Bank of America sticking to organic growth plan: CEO

Bloomberg

UPDATE: This article includes comments made during Bank of America's earnings call and comments from an analyst's note.

Bank of America may find opportunities to make small, non-bank acquisitions, but for now it plans to keep directing excess capital into organic growth, CEO Brian Moynihan said Wednesday.

The $2.4 trillion-asset financial giant — which, like its big-bank peers, is constrained by a law that prevents it from controlling more than 10% of the nation's total deposits — can't buy a medium-size or larger bank without exceeding that limit. So it's been opening branches in certain U.S. markets, such as Atlanta, Milwaukee, Nashville and Boise, Idaho, as a way to get bigger.

"There are possibilities" to do small deals in areas such as technology, but "organic growth is the reality," Moynihan said on a call to discuss the bank's second-quarter results. "We're continuing that push — the 'expansion markets,' we call them — and we're seeing success there."

Since 2016, BofA has spent more than $5 billion on its 3,600-plus branch network, opening new locations in new markets and renovating offices in existing markets. The company plans to open 165 new branches by the end of 2026. Forty new branches are expected to open this year.

At the same time, BofA has closed other branches, including 18 in the first quarter, according to a report from S&P Global Market Intelligence. The Charlotte, North Carolina-based company closed the second-most number of branches in 2024 — 126 — topped only by Wells Fargo.

In 2021, BofA acquired AxiaMed, a technology company with a payments platform for the medical industry. Prior to that deal, its most recent acquisition was that of Merrill Lynch in 2009, during the financial crisis.

Moynihan framed the company's investments in new markets as a redeployment of capital.

"It's more of an expense redeployment question and a human being redeployment question … than it is a capital deployment question, frankly," he said.

Read more about Bank of America here: https://www.americanbanker.com/organization/bank-of-america

BofA's capital plans go beyond organic growth. During the second quarter, it repurchased $5.3 billion of common shares and paid out $2 billion in dividends, Moynihan said. So far this year, it has returned $13.7 billion in total capital, an increase of 40% compared to this time last year.

Beginning in the third quarter, it plans to increase its dividend by 8% to 28 cents per share, pending board approval. The increase follows favorable results from this year's stress tests.

BofA's stress capital buffer is set to decline from the current 3.2% to 2.5%, effective Oct. 1.

For the second quarter, BofA reported net income of $7.1 billion for the quarter ending June 30, an increase of 3.2% compared with the year-ago period. Earnings per share were 89 cents, exceeding the average 86 cents that analysts polled by S&P Capital IQ had predicted.

Revenue of $26.5 billion rose 4% year over year, but was below analysts' $26.7 billion estimate.

Net interest income rose 7% year over year to $14.7 billion, marking the fourth consecutive quarter of sequential growth. That's a plus for BofA's net interest income story, which was challenged amid higher interest rates and muted loan demand, leading to lower profits.

On Wednesday, the company stood by its full-year net interest income forecast of $15.5-$15.7 billion. The quarterly uptick was due to fixed-rate asset repricing, higher net interest income in the bank's global markets business, and deposit and loan growth. During the quarter, average deposits rose 3% while average loans increased 7%, with growth in every business segment.

Expenses of $17.2 billion rose 5% year over year, reflecting revenue-related spending in areas such as wealth management, sales and trading and investment banking, Alastair Borthwick, BofA's chief financial officer, said on the call. Inflationary costs along with investments in employees, branding and technology were also contributing factors to the uptick, he said.

Read more about bank earnings here: https://www.americanbanker.com/earnings

As for the rest of the year, expenses should "flatten out from here and potentially move a touch lower" if the bank sees lower costs related to its markets business, Borthwick said. Lower expenses combined with better net interest income could lead to positive operating leverage in the two remaining quarters of the year as well as an improved efficiency ratio, he added.

The idea of "flattening out from here" caught the attention of some analysts on the call, including those who had expected a 2%-3% increase in expenses year over year. The outlook could now mean an increase of 3.5%-4% for the full year, Truist Securities analyst John McDonald said in a research note.

"This reflects some continued slippage in the 2025 expense outlook, feeding into investor angst around this" heading into earnings season, McDonald wrote.

Both Moynihan and Borthwick said that employee headcount, a big factor in spending, should be largely steady. BofA's current workforce is about 212,000 people.

"At the end of the day, we've got stability in terms of head count, in terms of third-party rents and all that stuff is sort of flattening out. So we feel good about that," Moynihan said.