To The Moon

$Bank of America(BAC)$  reported Q4 2022 revenue of $24.5 billion, up 11% year-over-year, beating market expectations of $24.2 billion, and net income of $7.1 billion, up 1.4% year-over-year from $7.0 billion in the prior year quarter.

On the revenue side, net interest income increased 29% year-over-year to $14.7 billion (below market expectations of $14.95 billion) due to higher U.S. interest rates, accounting for 60% of revenue in the fourth quarter (compared to 57% in the fourth quarter last year).

Expenses: Also driven by the sluggish macroeconomic outlook and weak loan growth, Bank of America's provision for credit losses soared to $1.1 billion in Q4 2022, compared to a $489 million provision for bad debts released in the same period in 2021, suggesting that last year was too optimistic and did not forecast a significant increase in net charge-offs in 2022, and also side-effectively suggesting that the bank's forecast model is still very much off. It also shows that the Bank's forecasting model is still very biased and it will be difficult to forecast accurately even in the next year.

However, for the full year 2022 results, the impact of deposit outflows, lower loan quality and bad debt provisioning, similar to JPMorgan Chase, also showed an annual increase in revenue but not profit, with Bank of America revenue of $94.95 billion in 2022, up more than 6% year-over-year, and net profit of $27.53 billion for the year, down 13.9% year-over-year, lower than the decline in 2020.

(1) Consumer Banking Record Profit in the Fourth Quarter

Despite 40 years of high inflation testing U.S. consumers, spending trends remained largely positive, boosting Bank of America's profits in its key consumer finance business units, especially with the dividends of U.S. interest rate hikes, resulting in a 21% year-over-year increase in 22Q4 Consumer Banking revenue to $10.8 billion and record net profit of $3.6 billion, the only one of the four businesses to post record net profit growth. Net profit grew 15% year-over-year, which was lower than revenue growth mainly due to higher credit losses and higher commercial investment provisions.

The record net profit was underpinned by the addition of more than 1 million net checking accounts, a record 3.5 million new consumer investment accounts and $28 billion in net customer traffic during the quarter; record digital sales of $6.8 million, up 22 percent year-over-year; and more than 1 billion customer interactions with Ericsson to date since June 2018.

(2) Global wealth and investment management business strongly impacted by bear market

Global Wealth and Investment Management's 22Q4 revenue was US$5.4 billion, up slightly year-over-year, while net profit was US$1.2 billion, down 2% year-over-year, mainly due to high growth in net interest income offset by the impact of 22 years of low valuation non-interest income, which was a bear market experience that we all remember.

Average loan and lease balances remained positive for the 51st consecutive quarter, driven by residential mortgages, custom loans and securities lending; the addition of 119,000 new bank accounts and more than 9,000 new net relationships in Merrill Lynch and Private Banking; and the belief that the investment business will play a larger role in the subsequent reversion of market valuations from undervaluation to normal levels.

3) Global banking business impacted by low service fees

Global Banking 22Q4 revenue was $6.4 billion, up 9% year-over-year, and net profit was $2.5 billion, down 5% year-over-year. The increase was due to higher net interest income from interest rate and loan growth, partially offset by lower financial services fees due to lower investment banking fees and higher income credit rates.

(4) Global Markets business impacted by lower servicing fees

Global Markets revenue in 22Q4 was $3.9 billion, up 1% year-over-year, and net profit was $0.5 billion, down 25% year-over-year, again due to higher sales and trading revenue, partially offset by lower investment banking fees.

Bank of America's Strengths

1) Digitalization of banking business is progressing steadily, building a low-cost advantage

Bank of America's online banking is a leader in online financial services, and its online banking business is recognized globally as having the world's largest number of registered online users and has received numerous accolades from top financial magazines, such as Best Consumer Digital Bank in America and Corporate Digital Banking Model Bank. Its online banking services include personal financial services, small business financial services, and corporate and institutional financial services. In terms of personal financial services, the online financial products offered by Bank of America basically include most of the traditional personal financial services, which is actually an extension of its traditional business on the Internet.

The Q4 financial report shows that the number of digitally verified users has increased from 38 million in FY19 to 56 million in FY22, a relatively fast growth rate; the percentage of digital sales has increased from 32% in FY19 to 49% in FY22; and the amount of Bank of America's person-to-person payments sent and received via email or mobile identification has increased from $24 billion in FY19 to $81 billion in FY22, both at a very fast growth rate. This indicates that digitization is steadily advancing and helping U.S. banks consolidate their physical locations, which can improve operational efficiency and create a low-cost advantage.

(2) Focus on unique services in the process of development and growth

Bank of America's ability to stand firm in the bank-rich U.S. market and continue to grow is closely related to its unique services. First of all, while other banks focused only on large corporations, Bank of America regarded the general public and small and medium-sized enterprises as its most important customers, offering small loans of as little as $25, which was unprecedented. This service model of "gathering money is better than breaking it" directly brought customers closer together, increasing their rapport and creating a customer-centric public image of Bank of America, which in turn contributed to the progress of its banking business.

At the same time, in the United States, a country with a large number of immigrants, Bank of America pays special attention to foreign immigrants as its customer groups, such as Latin Americans, Asians, and African Americans immigrants, etc. These three segments contribute most of the profit growth for Bank of America.

In addition, Bank of America pays special attention to its customer satisfaction status and conducts frequent surveys on this subject. Based on the results of these surveys and the comparison of customer loyalty and "relationship net income growth rate" with sales, Bank of America continues to optimize and improve.

Bank of America's focus on unique services has also yielded great results. According to the ranking of the top bank accounts opened by U.S. consumers, Bank of America is ranked first, and its influence is still very good.

(3) U.S. interest rate increases thicken the short-term performance of U.S. banks

According to the data announced at the Bank of America Exchange, the company's net interest margin (the spread between deposit interest and loan interest) was 2.22% in Q4 2022, up 55 basis points or 0.55% from 1.67% in 2021Q4.

For Bank of America, which contributes nearly 60% of net interest income, it is more sensitive to the Fed's interest rate policy. According to management, with the interest rate yield curve flattening by more than 100 basis points, net interest income is expected to increase by US$3.8 billion in the next 12 months, a very impressive and attractive yield ah, which can also be able to thicken the company's short-term net interest income.

Conclusion

Bank of America's fourth quarter results were good, especially in the consumer business, which set a new record, with steady growth in digital contributions and online and offline synergies, and is also the bank of choice for U.S. consumers, with good advantages. If the interest rate yield can be moved up by 100 basis points, as management said, it can also contribute to short-term earnings of US$3.8 billion, which can also share some of the pressure on earnings.

@MillionaireTiger @TigerStars @CaptainTiger