Why did reported earnings fall so sharply in Q4 2023?

Reported Q4 net income of $3.1B included a $2.1B pretax FDIC special assessment on uninsured deposits of failed banks and a $1.6B pretax charge tied to the BSBY benchmark's cessation, together worth about $0.35 per diluted share. Excluding these items, adjusted Q4 net income was $5.9B, or $0.70 per share, versus $7.1B ($0.85) a year earlier, so the underlying decline was narrower but still meaningful.

What is driving the pressure on net interest income?

Net interest income fell 5% to $13.9B because higher deposit costs and lower deposit balances more than offset higher asset yields. Average deposits fell to $1.9T from the prior year, and the net interest yield declined 25 bps year over year. Management's rate sensitivity disclosure shows a +100 bps parallel shift would benefit 12-month NII by $3.5B, while a -100 bps shift would reduce it by $3.1B.

Is credit quality deteriorating?

Modestly. The net charge-off ratio rose to 0.45% from 0.26% a year earlier, with the credit card loss rate at 3.07% and commercial net charge-offs rising to $279M. Nonperforming loans increased to $5.5B, driven primarily by commercial real estate, while the allowance for loan and lease losses held steady at 1.27% of loans. The Q4 provision of $1.1B included a small net reserve release of $88M.

How strong is the capital position?

Capital remains strong. The Standardized CET1 ratio was 11.8%, 181 bps above the regulatory minimum effective January 1, 2024, and CET1 capital was $195B. Book value per share rose 9% to $33.34 and tangible book value per share rose 12% to $24.46. The company returned $2.7B to shareholders in Q4.

What does this filing mean for investors in terms of next steps?

This 8-K is primarily a furnishing of earnings materials (press release, presentation, and supplemental data) and does not contain new guidance beyond the call commentary. Investors should watch whether deposit cost pressure stabilizes, whether the credit card loss rate peaks, and whether expense discipline holds in 2024, as these will determine if the adjusted earnings run-rate can be sustained. The filing itself contains no new transactions or legal proceedings.

BAC 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed January 12, 2024. Cited figures are marked; the original filing is the authoritative source.

Bank of America reported fourth-quarter 2023 net income of $3.1 billion^a, or $0.35 per diluted share, and full-year 2023 net income of $26.5 billion, or $3.08 per diluted share.

Results were depressed by two notable pretax items: a $2.1 billion^b FDIC special assessment (about $0.20 per share) and a $1.6 billion charge tied to the BSBY benchmark cessation (about $0.15 per share). Excluding these, Q4 adjusted net income was $5.9 billion ($0.70 per share) and full-year adjusted net income was $29.3 billion ($3.42 per share), with adjusted ROTCE of 11.7% for the quarter and 15.0% for the year. Revenue fell 10% year over year to $22.0 billion, or 4% excluding the BSBY charge, as higher deposit costs and lower deposit balances offset higher asset yields.

Net interest income declined 5%, while adjusted noninterest expense was roughly flat at $15.6 billion^c. Credit quality showed modest deterioration: net charge-offs rose to $1.2 billion (a 0.45% ratio, up 19 bps from a year earlier), driven by credit cards and commercial real estate office loans, and nonperforming loans increased to $5.5 billion. Capital remained solid, with a CET1 ratio of 11.8% (181 bps above the regulatory minimum effective January 1, 2024), and the company returned $2.7 billion to shareholders in the quarter.

The filing is largely a routine earnings disclosure furnishing the press release and presentation materials. Investors should focus on the underlying trend: the headline GAAP decline is largely explained by one-time charges, but the core revenue pressure from deposit repricing and the rising credit card loss rate are the operating issues to monitor into 2024.

02—Key points

Key Highlights

Q4 2023 GAAP net income of $3.1B ($0.35/diluted share) vs. $7.1B ($0.85) in Q4 2022; full-year net income $26.5B ($3.08/share).
One-time items: $2.1B pretax FDIC special assessment (~$0.20/share) and $1.6B pretax BSBY cessation charge (~$0.15/share). Adjusted Q4 EPS was $0.70 and adjusted full-year EPS was $3.42.
Revenue of $22.0B fell 10% YoY (down 4% excluding the BSBY charge); net interest income fell 5% to $13.9B as deposit costs rose and balances declined.
Net charge-offs rose to $1.2B (0.45% ratio) from $689M a year earlier, led by credit card (3.07% loss rate) and commercial real estate office; nonperforming loans rose to $5.5B.
CET1 ratio of 11.8% (Standardized) with CET1 capital of $195B; $2.7B returned to shareholders in Q4 via dividends and buybacks.
Client franchise momentum: record 36.7M consumer checking accounts, $424B consumer investment assets (up 33%), and $3.8T total client balances in GWIM (up 12%).
Global Markets delivered record full-year sales and trading revenue of $17.4B and zero trading-loss days in 2023, though Q4 FICC revenue fell 4%.

03—Questions

Frequently Asked Questions

Why did reported earnings fall so sharply in Q4 2023?
Reported Q4 net income of $3.1B included a $2.1B pretax FDIC special assessment on uninsured deposits of failed banks and a $1.6B pretax charge tied to the BSBY benchmark's cessation, together worth about $0.35 per diluted share. Excluding these items, adjusted Q4 net income was $5.9B, or $0.70 per share, versus $7.1B ($0.85) a year earlier, so the underlying decline was narrower but still meaningful.
What is driving the pressure on net interest income?
Net interest income fell 5% to $13.9B because higher deposit costs and lower deposit balances more than offset higher asset yields. Average deposits fell to $1.9T from the prior year, and the net interest yield declined 25 bps year over year. Management's rate sensitivity disclosure shows a +100 bps parallel shift would benefit 12-month NII by $3.5B, while a -100 bps shift would reduce it by $3.1B.
Is credit quality deteriorating?
Modestly. The net charge-off ratio rose to 0.45% from 0.26% a year earlier, with the credit card loss rate at 3.07% and commercial net charge-offs rising to $279M. Nonperforming loans increased to $5.5B, driven primarily by commercial real estate, while the allowance for loan and lease losses held steady at 1.27% of loans. The Q4 provision of $1.1B included a small net reserve release of $88M.
How strong is the capital position?
Capital remains strong. The Standardized CET1 ratio was 11.8%, 181 bps above the regulatory minimum effective January 1, 2024, and CET1 capital was $195B. Book value per share rose 9% to $33.34 and tangible book value per share rose 12% to $24.46. The company returned $2.7B to shareholders in Q4.
What does this filing mean for investors in terms of next steps?
This 8-K is primarily a furnishing of earnings materials (press release, presentation, and supplemental data) and does not contain new guidance beyond the call commentary. Investors should watch whether deposit cost pressure stabilizes, whether the credit card loss rate peaks, and whether expense discipline holds in 2024, as these will determine if the adjusted earnings run-rate can be sustained. The filing itself contains no new transactions or legal proceedings.

04—Continue

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