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A Bank of America branch office, in Boston, on Oct. 14, 2022.Michael Dwyer/The Associated Press

Bank of America’s BAC-N profit shrank in the fourth quarter, hurt by $3.7-billion in one-off charges and a slide in interest income as it paid more to hold on to customer deposits.

The bank’s executives, however, expressed optimism about the U.S. economic outlook, citing resiliency among consumers.

“We feel pretty good about the economy,” Chief Financial Officer Alastair Borthwick said on a call with reporters.

CEO Brian Moynihan later told analysts that consumers are “still in the game” and “still spending money.”

Shares of the second-largest U.S. lender were down nearly 1.2 per cent in afternoon trading on Friday, after it posted net income of $3.1-billion, or 35 cents a share, for the three months ended Dec. 31. That compares with $7.1-billion, or 85 cents a share, a year earlier.

Excluding two charges related to replenishing a fund for bank failures and how it indexed some trades, the bank reported a profit of 70 cents, slightly above LSEG estimates of 68 cents.

“Bank of America reported modest Q4 results as the impact of interest rate headwinds was only partially offset by strong organic growth and good expense discipline,” said David Fanger, senior vice president at Moody’s Investors Service.

Other analysts said Bank of America’s net interest income underperformed that of rival JPMorgan, which posted a 19 per cent rise to a record $24.2-billion.

“This wasn’t a great quarter especially relative to peers – JPMorgan really set the stage on net interest income,” said David Wagner, portfolio manager at Aptus Capital Advisors.

BofA’s net interest income (NII) – the difference between what banks earn from loans and pay to depositors – fell 5 per cent to $13.9-billion after a windfall year in 2023.

Loans are expected to grow at low– to mid-single-digit percentage rate in 2024, after expanding nearly 0.8 per cent in the fourth quarter.

Borthwick said he expects NII to come in $100-million to $200-million lower in the first quarter from the fourth quarter of 2023 and possibly weaken in the second quarter as consumers pay taxes, before improving in the second half of the year.

Despite the NII weakness, BofA managed to offset some declines with strong gains in trading and investment banking.

Trading revenue rose 1 per cent to $3.8-billion in the fourth quarter, driven by a 12 per cent jump in revenue from equities, while a pickup in dealmaking in the fourth quarter pushed up investment banking fees 7 per cent to $1.1-billion.

BofA took a pre-tax charge of $2.1-billion in the fourth quarter to pay a “special assessment” fee to replenish a Federal Deposit Insurance Corporation (FDIC) fund that was drained by $16-billion to cover depositors of two banks that collapsed in 2023.

The bank also took a charge of about $1.6-billion in the fourth quarter as it phases out a Bloomberg interest rate benchmark used in some commercial loan contracts. That amount is expected to be recognized back into its interest income through 2026, BofA said.

Bank of America also reported lower unrealized losses on securities held until maturity, helped by a rally in bond markets. The bank had unrealized losses of almost $98-billion in the fourth quarter, down from paper losses of $131.6-billion in the third quarter.

Net charge-offs, or debts that are unlikely to be recovered, rose to $1.2-billion in the fourth quarter from $931-million in the third quarter, mainly from credit cards and office real estate.

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