Boosted by a massive reduction in loan-loss reserves, Bank of America Corp.’s global cards unit produced second-quarter net income of $2 billion, up 142% from $826 million during the same period a year earlier, the company announced July 19.
The Charlotte, N.C.-based bank also said over the next two years it plans to raise fees for checking and debit card customers across the nation to offset revenue it will lose from new, lower debit-interchange fees going into effect this fall as a result of the new rules the Federal Reserve approved in accordance with the so-called Durbin amendment to the Dodd-Frank Act (
Total revenue for the quarter ended June 30 fell 20.3%, to $5.5 billion from $6.9 billion, as net interest income declined 18.2%, to $3.6 billion compared with $4.4 billion a year ago.
The unit’s provision for credit losses plunged to $481 million from $3.8 billion as a result of improved economic conditions. The net charge-off rate on credit card loans fell 512 basis points, to 7.09% from 12.21%. The delinquency rate on accounts at least 90 days past due fell 86 basis points to 2.31% from 3.17%, while the delinquency rate on accounts at least 30 days past due fell 158 basis points, to 4.19% from 5.77%.
Global credit card purchase volume rose 4.3%, to $56.2 million from $53.9 million. BofA established 941,000 new credit card accounts during the quarter, up 41.7% compared with 664,000 new accounts a year earlier.
BofA had $130.7 billion in outstanding credit card loans at the end of the quarter, down 8.6% from $143 billion at the end of June 2010.
U.S. debit card purchase volume rose 8.3%, to $64 million from $59.1 million.
During a conference call with analysts to discuss the quarter’s earnings, Bruce Thompson, BofA chief financial officer, said the bank expects to see a sharp decline in debit-interchange revenue during the fourth quarter because of the new Fed rule. The rule, which goes into effect Oct. 1, likely will cost the bank $475 million in lost revenues compared with a year earlier, Thompson said.
To offset those lost revenues, BofA plans to roll out new fees for checking accounts associated with debit cards, instituting “some monthly fees and other ways customers can pay us” to make up for “the value of the interchange (lost)” because of the new rule, Brian Moynihan, BofA CEO, told analysts.
BofA so far has rolled out the new account fees in three states with “very positive” results, Moynihan said, noting the bank plans to continue converting customers’ accounts to a new fee structure next year and into 2013.
In Massachusetts, Georgia and Arizona, BofA in July and August is introducing new programs, including one requiring customers to make deposits totaling $2,000 per month, maintain at least $5,000 in various accounts, or use a bank credit card at least once a month to avoid paying a $15 monthly fee.
“The reasonable good news is that where we ended up in Durbin is a place where we can continue to drive debit usage,” Moynihan said, noting that debit card purchase volume continues to climb, apart from seasonal spikes in gasoline prices.
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