Bank of America says it will have to pay more for deposits in 2023 to stanch the runoff of recent months.
Total fourth-quarter deposits fell $134.1 billion, or 6.5%, year over year, with the biggest drop-off — $53 billion — coming in the global banking group. Consumer banking deposits fell by $6.2 billion over the same period, largely due to the flight of $24 billion during the final three months of 2022.
The decline in consumer deposits was driven by continued higher levels of spending, customers' paydown of debt as well as the shift of money to brokerage accounts, BofA Chief Executive Brian Moynihan said during an earnings call with analysts Friday.
"While we saw a decline in quarter-four deposits in consumer, correspondingly, we also saw brokerage levels of consumer investments increase," Moynihan told analysts.
As BofA repriced deposit rates to slow the pace of contraction, interest-bearing deposits increased 2.8% during the fourth quarter, while noninterest-bearing deposits declined more than 15%.
"We feel like the modest balance declines are kind of in there," Alastair Borthwick, BofA's chief financial officer, told analysts, while also cautioning that the trend "may continue" into the early part of 2023. "We expect to pay higher rates as we continue to move through the end of the interest rate cycle," he said.
He added that, over the last month, "we're seeing relatively stable deposit balances."
As higher interest rates forced BofA to reprice deposits, it also continued to provide a boost to the bank's net interest income of $14.7 billion, which grew 29% compared with the same period last year.
At the start of 2022, banks sat atop a flood of deposits. But as the year progressed, they faced greater pressure to pay higher rates, and the trends that drove the rapid shift show no signs of abating.
"While we are paying more for deposits, we also get that on our asset side," Moynihan said.
The bank reported total loans of $1.05 trillion, a 6.8% increase from the same period last year. It cited that loan growth as well as a weakening economic outlook as the reasons for its addition of $194 million in reserves during the quarter; BofA released $489 million of reserves during the year-earlier period.
Overall net income was $7.1 billion, a 1.7% increase from the same period last year. Net revenue grew 11% to $24.5 billion.
Noninterest income fell 7.5% to $9.9 billion year over year, with service charges on deposit accounts decreasing 27.3% and investment banking fee revenue down more than 54%. Meanwhile, noninterest expenses rose 5.5% to $15.5 billion.
The bank reported earnings per share of 85 cents, exceeding the average estimate of 77 cents from analysts surveyed by FactSet Research Systems.
