Bank of America, which has been more upbeat about the U.S. economic outlook in recent months than some of its competitors, set aside a larger provision for credit losses during the third quarter in an acknowledgement that its forecast has weakened.
The Charlotte, North Carolina-based megabank recorded an $898 million provision, up from $523 million in the second quarter. In the same period a year earlier, BofA reported a $624 million reduction in loss provisions.
BofA executives attributed the reserve build to both loan growth in its credit card business and a dampened macroeconomic outlook. Still, they argued that the U.S. consumer outlook remains strong.
CEO Brian Moynihan said that credit card delinquency rates are still well below their levels before the pandemic, which was a time of economic growth and falling unemployment.
"These are decade-old lows, and we're just now seeing gradual moves off these lows in early-stage delinquencies. Late-stage delinquencies are still 40% below pre-pandemic levels," Moynihan said Monday during the company's earnings call.
In BofA's credit card business, the 30-day delinquency rate was 1.38% at the end of the third quarter, up from 1.21% a year earlier. The 90-day delinquency rate was 0.63%, up from 0.58% in the third quarter of 2021.
While the credit quality picture looked somewhat weaker, the $3.1 trillion-asset bank flexed strength in lending during the quarter. Average loans and leases rose by 12% from the second quarter to $1 trillion, led by commercial loan growth and higher credit card balances.
In another positive indicator about the consumer outlook, purchase volumes on BofA credit cards totaled $91.1 billion, up 12.5% from the third quarter of 2021.
Moynihan argued that BofA's credit card customers still have "plenty of capacity for borrowing," pointing both to the fact that card balances remain well below pre-pandemic levels and the reality that payment rates on cards, which soared over the last two and a half years, remain elevated.
During the third quarter, BofA's net interest income totaled $13.8 billion, up 24% from the same period a year earlier. And the bank boosted its fourth quarter NII guidance to around $15 billion, up by $250 million from three months earlier. Executives pointed to the likelihood of future interest rate hikes by the Federal Reserve and the expectation that loan growth will continue.
Moynihan has remained upbeat about the U.S. economy throughout 2022, even as JPMorgan Chase CEO Jamie Dimon has been issuing warnings about the chances of a recession.
In April, Moynihan said that BofA
During a CNBC interview on Monday, Moynihan said that the bank's core estimates are for slightly negative gross domestic product growth for the fourth quarter of 2021 and the first three quarters of next year, accompanied by 5.5% unemployment. The U.S. unemployment rate was at 3.5% in September.
In response to a question about downbeat comments from Dimon, Moynihan said: "The reserve is built on five and a half percent unemployment, so we are prepared for the hurricane."
BofA reported third-quarter net income of $7.1 billion, down 7.9% from the year-earlier period. Earnings per share of 81 cents were down 4.7%, but finished ahead of the 78-cent average of estimates from analysts surveyed by FactSet Research Systems.
The bank's bottom line was hurt by an 8% decline in noninterest income, which was in part a result of lower investment banking and asset management fees.
