Bank of America’s Q1 profits double as it reinstates pre-COVID credit standards

Dive Brief:

• Bank of America reported net income of $8.1 billion for 2021’s first quarter on Thursday, representing a doubling of its profits from a year earlier.
• The nation’s second-largest bank, however, saw noninterest expenses increase 15% to $15.5 billion, driven by COVID-19-related costs, including incentive changes, charges related to real estate rationalization, severance costs and compensation boosts for associates.
• Net interest income declined 16% to $10.2 billion, driven by a low-interest-rate environment. Meanwhile, noninterest income grew 19% to $12.6 billion on the strength of capital markets results, as well as higher investment and brokerage income. Loan and lease balances declined 7% to $887 billion, the result of a decline in commercial loans and lower card balances.

Dive Insight:

Bank of America’s blockbuster first quarter of 2021 — a trend seen in many of its large competitors — is indicative of an upturn of the U.S. economy, CEO Brian Moynihan said on a call with analysts Thursday.

“We see an accelerating recovery, versus the economic uncertainty that we faced last year at this time,” he said. “We’ve reinstated our credit standards back to where they were before the pandemic, and we remain highly focused on capturing long growth as the economy expands and continues to recover. The projected economic growth should cause the need for companies to borrow, build inventory, increase hiring and invest.”

The bank released $2.7 billion of its loan loss reserves in a move that aligns with JPMorgan Chase, Citi and Wells Fargo, which let go of $5.2 billion, $3.9 billion and $1.6 billion, respectively.

Total net charge-offs decreased by $58 million. However, consumer net charge-offs increased $211 million to $693 million, driven by credit card deferrals that expired in 2020. 

The bank highlighted the digital behavior among its customers that took hold during the pandemic, including a reported 70% of households actively using digital platforms, and 40 million digital users — a million of which were added during the first quarter of 2021. The bank reported 19.5 million customers used digital assistant Erica, a 60% increase year over year. Meanwhile, payment volume through the Zelle network grew 81% year over year, with the bank reporting $49 billion during the quarter, carried out by 170 million users. 

“We continued to see digital payments and Zelle taking hold across all our businesses,” said Paul Donofrio, the bank’s CFO.

The bank suggested that the stimulus boost helped customers weather the pandemic. Deposits overall were up 25% in the banking sector. Within Bank of America’s wealth and investment management business, total client balances from consumer investments stood at $3.9 trillion, up 32%.

Moynihan said noninterest expenses would likely decline over time as headcount shrinks from attrition and as specialized programs run their course. He noted that the first quarter typically results in higher expenses from elevated payroll tax costs. The bank also incurred expenses from running pandemic-related programs, he said.

“COVID expense remains elevated as we continue to help our clients through the various assistance programs established by the government [including] the paycheck protection program (PPP), unemployment claims, stimulus payment disbursement and PPP forgiveness,” Moynihan said.