NEW YORK, April 16 (Reuters) - Bank of America ( BAC )

shares fell almost 4% after its profits in the first quarter

were depressed as it set aside more money to cover souring

loans, while predicting a rebound in interest income later this

year.

BofA's net interest income (NII) -- the difference

between what it earns on loans and pays for deposits -- slid 3%

to $14 billion as it paid more to customers to park their money

while demand from borrowers stayed modest.

"We continue to expect that Q2 will be the low point for

NII and we expect the back half of 2024 to grow," Chief

Financial Officer Alastair Borthwick told analysts on a

conference call on Tuesday.

JPMorgan ( JPM ), the largest U.S. lender,

slightly increased its estimate for net interest income

, disappointing investors who hoped that the bank would reap

even greater benefits from a prolonged period of higher interest

rates.

BofA's net charge-offs, or debts that are unlikely to be

recovered, rose to $1.5 billion in the first quarter from $807

million a year earlier, mainly from credit card losses. The

charge-offs are from delinquencies in the fourth quarter, but

are beginning to stabilize, Borthwick said.

While worsening credit quality "may worry some

investors," it was expected for credit card borrowers, said

David Wagner, portfolio manager at Aptus Capital Advisors, who

owns BofA shares. "I don't think the bump in delinquencies is

going to get worse."

BofA's CEO Brian Moynihan told analysts that the bank

will reduce headcount as predicted in January and has already

cut the workforce by more than 4,700 employees from the first

quarter of 2023.

SHIFTING EXPECTATIONS

Excluding one-off items, Bank of America ( BAC ) earned 83 cents

a share in the first quarter, ahead of analysts' average

estimate of 76 cents a share, according to LSEG data.

Still, shifting expectations for U.S. interest rate cuts and

an uncertain economic outlook have made it more difficult to

predict future profits, banking executives said last week.

If the Federal Reserve keeps rates higher for longer in the

coming months, lenders that made bumper profits from rising

interest rates in the last two years could build on their gains.

But their earnings could diminish if a potential economic

slowdown deters borrowers from taking out loans.

"Generally speaking, higher for longer is probably better

for banks," said Borthwick. "Inflation is under control ... that

appears to be the case. So that's obviously a good place."

A resilient U.S. economy, buoyant equities and a flurry of

large deals have reignited hopes of a nascent recovery in

dealmaking, although industry executives have expressed guarded

optimism.

Investment banking fees jumped 35% to $1.6 billion from a

year earlier, partially offsetting a decline in interest

payments due to slow demand from borrowers.

Last month, Borthwick said he expected investment banking

revenue to jump 10% to 15% in the first quarter.

Revenue from the segment also rose at rival JPMorgan Chase ( JPM )

and Citigroup ( C/PN ) in the first quarter, fueled by

gains in debt and equity capital markets.

BofA's sales and trading revenue rose 2% to $5.2 billion

with equities contributing a 15% jump and fixed income

currencies and commodities (FICC) posting a 4% decline.

Moynihan said the business "continued their strong 2023

momentum" by reporting the best first quarter in over a decade.

COMMERCIAL REAL ESTATE

Bank of America ( BAC ) set aside $1.3 billion in provisions for

credit losses in the first quarter, up from $931 million a year

earlier. It also took more writedowns on office loans, which

partly increased loan losses for its commercial division. Still,

its CFO said the lender was carefully managing its CRE exposure.

"We've got a pretty small exposure overall to a limited

number of names and that allows us to go, name by name, through

any non-performing loans, to just make sure we're out in front

of it," Borthwick said. The bank is reviewing ratings, property

appraisals and sales, he said.

Revenue from Bank of America's ( BAC ) consumer unit sank 5% to $10

billion in the quarter, primarily due to lower deposit balances.

Bank of America ( BAC ) also took a $700 million charge in the

reported quarter to replenish a government deposit insurance

fund, drained by $16 billion to cover depositors of two banks

that collapsed in 2023.

Profit from BofA's Merrill wealth management division rose

about 10% to $1 billion as rising equity values generated higher

fees with record revenue and client balances.

The division grew assets under management to $1.4 trillion

from $1.3 trillion in the fourth quarter.