Bank of America (NYSE:BAC) shares haven’t exactly been roaring this year. BAC stock’s still down 12% from its March peak despite Monday’s gain, with traders largely believing that rising interest rates (for borrowers) and a slowing economy would overwhelm the benefits of higher interest rates (which makes banks more profitable) and lower tax rates.
That’s why all eyes were on Monday’s BAC stock earnings report. If anything was going to soothe investors’ worries, a strong second quarter that proved everything was going fine would be it.
And, that’s what investors got. Although not impressive across the board, there was more than enough to celebrate about last quarter’s results from BofA.
BAC Stock Earnings Recap
For the quarter ending in June, Bank of America turned $22.6 billion worth of revenue into net income of $6.8 billion. The top line was down from the year-ago figure of $22.8 billion, though, in the second quarter of 2017, sales were boosted by $793 million to account for the sale of the bank’s foreign consumer card business.
Meanwhile, net income grew from $5.1 billion in the second quarter of 2017. Per-share profits rolled in at 62 cents, versus 44 cents in the comparable quarter from a year earlier.
Analysts were only looking for revenue of $22.29 billion and BAC stock earnings of 57 cents per share.
The tax cuts enacted late last year helped a lot. For Q2 of 2017, BofA handed over $3.0 billion to the IRS, but only owed it $1.7 billion this time around.
Its results were boosted in more traditional ways too, however. Consumer loans grew 6.6% year-over-year, in line with rivals JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C). The latter saw loan growth of 7%, while the former’s core loans — which excludes consumer credit and large corporate lending — were up 7%, too.
Consumer deposits were up 5%, and Bank of America wasn’t forced to pay considerably more on its deposit accounts either. Paul Donofrio, BofA’s chief financial officer, did comment on that matter though “It’s a competitive world, and rates are going up, so I expect to see we will pay more down the road.” Trading revenue grew as well, with an especially strong showing from bond trading activity.
Drilling Down
CEO Brian Moynihan said of the company’s second-quarter results:
“Responsible growth continued to deliver as a driver for every area of the company. We grew consumer and commercial loans; we grew deposits; we grew assets within our Merrill Edge business; we generated more net new households in Merrill Lynch; and we supported more institutional client activity.”
He was right on all counts.
BofA’s consumer banking are turned an 8% improvement in revenue into a 42% increase in net income, with non-interest expenses falling slightly. Deposits were up 5%, while Merrill Edge brokerage assets (the company’s online brokerage solution for smaller, consumer-level clients) were up 20%.
Its Global Wealth and Investment Management business arm’s revenue was up just a tad, while total client balances grew 5% year-over-year. Lending in this division was up 10%. Global Banking business income grew 16% despite a 2% dip in revenue, though deposits grew 8% to $23 billion. Meanwhile, Global Markets revenue was up 7%, leading to a 34% increase in income.
Overall, the bank’s cost-cutting efforts continue to take shape quite nicely, with non-interest expenses declining by $698 million, or 5%. And, though the efficiency ratio slipped from 61 to 59, the bank’s return on tangible common shareholders equity rolled in at a healthy 15.15%.
Bottom Line for Bank of America
It’s clear that top line growth is slowing, though that’s not as much a function of an economic headwind as it is a sign of a maturing economy. New business just isn’t out there to be garnered the way it was just a couple of year ago. What is broadly improving is the quality of that business, as evidenced by the 1% year-over-year decline in credit loss provisions despite the fact that indebtedness (at least in the U.S. is at record highs).
it all ultimately points to income growth, though the BAC stock earnings reports — past and future — are going to be made even stronger by the benefits of lower tax rates that are spurring economic growth.
BAC stock made a well-deserved 2% gain on Monday, while everything else was stuck in neutral.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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