Bank of America's first-quarter profits decline 18% due to rising expenses from higher interest rates

In the first quarter of 2024, Bank of America reported an 18% decrease in profits due to the effects of higher interest rates. Despite this, the results surpassed the expectations of analysts. The bank, headquartered in Charlotte, North Carolina, achieved a profit of $6.67 billion, equating to 76 cents per share. This figure is lower than the $8.2 billion profit, or 94 cents per share, recorded in the same period in the previous year.

One-Time Payment to Federal Deposit Insurance Corp.

As a consequence of the impact of higher interest rates, BofA had to make a one-time payment of $700 million to the Federal Deposit Insurance Corp. The purpose of this payment was to assist the agency in replenishing the deposit insurance fund. Excluding this charge, the bank's earnings were 83 cents per share.

Effects of Higher Interest Rates

Bank of America has been grappling with the repercussions of higher interest rates on its loan and investment portfolio for the past year. The bank's purchase of a substantial number of bonds during the pandemic, when interest rates were low, has resulted in a depreciation of the value of these bonds as interest rates have risen. Additionally, the bank is experiencing increased expenditure on deposits, leading to a slight compression of its profits.

Decline in Net Interest Yield

The bank's net interest yield, indicating the bank's earnings on its loans versus the interest it needs to pay out to depositors, decreased from 2.20% in 2023 to 1.99% in 2024.

Performance of Consumer Banking and Investment Banking

In the consumer banking division, which generates the highest revenue and profits for BofA, there was a 5% decrease in revenue to $10.2 billion. Although the bank observed an increase in the number of accounts opened by consumers and higher spending on credit and debit cards, it had to allocate more funds to cover potential loans and charged off credit cards. Furthermore, investment banking revenues remained relatively stable, with modest growth observed in investment banking fees and trading revenues for the quarter.