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Earnings season for the banking industry begun as big banks struggles to some common catalysts amid the first quarter. Bank of America currently issued its financial earnings for the first-quarter for the three-month period ending March 31, citing details on credit quality and the sensitivity of the bank over changes in interest rates.   

Bank of America remained confident and optimistic in the sensitivity of the interest rates, according to the quarterly filing with the Securities and Exchange Commission (SEC). Net interest income for the last quarter of the prior year settled at $4.3 billion, after 100 basis points shift in interest rate. Meanwhile, first quarter of the current year witnessed $5.95 billion.  

Among other big banks, Bank of America is regarded as one of the biggest beneficiaries of a rate hike. As the bank has an impressive asset sensitivity, it has the capability to realize potential gains mainly from a parallel shift in interest rates.

In addition, at least two rate hike is expected from the Federal Reserve this year. Conditions of the economy, including expectations of growth are an essential factor in terms of a rate hike decision, as it takes effect on the forecasted earnings of the banks.    

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Meanwhile, it was reported by Credit Suisse that an increase in assumed mortgage prepayment comprising of lower deposit costs, as well as a liquidity shift in behalf of cash were additional stimulus during the first quarter.

Under a credit quality, along with other US big banks, Bank of America has seen a decline, fueled by commercial credits.

During the three months ended March 31, 2016, credit quality among large corporate borrowers remained stable except in the energy sector which experienced deterioration due to sustained low oil prices. Credit quality of commercial real estate borrowers continued to improve as property valuations increased and vacancy rates remained low, said Bank of America.

For the energy sectors, the bank has witnessed a slump in oil prices since the start of June 2014, in which the financial performance of energy producers was affected and it is expected to continue this year.

It has severely affected the energy equipment, along with the service providers. The energy-related exposure declined by about $317 million, hitting $317 million during the three months ended March 31.

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Meanwhile, the utilized exposure rallied by about $592 million, to settle at $21.8 billion as drawdowns has beaten the payment activity and net charge-offs. The total exposure from higher risk sub-sectors of exploration and production and oil field services has seen a dropped of $843 million, hitting $17.3 billion.     

It was then followed by a positive trading-related revenue with records of 98% of the trading days at Bank of America, “of which 75 percent were daily trading gains of over $25 million and the largest loss was $14 million,” the bank stated.

Bank of America anticipates its net interest income for the second quarter to post lower compared to the first quarter, however, if rates would move higher, the second half of this year claims some progress.

A release of loan loss reserves is expected in the consumer banking. Continued reductions in the consumer banking segment are anticipated, as the bank shifts into digitalization. If oil will remain below $30 per barrel, an expected loss will incur around $700 million over a period of nine quarters, fueling quarterly provision of more than $900 million.