Summary
- Bank of America released Q2-2019 earnings last week.
- Bank of America's net interest income expectedly declined yet again.
- Rate cuts will negatively affect Bank of America's NII trajectory.
- Investors should closely monitor the bank's asset quality going forward.
Bank of America (BAC) released second quarter results last week which beat earnings consensus expectations. Bank of America, however, also saw a decline in its net interest income on the back of falling short-term interest rates and further reduced its NII outlook for the remainder of the year. Bank of America currently does not make an attractive value proposition.
Bank Of America - Overall Solid Performance In The Second Quarter
Bank of America was off to a good start in 2019, reporting a 13 percent year-over-year increase in earnings per share in the first quarter, thanks to a strongly performing Consumer Bank. However, revenue growth was flat in Q1-2019, and the bank's net interest income dropped off.
The U.S. economy remained in good shape throughout the second quarter as well, and Bank of America's earnings report was overall quite good.
In the second quarter of 2019, Bank of America pulled in total revenues of $23.1 billion, reflecting an increase of 2 percent over the previous year. Total earnings increased 8 percent year over year from $6.8 billion to $7.3 billion, thanks to strong results from Bank of America's Consumer Bank. In terms of per-share earnings, Bank of America earned $0.74/share in Q2-2019, which was up 17 percent from the year-ago period. Analysts expected Bank of America to report earnings of $0.71/share.
Here's an earnings snapshot.
Source: Bank of America Investor Presentation
I expected Bank of America to deliver a solid set of financials for the second quarter due to robust fundamentals in the U.S. economy. However, I also expected Bank of America's net interest income to further decline, which it did. The interest rate environment has deteriorated sharply in the last couple of months after the Fed said it was willing to support the U.S. economy with interest rate cuts.
America's net interest income dropped ~$200 million in the last quarter due to lower short-term interest rates. The bank's net interest income already started to slip in the previous quarter: The bank's NII dropped from $12.5 billion in Q4-2018 to $12.4 billion in Q1-2019.
