Bank of America profit surges even as low interest rates hurt

Second-largest US bank by assets unloaded $2.2B of reserves in the quarter

Bank of America Corp's second-quarter earnings nearly tripled as it released loss reserves it had set aside last year, but its mainstay lending business took a hit from low interest rates put in place to revive a pandemic-hit economy.

Ticker Security Last Change Change %
BAC BANK OF AMERICA CORP. 47.07 -0.87 -1.81%

The second-largest U.S. bank by assets unloaded $2.2 billion of reserves in the quarter, reflecting an upbeat economic outlook as widespread vaccinations led to an easing of pandemic restrictions and set the stage for an economic recovery.

However, rock-bottom interest rates to combat the economic fallout of the pandemic continued to erode the bank's net interest income (NII) - a key measure of how much lenders can make on the difference between what they earn from loans and pay out on deposits.

NII plunged 6% in the quarter to $10.2 billion, sending the bank's shares down 2% in premarket trading.

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The U.S. Federal Reserve, however, has begun discussions on tapering easy money policies from last year. Fed policymakers brought forward their forecasts for raising interest rates to 2023 from 2024.

Average loans and leases across all segments were down 11% from last year, but up $1.8 billion from the previous quarter, signaling a nascent recovery. Excluding loans related to the U.S. government's paycheck protection program, loans balances grew $5.1 billion from the first quarter.

"Consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong, and loan levels have begun to grow," Chief Executive Officer Brian Moynihan said in the statement.

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Strong momentum in job growth and vaccinations against COVID-19 have underpinned a recovery in the broader economy. However, Wall Street's biggest banks are still expected to feel the pinch from low rates.

Executives at JPMorgan Chase & Co warned on Tuesday that the sunny outlook for the U.S. economy would not make for blockbuster revenues in the short term due to low interest rates, weak loan demand and a slowdown in trading. 

Overall revenue, net of interest expense, dropped 4% to $21.5 billion.