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\"Bank of America\" is the marketing name for the global banking and global markets business of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (\"Investment Banking Affiliates\"), including, in the United States, BofA Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch Professional Clearing Corp., all of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Company goals are aspirational and not guarantees or promises that all goals will be met. Statistics and metrics included in our ESG documents are estimates and may be based on assumptions or developing standards.
Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor.Securities products are provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as \"MLPF&S\", or \"Merrill\"), a registered broker-dealer, registered investment adviser, Member SIPC layer, and a wholly-owned subsidiary of Bank of America Corporation. MLPF&S makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation.Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of Bank of America Corporation. Trust and fiduciary services are provided by Bank of America, N.A. and U.S. Trust Company of Delaware. Both are indirect subsidiaries of Bank of America Corporation.Insurance Products are offered through Merrill Lynch Life Agency Inc. (MLLA) and/or Banc of America Insurance Services, Inc., both of which are licensed insurance agencies and wholly-owned subsidiaries of Bank of America Corporation.Banking, credit card, automobile loans, mortgage and home equity products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.
Bank of America (BAC -1.29%) was among the top performing bank stocks in the second half of 2022, returning 6.4% over the last two quarters of the year. Overall, the nation's second-largest bank was down about 26% in 2022.
As a new year begins, investors may be wondering if the bank stock's momentum from the second half of the year will continue this year amid much economic and market uncertainty. Here are several reasons Bank of America remains a buy in 2023.
Bank of America, like many banks, got a boost in 2022 as the Federal Reserve started aggressively hiking interest rates. After raising rates 25 (0.25%) basis points in March and 50 basis points in May, the Fed increased rates by 75 basis points at each of the four meetings that followed. It ended the year with a 50-point rate hike, which puts the federal funds rate that banks charge each other for overnight loans in the 4.25%-to-4.5% range.
The first reason is that loan activity should remain robust for the bank, even in an economy that is forecast to slow, and possibly even go into a recession. The bank reported fourth-quarter and year-end earnings on last Friday, and revenue and earnings topped analysts' forecasts. The company is anticipating loan growth in 2023, which along with rising interest rates, should lead to a boost in net interest income in 2023.
Investors must also consider the deposit beta. Just as banks can charge higher interest rates on loans, they must raise the interest paid on deposits. The amount a bank raises interest rates on deposits is called the deposit beta. Even though in the fourth quarter Bank of America raised its interest-bearing deposit costs from 0.40% in Q3 to 0.96%, that is still among the lowest for big banks. Nevertheless, Bank of America will likely have to continue to raise its deposit costs in 2023 to remain competitive.
Among the 10 largest banks, Bank of America had the second-lowest deposit cost in the third quarter, behind only Wells Fargo, according to S&P Global data. Lower deposit costs typically translate to higher net interest income. This will be something to watch in 2023, but it is a good sign that Bank of America was able to increase average deposits in consumer banking by 2% year over year to over $1 trillion in the fourth quarter. This suggests that customers aren't going elsewhere for better interest rates.
These factors all contributed to the bank's solid performance in the second half of the year. In 2023, conditions are largely the same, and they remain favorable for Bank of America. It should be able to navigate the rough waters of 2023 much as it did in 2022, with rising net interest income offsetting any losses elsewhere.
There is one other potential positive for Bank of America and that's its credit quality. Its net charge-off ratio rose in the fourth quarter, but its nonperforming loans ratio dropped. Those will be metrics worth watching through the first few quarters of 2023, but overall, the bank has done a good job of diversifying its loan mix over the years, reducing its overall credit risk.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
The stock price has jumped about 10% since last Friday, July 15, buoyed by positive market reaction to the earnings report. But it is still down about 25% year to date, at $33 as of July 19. Let's take a closer look at the earnings numbers to see if the stock is a buy.
Bank of America's solid earnings followed a lackluster earnings report from the nation's largest bank, JPMorgan Chase, the previous week. Coupled with decent earnings reports from Goldman Sachs on Monday and Citigroup last Friday, there has been some good momentum in the overall market the past few days.
But let's take a closer look at Bank of America's earnings to see what it means longer term. The overall revenue increase was buoyed by a 12% year-over-year jump in revenue in the consumer banking business (its largest business segment) to $9.1 billion, and a 7% revenue increase in its wealth and investment management business to $5.4 billion. These gains offset losses in its global banking and global markets businesses.
Some good signs for Bank of America, the nation's second-largest bank, are a 3% year-over-year increase in average loans and a 22% jump in net interest income to $12.4 billion. The loan growth signifies that despite inflation and economic concerns, loan activity hasn't slowed, and the jump in net interest income is the direct result of rising interest rates.
The other metric to watch is loan activity. If the economy does fall into recession, will average loans contract or continue to grow Rising interest rates should continue to boost net interest income, and as a bank that gets 40% of its revenue from consumer banking, it should help revenue, even if loan growth slows.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs. The Motley Fool has a disclosure policy. 781b155fdc