Bank of America Shares Up on Net Interest Income Forecast

Ticker Symbol: BAC

Bank of America shares were up 0.3% in the afternoon trading session after the company provided third-quarter net interest income guidance which was above Wall Street’s expectations. Bank of America, the second-largest U.S. bank by assets, also reported second-quarter results that were mixed, with revenue missing forecasts. The investment banking and trading divisions both missed expectations, but the commercial and retail banking operations reported strong figures on the back of rising interest rates.

The bank reported fixed-income, commodities, and currencies trading revenue of $2.34 billion, up 19% year over year, and well ahead of the $2.29 billion expected from analysts. Equities sales and trading revenue however missed expectations at $1.66 billion but were still up 1.5% year over year. Investment banking revenue followed the trend from the investment banking results from other large U.S. banks and came in below expectations at $1.13 billion versus the $1.3 billion forecast. Wealth and investment management, the second largest division at the bank, produced revenue of $5.43 billion, meeting expectations.  

Aggregate revenue missed with $22.79 billion reported versus the average analyst estimate of $22.85 billion. The figure represented a 6% jump from the same period last year. The bank reported adjusted earnings per share of $0.73 compared to the $0.75 per share anticipated by investors. Earnings were boosted by better-than-expected net interest income which rose 22% to $12.44 billion, compared to the average analyst estimate of $12.3 billion. Chief Financial Officer Alastair Borthwick said that the bank expects net interest income to increase by as much as $1 billion in the third quarter.

Management also reported good cost control at the bank, a net of regulatory fines. Non-interest expense rose 1.5% from 2021 to $15.27 billion. The efficiency ratio came in slightly worse than analysts expected at 67.3% versus the estimate of 65.3%. A bank’s efficiency ratio is its operating expenses relative to its total adjusted income. A vast majority of the increase in expenses was due to one-off regulatory fines paid by the bank. Like other large banks, Bank of America was fined $200 million for the use of unapproved personal devices by the bank’s employees. The bank also said it was fined $225 million by regulators for practices related to its prepaid card program.

The company’s loans outstanding balance rose to $1.03 trillion, beating the expectations for $1 trillion in loans, and up 12% year over year. The bank expects loans to grow at a mid-to-high single-date pace going forward. Bank of America has been focused on growing its retail and small-business lending book aggressively as interest rates increase. In line with higher loan growth, management has also increased its loan-loss reserves, which impacted earnings, but could be reversed if those losses do not materialize. Shares in the lender are down 26% year-to-date.

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