Q2 2024 Earnings Summary
- Deposit performance has stabilized and is starting to grow for six quarters in a row, which will drive the value of the franchise through organic customer growth.
- Strong fee performance this quarter, including increases in wealth management fees, investment banking fees, consumer fees, and global payment services fees, demonstrates the strength of the business.
- Flat expenses provide an opportunity to drive operating leverage, generating significant earnings and excess capital to return to shareholders.
- Net Interest Margin (NIM) is low at 1.93%, indicating under-earning on assets compared to historical levels. Management acknowledges that it will take time to improve NIM back to a more normal level of around 2.30%.
- Deposit growth remains modest, with management expressing caution about accelerating deposit growth. Even with tax headwinds, deposits grew only slightly, and there is uncertainty about returning to historical mid-single-digit growth rates.
- Credit quality concerns, particularly in consumer credit card charge-offs and commercial real estate (CRE) exposure. While delinquencies have plateaued, charge-off rates are elevated, and there are ongoing concerns about CRE office loans.
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Net Interest Income Outlook
Q: Will NII remain flat in 2025?
A: Alastair Borthwick confirmed they expect NII to grow from the Q2 trough, reinforcing previous guidance that Q3 and Q4 are likely to be better. They are not providing specific guidance for 2025 due to multiple variables but highlighted components affecting NII such as fixed-rate asset pricing, cash flow hedges repricing, rate cuts, and organic growth. -
Net Interest Margin Expansion
Q: Is the NIM expected to improve?
A: Alastair Borthwick stated that the current NIM of 1.93% is underearning, and they expect it to increase over time, aiming for a more normal level of around 2.30% through gradual improvements over the coming quarters. -
Deposit Growth and Pricing
Q: How will deposit growth and pricing evolve?
A: Brian Moynihan indicated that deposit growth has stabilized, with balances growing for four consecutive quarters. They expect deposits to perform better over time, particularly past peak Fed funds, and they'll continue to manage pricing to grow deposits slightly faster than the economy. -
Capital Levels and Regulatory Outlook
Q: How are you managing capital levels ahead of new regulations?
A: Alastair Borthwick mentioned they aim to maintain a 50 basis point buffer over regulatory requirements, currently holding 11.9% capital. They are waiting to see how capital rules play out in the next few months and have flexibility to adapt accordingly. -
Asset Sensitivity and Rate Cuts Impact
Q: How will rate cuts affect your asset sensitivity?
A: Alastair Borthwick explained they remain asset-sensitive, and rate cuts will impact NII negatively in the near term. However, they expect benefits from cash flow hedges repricing starting in the second half of 2025. The asset sensitivity disclosures are static and may not predict 2025 NII accurately. -
Loan Spreads and Growth
Q: Why have loan spreads improved?
A: Loan spreads have improved over the past 8 or 9 quarters, primarily in the commercial businesses, as they price the balance sheet to meet shareholder return expectations. -
Cash Flow Hedges Benefit
Q: When will cash flow hedges repricing benefit NII?
A: Alastair Borthwick noted that significant benefits from cash flow hedges rolling off will begin in the second half of 2025, contributing positively to NII. -
Credit Quality Outlook
Q: Will charge-offs decrease in the second half?
A: Brian Moynihan expects net charge-off rates to be flattish, with potential for a decrease in the second half compared to the first half, particularly in credit cards. -
Expense Management
Q: What is the outlook for expenses?
A: Expenses are expected to remain around $16.3 billion, with growth primarily driven by incentive compensation tied to revenue increases in wealth management and other fee businesses. -
Home Equity Loan Growth
Q: Why are home equity loan balances rising?
A: Brian Moynihan observed that home equity loan balances have stabilized and slightly increased as customers with low-rate fixed mortgages turn to home equity lines for borrowing needs.