Bank of America revenue tops expectations as lender benefits from higher interest rates

KEY POINTS

• Bank of America earnings dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses.
• Revenue climbed 5.6% to $22.79 billion, edging out analysts' expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth.
• Shares of the lender rose 2.5% premarket trading.

Bank of America on Monday said second-quarter results benefited from rising interest rates, but profit took a hit from about $425 million in expenses tied to regulatory matters.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: 78 cents adjusted vs. 75 cents a share expected
• Revenue: $22.79 billion vs. $22.67 billion expected

Profit dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses. A year ago, the bank had a $1.6 billion benefit as borrowers proved more creditworthy than expected.

Excluding the impact of the regulatory expenses, the bank earned 78 cents a share, which was higher than analysts had predicted.

Revenue climbed 5.6% to $22.79 billion, edging out analysts' expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth. That figure could climb by $900 million or $1 billion in the third quarter and by at least that much in the fourth quarter, CFO Alastair Borthwick told analysts Monday during a conference call.

Shares of the lender rose 1% in trading Monday.

"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," CEO Brian Moynihan said in the release.

"Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels. Loan growth continued across our franchise and our markets teams helped clients navigate significant volatility reflecting economic uncertainty."

Bank of America, led by Moynihan since 2010, has enjoyed tail winds as rising interest rates and a rebound in loan growth have boosted income. But bank stocks have been hammered this year amid concerns that high inflation will spark a recession, which would lead to higher loan defaults.

Noninterest expenses in the quarter rose 2% from a year earlier, as the firm cited about $425 million in costs tied to regulatory matters. Roughly half of that figure was tied to fines announced last week totaling $225 million over how the bank handled unemployment benefits during the Covid pandemic; the rest has to do with an industrywide probe into trading personnel using messaging apps.

Similar to peers at Morgan Stanley and JPMorgan Chase, Bank of America saw investment banking fees plunge 47% to $1.1 billion, just below the $1.24 billion StreetAccount estimate.

Fixed income trading revenue jumped 19% to $2.3 billion and equities revenue rose 2% to $1.7 billion, both essentially matching analysts' expectations.

Furthermore, broad declines across financial assets have begun to show up in bank results in the quarter, with Wells Fargo saying that "market conditions" forced it to post a $576 million impairment on equity holdings. JPMorgan said last week it had a $257 million write-down on bridge loans for leveraged buyout clients.

On Monday, Bank of America cited "mark-to-market losses related to leveraged finance positions" but didn't immediately disclose a figure for the losses. Last month, Borthwick said the bank will likely post a $150 million write-down on its buyout loans.

Bank of America shares have fallen 28% this year through Friday, worse than the 16% decline of the KBW Bank Index.

Last week, JPMorgan and Wells Fargo posted second-quarter profit declines as the banks set aside more funds for expected loan losses, while Morgan Stanley disappointed after a bigger-than-expected slowdown in investment banking. Citigroup topped expectations for revenue as it benefited from rising rates and strong trading results.