Bank of America hits two-year highs following earnings

Bank of America (BAC) reported Q2 earnings, showcasing mixed results against analyst expectations. The bank reported an EPS of $0.83, slightly above the estimated $0.80 but lower than the $0.88 recorded in the same quarter last year. Net revenue was $25.38 billion, marginally beating the expected $25.27 billion. Despite these beats, net interest income (NII) fell 3% year-over-year to $13.7 billion, slightly above the $13.81 billion estimate, highlighting the impact of higher deposit costs offsetting asset yields and modest loan growth.

Shares of BAC jumped to a fresh two year high following the release but the stock is giving up gains in pre-market trade. The $40 level will set up as a key support area if the stock follows peers and sees further "sell-the-news" reaction.

In terms of trading revenue, BAC performed well, with total trading revenue excluding DVA at $4.68 billion, surpassing the $4.53 billion estimate. Within this, equities trading revenue was particularly strong at $1.94 billion, beating the estimated $1.73 billion, while FICC trading revenue was slightly below expectations at $2.74 billion against an estimate of $2.8 billion. Wealth and Investment Management reported total revenue of $5.57 billion, closely aligning with the expected $5.58 billion.

Provision for credit losses increased to $1.51 billion, up from $1.1 billion in Q2 2023 and slightly above the estimated $1.5 billion. Net charge-offs were $1.53 billion, also higher than the $1.45 billion estimate, reflecting a cautious stance amid economic uncertainties. The allowance for loan and lease losses stood at $13.2 billion, representing 1.26% of total loans and leases, while nonperforming loans decreased by $410 million from Q1 2024 to $5.5 billion, driven primarily by improvements in the commercial real estate office portfolio.

BAC's Consumer Banking segment saw a decline in revenue, falling 3% year-over-year to $10.2 billion. Average deposits in this segment dropped 6% to $949 billion, although this is still up 32% from pre-pandemic levels. Average loans and leases increased by 2% to $312 billion, and combined credit and debit card spending rose by 3% to $234 billion. Despite these metrics, net income in Consumer Banking was $2.6 billion.

Investment Banking revenues were a bright spot, rising to $1.56 billion and beating the $1.45 billion estimate. This growth was driven by higher advisory revenues from completed M&A transactions, as well as strong equity and fixed income underwriting revenues. Additionally, BAC raised its quarterly dividend by 8%, indicating confidence in its financial stability despite the mixed performance in other areas.

Non-interest expenses were $16.31 billion, slightly above the estimated $16.3 billion, driven by investments in personnel and revenue-related compensation. The bank's efficiency ratio improved to 63.9%, better than the expected 64.2%. BAC's return on average equity was 9.98%, exceeding the 9.57% estimate, while the return on average tangible common equity was 13.6%, above the 13.1% estimate.

In summary, Bank of America delivered a solid quarter with notable strengths in trading and investment banking, offset by challenges in net interest income and higher provisions for credit losses. The bank remains well-capitalized, with a CET1 ratio of 11.9%, and looks forward to improving NII in the latter half of the year. The overall performance underscores BAC's ability to navigate a complex economic environment while maintaining a focus on long-term growth and stability.