Bank of America posted an increase in net interest income with the lender reaping the benefits of Federal Reserve rate hikes. Yet second-quarter results were hurt by higher expenses related to regulatory settlements.
Net interest income, a key source of revenue for the bank, rose 22% to $12.4 billion in the second quarter on higher rates and loan growth. Analysts had expected a 20% increase for NII, the revenue collected from loan payments minus what depositors are paid.
That performance was part of companywide revenue of $22.7 billion, up from $21.5 billion a year earlier.
“Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital-markets environment,” Chief Executive Officer Brian Moynihan said in a statement Monday.
To be sure, net income fell 32% to $6.25 billion, or 73 cents a share. Adjusted earnings were expected to total 75 cents, the average estimate in a Bloomberg survey.
The company’s noninterest expenses rose 1.5% from a year earlier to $15.3 billion, with the “higher expenses recognized for certain regulatory matters,” according to the statement. Bank of America is expected to pay a $200 million fine related to a sweeping U.S. probe into the use of unapproved personal devices, according to people familiar with the matter. That’s the same fine amount JPMorgan Chase and Morgan Stanley have
The New York megabank has a long way to go on its path toward simplification of its business, but some early investments — such as technology upgrades in the treasury unit, which serves commercial customers — are starting to pay small dividends.
Bank of America isn’t expecting additional regulatory costs going forward, Chief Financial Officer Alastair Borthwick said on a conference call with reporters Monday, declining to comment on the specifics of the device probe.
Shares of Charlotte, North Carolina-based Bank of America, which were down 28% this year as of Friday, fell 0.8% at 8:27 a.m. in early New York trading.
The bank’s traders slightly missed estimates, with bond-trading revenue up 19% to $2.34 billion and equity trading rising 1.5% to $1.66 billion. The second quarter saw dramatic market swings tied to rate hikes, surging inflation, recession fears and Russia’s invasion of Ukraine. The firm’s fixed-income traders delivered better-than-expected performance, helped by the firm’s performance in macro products such as rates and currencies, Borthwick said.
Investment banking revenue fell 41% as the same market tumult that drove trading up muted dealmaking. Fees for advising on mergers and acquisitions declined 4%, and revenue from equity and debt issuance dropped 85% and 41%, respectively.
The company’s loan balances rose 12% to $1.03 trillion at the end of the second quarter, roughly matching analysts’ estimates. Lending has been a key focus for investors, with government-stimulus payments undercutting borrowing by companies and consumers during the pandemic, and rising interest rates now making loans costlier.
The bank is reserving for loan growth and changing its “baseline assumptions for a macroeconomic” environment that appears to be worsening, Borthwick said on the call. Bank of America had provisions for credit losses of $523 million in the second quarter.
“The reserve releases are likely behind us, but obviously at this point forward we’re going to watch how the economic conditions develop,” Borthwick said.
