The bank fell short of revenue estimates.
Bank of America (NYSE:BAC) had mixed results in the second quarter, beating earnings estimates but falling a bit short of revenue expectations.
The stock price was trading slightly higher as the market opened Wednesday, up less than 1% to $46.50 per share.
Overall, the bank generated revenue of $26.6 billion in the quarter, up a robust 4% year-over-year. This fell a tad short of estimates of $26.7 billion.
Net income ticked up about 3% to $7.1 billion for the nation’s second largest bank, while earnings rose 7% to 89 cents per share. This exceeded consensus estimates of 86 cents per share.
The upshot of the report, as chairman and CEO Brian Moynihan, stated, was the strength of the consumer in somewhat uncertain times.
“Consumers remained resilient, with healthy spending and asset quality, and commercial borrower utilization rates rose,” Moynihan said. “In addition, we saw good momentum in our markets businesses. So far this year, we have supplied more capital to our businesses and returned 40 percent more capital to shareholders in the first half of this year than last year.”
Consumer banking leads way
Within its consumer banking division, Bank of America saw a 6% spike in revenue to $10.8 billion. This was driven by an increase in net interest income, as the company continues to boost its loan balances and deposits. Net income within the consumer banking division surged 15% to $2.97 billion as expenses rose just 2% and provisions for credit losses were flat.
Provisions for credit losses are what the bank sets aside to cover anticipated bad loans. When the economy is struggling or uncertain, banks will increase these provisions to cover expected losses — an this can be a drag on earnings.
So, with the bank holding steady on provisions, it suggests that the consumer is indeed in decent shape and resilient. That is somewhat quantified by the net charge-off rate actually going down in the quarter to 0.52%, from 0.55% a year ago. Net charge-offs are bad loans that the bank doesn’t expect to cover. In addition, nonperforming loans—those that are in delinquency or headed there – were also unchanged at 0.52%
Loans were up 2% to $319 billion, while deposits ticked up 0.3% to $952 billion. With interest rates down from the same quarter a year ago, Bank of America was able to pay out a lower rate for deposits, which helped it increase its net interest yield by one basis point to 1.94%. Overall, across all of the bank’s segments, the firm generated $14.8 billion in net interest income (NII), up 6.5% year-over-year. This was the fourth straight quarter of NII gains.
Investment banking revenue drops
Bank of America also saw solid revenue gains in global wealth and investment management. Revenue jumped 7% to $5.9 billion mainly due to higher fee income related to rising equity markets in the quarter. However, net income fell about 3% to $993 due to 9% higher expenses, primarily due to investments in technology and talent.
The global markets division was also strong, with revenue soaring 9% to $5.98 billion and net income rising 8% to $1.53 billion. This was due to higher revenue from trading as the rising and volatile markets in Q2 spurred lots of activity.
The one segment that lagged was global banking, the investment banking division. The global banking segment saw revenue decrease by 6% to $5.7 billion on lower NII, leasing revenue, and investment banking fees. In addition, higher expenses and provisions for credit losses led to a 19% drop in net income to $1.7 billion.
Bank of America’s stock price was fairly flat on Tuesday, as it remains up about 5% year-to-date. The stock remains pretty cheap, trading at 14 times earnings. It has a median price target of $54 per share, which would suggest 18% upside.
It’s a decent option, but its near-term direction could largely hinge on macroeconomics, which remains cloudy. There may also be other better options among large banks.
