Dive Brief:

• Bank of America’s second-quarter profit slipped, as the second-largest U.S. bank felt the squeeze of higher deposit costs and tepid loan demand.
• The bank also saw a drop in consumer deposits: Although average deposit balances rose 2%, to $1.91 trillion, average deposits in the lender’s consumer banking segment dipped 6%, to $949 billion, according to second-quarter earnings materials.
• BofA executives sought to label the second quarter a low point, forecasting loan and deposit growth in the latter half of the year. On deposits, “the second quarter, in reality, is typically a heavy outflow quarter,” CEO Brian Moynihan said during a conference call Tuesday, citing customer income tax payments made during the quarter.

Dive Insight:

Quarterly results for the Charlotte, North Carolina-based lender are yet another sign banks are getting bit by higher-for-longer interest rates, as their customers move money into accounts offering higher interest rates. 

Moynihan and CFO Alastair Borthwick noted their expectations for low single-digit loan and deposit growth in the remainder of the year, and pointed to deposit rotation behavior slowing.

Net interest income fell 3%, to $13.7 billion, impacted by higher deposit costs and meager loan growth. That measure refers to the difference between what a bank pays customers on deposits and the interest the bank collects on loans. Average loans and leases at the bank edged up just 0.5%, to $1.05 trillion. 

“We think Q2 is the trough, and we believe from this point we’re in a good position to grow,” Borthwick said. “We feel like 2024 is a really foundational year. It’s this twist period, where we’ve just got to get through the last of the deposit rotation, and we’re establishing a foundation for growth from here.” 

Still, Borthwick cautioned, “I’d be careful about getting too excited about deposit growth.”

“We’re doing OK so far,” he added. “We’ve just got to keep driving that.” 

The bank projects net interest income will rise in the third quarter and again in Q4, where it’s expected to be about $14.5 billion in the final quarter. That’s counting on three rate cuts by the Federal Reserve, according to the bank’s earnings presentation.

Bank of America also set aside more money for souring loans: The lender recorded provision for credit losses of $1.5 billion for the quarter; that figure was $1.3 billion in the first quarter and $1.1 billion in the year-earlier quarter. That also ate into the bank’s quarterly net income, which dropped about 7%, to $6.9 billion. Its revenue net of interest expense rose 1%, to $25.4 billion.

BofA’s second-quarter results showed similarities to Wells Fargo’s. That lender also noted deposit migration and a decline in net interest income due to higher deposit costs, but got a lift from higher investment-banking fees, which helped fuel an increase in non-interest income. For BofA, investment banking fees jumped 29% for the quarter, to $1.6 billion, as mergers, acquisitions and capital markets activity have picked up. 

On the expense side, Bank of America’s non-interest expense rose 2%, to $16.3 billion, fueled in part by revenue-related compensation. 

“The pressures we face now are really more due to fee growth in the businesses which typically have a tighter correlation between fees and expenses, and incentive [compensation] related to those fees,” Moynihan said. “That’s a good expense growth.”