BofA Enjoys 22% NII Boost, Debit Card Spend Hits Record High

Bank of America delivered a characteristically “meh” set of results on Monday.

Revenue of $22.7 billion was up 6% YoY and essentially in line, while EPS of $0.73 was a slight miss.

Higher rates and what the bank described as “strong” loan growth drove a 22% increase in net interest income, which was in line at $12.4 billion (figure below).

A 100bps shift higher in the yield curve would be a $5 billion boon to NII over 12 months, the bank said.

In what felt like perfunctory remarks, Brian Moynihan described US consumers as “resilient.” Deposit balances are “strong” as are spending levels.

Card spending, inclusive of credit and debit transactions, showed consumers are spending more this year across categories than they were in the first half of 2019 and the same period last year (figure below).

There’s some evidence of goods-to-services switching there. You can draw your own conclusions as to whether the figures are evidence of “resilience” or just inflation. I doubt Americans are eating 27% more this year than they were in 2019.

It’s worth noting that debit card volume hit an all-time high in the second quarter, rising 6% (figure below).

Combined credit and debit card spend rose 10% to $221 billion.

BofA was keen to highlight the “responsible” nature of its growth since the fourth quarter of 2009. Home equity lending is down 82% for example, and credit card loans by nearly half. The loan mix is skewed to commercial lending in 2022 versus 67% in Consumer in 2009. Non-performing loans are 0.41% these days, versus 3.75% back then.

Total loans and leases grew 12% in Q2, and reserves were (basically) flat versus Q1. The bank said a $523 million build (figure below) to account for loan growth and “the impact of a dampening macroeconomic outlook” was offset by “asset quality improvement and reduced pandemic uncertainty.”

Note that net income in Consumer fell 5% YoY, as a $350 million provision “more than offset” higher NII. Average loans and leases in Consumer rose 3%, or 7% excluding PPP.

IB was weak, consistent with peers. Revenue of $1.13 billion missed estimates and reflected a 47% drop in fees from a year ago. BofA stated the obvious: Underwriting activity is weaker industry-wide.

In Markets, FICC trading revenue of $2.34 billion was solid. Consensus wanted $2.29 billion. Equities was a slight miss at $1.66 billion (consensus $1.72 billion). Wealth & investment management revenue of $5.43 billion was in line.

The bank said it’ll pay $200 million in connection with the Street-wide regulatory probe into the misuse of personal devices. Non-interest expense rose 2%, including $425 million for “certain regulatory matters.”

CFO Alastair Borthwick reiterated that consumer spending levels “remain high.”