After reporting a sizable decline in profit as other big banks have done in recent days, Bank of America sought to reassure investors there are reasons for optimism in the second half.
First, it looked to the future, predicting that net interest income will rise up to $1 billion in the third quarter and again in the fourth thanks to the Federal Reserve’s interest rate hikes.
Secondly, it drew from the past to argue it’s much better prepared to withstand a possible financial shock in the early 2020s than it was the financial meltdown in 2009. The company argued that it has greatly lowered its exposure to credit cards, home equity and construction loans and that 0.41% of its loans were nonperforming at June 30 compared with 3.75% in the fourth quarter of 2009.
Analysts peppered executives with questions about their argument during a conference call Monday.
Responding to the projection for net interest income, Wells Fargo Securities analyst Mike Mayo said, “I just want to make sure I heard that correctly.”
Alastair Borthwick, BofA’s chief financial officer, said the company was “comfortable” with its forecast given its recent performance. But he added that “the further we go out, the less we control.”
“As much as it's a strong projection going forward, we captured $2 billion [from] last year second quarter [to] this year second quarter,” Brian Moynihan, BofA’s chief executive, said during the earnings call.
Another analyst, Evercore’s Glenn Schorr, asked whether the company’s credit outlook was too upbeat.
“How do you balance making sure you’re not looking too much in the rearview mirror to see where we came from versus what we’re going towards? … You don't sound that concerned, but like a lot of people looking at a recession here,” Schorr said.
BofA’s recent stress-test results showed how well the bank would withstand a financial shock that included 10% overnight unemployment, Borthwick noted. However, he said, the bank’s reserves were based on the prospect of the actual jobless rate going no higher than 5% in the next five months. It was at 3.6% in June, according to the U.S. Bureau of Labor Statistics.
The bank’s years of “responsible growth,” as shown in the de-risking process laid out in its statistical comparison of 2021 and 2009, have girded its loan book, he said.
In a quarter filled with economic and geopolitical uncertainty, the New York investment firm’s digital consumer bank achieved record-high revenues. Executives have said they plan to drive up revenues in that segment to $4 billion by 2024.
The bank is also “keeping a tight eye” on how future rate hikes from the Federal Reserve could affect deposit pricing, Borthwick said, adding that the net interest income projection is still “a reasonable assumption.”
“We think about how we price so that we grow deposits,” Borthwick said. “We’re expecting growth this year that we said [would be] in the low single digits.”
Analyst notes following BofA’s earnings presentation described its results as mostly “solid” and gave “neutral” outlooks for the bank.
Piper Sandler commented that the company’s “higher than expected” net interest income of $12.4 billion was a 22% increase from the same period last year. BofA’s operating leverage “supports our belief that the advantages of scale will differentiate” the bank in the medium term, the analyst note said.
RBC Capital Markets analyst Gerard Cassidy wrote that BofA’s second-quarter results “were driven by lower-than-expected capital markets results, specifically in investment banking and equities trading.”
Overall, Cassidy wrote, BofA’s consumer and commercial businesses drove the bank’s “good results.”
Bank America reported earnings of $6.2 billion in the second quarter, down 32% from a year earlier. Regulatory costs, a $523 million loan-loss provision compared with a reserve release a year earlier, and declines in investment banking revenues were among the contributors.
The company’s earnings per share was 73 cents, which was short of the 75-cent average of estimates from analysts surveyed by FactSet Research Systems and down 29% from the same period last year.
BofA reported $22.7 billion in total revenue, which was up 5.7% from a year earlier. Noninterest expenses rose 1.5% from last year’s second quarter to $15.3 billion, which executives said was mostly the result of investments in technology improvements, marketing and employees.
Loans and leases for the $3.1 trillion-asset bank stood at more than $1 trillion at the end of the quarter, up 12% from a year earlier. Total deposits were $1.9 trillion, 3.9% higher than a year earlier.
