then begin to recover after that.
In a statement, Donofrio also said the company “set out to transform” its business following the recession 10 years ago in order to “be a source of strength in the next crisis.” He believes the results for the quarter reflects its progress in reaching that goal despite the recent volatility.
“During the quarter, we suspended our buyback program to provide additional support to the economy,” he added. “We also continued to invest in our people and our systems so we could deliver for consumers, small business owners and large corporate clients. We remain well-positioned to support our clients and deliver for all our stakeholders.”
Moynihan also believes the company has done well in handling the Covid-19 crisis, as it “remain[s] a source of strength” as customers have entrusted it with $149 billion in additional deposits since the end of 2019 and has made “a $100 million commitment to provide critical support to local communities.”
“We are taking extraordinary steps to support our employees, clients and communities during this humanitarian crisis," he said.
With a $194.21 billion market cap, shares of Bank of America were trading 5.14% lower on Wednesday at $22.51. GuruFocus estimates the stock has tumbled 35% year to date.
The Industry Overview page shows Bank of America is the second-largest player in the banking sector. Other top banks are JPMorgan Chase & Co. (JPM, Financial), Wells Fargo & Co. (WFC, Financial) and Citigroup Inc. (C, Financial). They also reported their first-quarter earnings this week.
Disclosure: No positions.
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