Bank experiences loan growth driven by residential mortgage business
Bank of America (BoA) reported stronger-than-expected fourth-quarter 2022 earnings results, with the bank seeing continued loan growth driven by its residential mortgage and securities-based lending businesses.
According to the bank’s earnings call transcript, BoA reported net income of $7.1 billion ($0.85 per diluted share) in Q4 2022, surpassing analysts’ expectations. That’s compared to $7 billion ($0.82 per diluted share) in Q4 2021. Net interest income was up 29% to $14.7 billion, boosted by higher interest rates and solid loan growth, which rose 10% year over year.
“We added $20 billion of loans in this business since Q4 of 2021, growing 10% and marking the 51st consecutive quarter of average loan growth in the business despite securities-based lending reductions related to the current market environment,” said BoA chief financial officer Alastair Borthwick. “That’s consistent and sustained performance by the teams. Our expenses declined 1%, driven by lower revenue-related incentives, partially offset by investments in our business.”
While the surge in interest rates has been great for loan interest income, sky-high rates cast a grey cloud over the mortgage banking business. BoA’s rival, Wells Fargo, announced last week that it is closing its correspondent channel and selling the bulk of its mortgage servicing portfolio to “create a more focused home lending business.”
Wells Fargo said that by downsizing its residential origination business, it will be able to reduce risk and narrow its focus on minority and consumer lending.
On the other hand, Bank of America experienced a 15% net income increase in its consumer banking segment, up to $3.6 billion year over year.
During the company’s earnings call, CEO Brian Moynihan noted two things about the pace of consumer spending. “There continues to be a slowdown,” he said. “Year-over-year growth percentage earlier in 2022 was 14% year-over-year. That’s now moved to 5% year-over-year in the fourth quarter. They’re also moving from goods to service and spend more money on travel vacations and eating out and things like that.”
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