Bank of America reported what looked to be an underwhelming set of numbers for Q2 on Wednesday.
EPS of $1.03 was a beat, but a look below the hood suggested investors may approach the results with trepidation. It’s not “bad,” but, as seems to always be the case with BofA’s results, it’s not unabashedly “good” either.
Net income was $9.2 billion, including a $6.7 billion decrease in credit loss provisions (versus Q2 2020), which were a $1.6 billion benefit this quarter (figure below).
Like JPMorgan, the bank reported a large reserve release ($2.2 billion), attributable to “an improved macroeconomic outlook.” That’s just a formalized way of saying that the worst case pandemic scenario clearly isn’t going to materialize.
For several quarters, there were questions as to whether the COVID economic “reckoning” was merely delayed. By now, it’s safe to say the financial armageddon that seemed all but assured in March and April of 2020 isn’t coming, or at least not as a result of this pandemic.
Net interest income of $10.3 billion (figure below) was short of estimates, and came in below the bottom-end of the range. Consensus was looking for $10.44 billion. Net interest yield of 1.61% was below estimates (1.66%).
“Despite the continued challenge of low interest rates, the diversity and leadership positions of our eight lines of business enabled us to benefit from a faster economic recovery this quarter,” CFO Paul Donofrio mused.
And yet, non-interest income dropped 2%. Trading revenue of $3.6 billion was down 19% and shy of the $3.78 billion consensus expected.
As with JPMorgan and Goldman, BofA’s FICC revenues tumbled versus an impossible comp from Q2 2020, diving 38% to $2 billion. “The prior year benefited from a robust trading environment for macro products and strengthening markets for credit products after their pandemic related sell-off, whereas markets in Q2 2021 were more benign and weak for agency mortgages,” the bank noted Wednesday. Equities revenue jumped 33%, though, to $1.6 billion. That was better than analysts expected.
Although Q2 marked the third best quarter for firm-wide IB fees, they still slipped.
Loans and leases fell versus Q2 2020, but rose sequentially. Non-interest expense was significantly higher YoY, but down slightly QoQ. Total revenue of $21.5 billion was down 6% from Q1.
On the bright side, total loan balances increased for the first time since Q1 of last year. Donofrio juxtaposed that with the lowest credit loss rates in a quarter century.
I’d be lying to you if I said it was possible to get anything like a “clean” read on BofA’s quarter. It’s never possible, and even less so in the post-pandemic environment. I doubt seriously that Brian Moynihan has a clean read on it either, but he offered this summary: “Consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong, and loan levels have begun to grow.”
I guess what I’d say is that if the market isn’t willing to give JPMorgan and Goldman the benefit of the doubt, investors probably won’t be extending the courtesy to Bank of America either.
