Bank of America delivered increases in revenues and net income in the third quarter of 2022, showing that some of its business lines were not walloped by high levels of inflation and economic contraction.
That was not the case for the depository lender’s mortgage business.
Overall, the bank recorded $7.1 billion in net income from July to September, besting the $6.2 billion in the second quarter of 2022. Despite profits being lower than the $7.7 billion recorded in the third quarter of 2021, profits came in above analysts’ expectations. Revenues, net of interest expense, increased 8% quarter-over-quarter and 8% year-over-year to $24.5 billion.
“First, consumers continue to spend at strong levels. Second, customers’ average deposit levels for September 2022 remain at multiples of the pandemic levels. Third, there’s plenty of capacity for borrowers on credit card balances,” said BofA CEO Brian Moynihan, during a call with analysts on Monday.
BofA customers’ deposits remained above $1 trillion for the fifth straight quarter and gains in the consumer banking division increased to $3 billion in the third quarter, compared to $2.8 billion in the previous quarter, according to the Securities and Exchange Commission (SEC) filings.
However, like its peers, the bank has felt the blow of surging interest rates, especially in the mortgage space.
Mortgage originations totaled $8.7 billion during the third quarter, a 40% drop from $14.5 billion recorded in the second quarter and 59% below the $21 billion notched in the third quarter of 2021.
BofA’s production decline follows that of its depository peers, JPMorgan Chase and Wells Fargo, which also posted double-digit mortgage loan production decreases during the third quarter.
A bright side in the previous quarter, BofA’s home equity originations fell slightly in the third quarter: falling to $2.4 billion from $2.5 billion in the second quarter. Still, it was up significantly from the third quarter of 2021, when BofA originated $1.5 billion in home equity loans.
Bank of America had $229 billion in outstanding residential mortgages on its books through Sept. 30, up from $228 billion in the second quarter and $217 billion in the third quarter of 2021.
The home equity portfolio was $27 billion at the end of the third quarter, down from $29 billion a year prior.
Alastair Borthwick, the bank’s chief financial officer, told analysts that long-term interest rates on mortgages have increased even more than short-term rates, “driving down refinancing.”
Bank of America’s total mortgage-backed securities reached a $32 billion fair value as of September 30, compared to $44 billion as of June 30.
The bank reported a consumer net charge-off of $459 million in the third quarter, a decrease of $66 million from the previous quarter, primarily driven by the absence of charge-offs associated with non-core mortgage sales.
Anticipating further turbulence, Bank of America added $378 million to its reserves to cover future loan losses, considering a deterioration in the macroeconomic landscape. Executives said they increased the forecast for inflation and unemployment and decreased the forecast for gross domestic product over the next couple of years.
Though Bank of America, JPMorgan Chase and Wells Fargo all posted double-digit drops in mortgage production in the third quarter, one large depository mortgage lender bucked the trend. U.S. Bank originated $15.6 billion in the third quarter, up 12.3% from the second quarter, the bank said on Friday.
