BofA Struggles With Tepid Loan Income as Consumers Shun Debt


Bank of America Corp. struggled to build back its lending income in the second quarter as consumers, flush with cash from government stimulus programs, avoided taking on new borrowings. Shares tumbled the most in eight months.

Loans and leases in the consumer banking unit fell 12% from a year earlier. Net interest income, on a fully taxable equivalent basis, was $10.3 billion last quarter, the bank said Wednesday. That metric -- revenue from customer-loan payments minus what the company pays depositors -- was less than analysts’ estimated $10.5 billion.

While government aid programs during the pandemic have helped big lenders like Bank of America dodge widespread defaults, they’ve also meant many consumers and businesses haven’t needed to take on new loans or tap lines of credit. That trend, along with rock-bottom interest rates meant to stimulate the economy, have weighed on the profitability of banks’ core lending businesses. While Bank of America’s loan balances remained down from a year earlier, they grew from the first quarter -- the first sequential increase in a year.

“Net interest income and net interest margin both look light,” said Alison Williams, an analyst at Bloomberg Intelligence. “The improvement is likely not as much as hoped by some.”

Bank of America slid as much as 5% Wednesday morning in New York, the biggest intraday decline since early November. The Charlotte, North Carolina-based company has advanced 25% this year, in line with the KBW Bank Index.

BofA Struggles With Tepid Loan Income as Consumers Shun Debt

Chief Executive Officer Brian Moynihan said Bank of America sees organic growth reemerging as vaccination campaigns make progress and the economy recovers.

“Companies need to build inventory and hire workers to meet the growing customer demand,” he said on a conference call with analysts. “This virtuous circle of hiring workers and meeting customer spending will help drive the economy and hopefully will result in more line usage.”

Banks’ Wall Street operations have helped pick up the slack as turbulent markets boosted trading volumes. Companies seeking to stockpile cash, meanwhile, turned to debt and equity financing, and a combination of cheap financing for buyers and attractive valuations for sellers spurred a wave of acquisitions.

Bank of America’s trading revenue fell 14% last quarter, while investment-banking fees fell 1.7%. Financial-advisory fees came in at $407 million in the second quarter, little changed from a year earlier. That contrasts with results at Goldman Sachs Group Inc., which saw an 83% surge in dealmaking fees, and JPMorgan Chase & Co., where that type of revenue climbed 52%.

BofA Struggles With Tepid Loan Income as Consumers Shun Debt

Chief Financial Officer Paul Donofrio said the second-quarter marked “a turning point” for loan growth and that the bank expects lending to continue increasing as the year progresses. However, he stopped short of reiterating Bank of America’s forecast, provided in April, that net interest income, by the end of the year, would be about $1 billion higher than the $10.3 billion the bank posted in the first quarter.

“This was the quarter where you saw the evidence that we were all looking for that loans were going to start growing,” Donofrio said on a conference call with reporters Wednesday.

Donofrio added later on the analyst call that reaching the previous NII target was “possible” but that a recent significant decline in long-term interest rates “presents a challenge” to achieving that goal.

Bank of America continued to release reserves it built up earlier in the pandemic, anticipating a wave of loan losses that never materialized. The lender released $2.2 billion of reserves in the second quarter, following a $2.7 billion release in the first quarter.

Donofrio said that the bank’s credit losses are at a 25-year low and that he expects reserve levels to continue to decline, though probably not at the pace of previous quarters.

Also in the second-quarter results:

  • Noninterest expenses rose 12% to $15 billion.
  • Net income more than doubled to $9.2 billion, or $1.03 a share. Analysts estimated 77 cents, on average.
  • Total revenue dropped to $21.5 billion.

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