Higher rates support Bank of America earnings, but concerns over commercial real estate lending loom

Bank of America (BAC) recorded double growth figures in second-quarter revenue and net profit on Tuesday as rising interest rates boosted revenue from money lending.


  • Bank of America reported a 19% increase in net profit and 11% in revenue.
  • Loan growth and rising interest rates boosted revenue and net income.
  • Bank of America shares rose about 4 % at the start of trading on Tuesday after the news.

Why is this important?

Tighter monetary policy by the Federal Reserve resulted in higher net interest income (NII) for Bank of America. At $14.2 billion, the NII of the second largest bank in the United States increased by 14% compared to the second quarter of 2022. Another boost came from a growth in commercial loans and credit card loans.

Despite double-digit growth, it could miss out on powerful rival JPMorgan Chase (JPM) delivered last week with a 67% jump in net profit, driven by a 44% rise in net interest income.

Generally speaking, banks performed better than analysts" expectations this earnings season. Bank of America's second-quarter earnings per share were expected at 82 cents, according to YCharts estimates. However, it reported earnings of 88 cents per share, compared to 73 cents per share in the second quarter of last year, beating forecasts.

Stocks of Bank of America rose about 4% in early trading Tuesday after the news. However, year-to-date, Bank of America shares have fallen about 7.5%, compared to a 19% gain for the S&P 500.

Y Charts

More numbers

Overall, Bank of America's net income increased 19% to $7.4 billion, while revenue increased 11% to $25.2 billion.

Although the bank reduced service charges and investment and brokerage fees, its non-interest revenue rose 8% to $11 billion, driven by higher sales and trading revenue.

"We delivered the ;one of the strongest quarters and periods of first-half net earnings in the company's history," said the bank's president and chief executive, Brian Moynihan. Remaining positive about future growth, Moynihan added that he expects the labor market to be resilient amid a healthy U.S. economy that is developing, albeit at a slower pace.

In the future , the higher the financing costs are expected to take their toll, along with the shift to working from home, with a focus on commercial real estate lending, particularly office loan portfolios.

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Source: investopedia.com

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