Financial Performance

BofA Sees Net Interest Income Growth Slowing

Interest rate expectations "have been lowered, plus we have some seasonal headwinds in Q2," CFO Paul Donofrio says.
Matthew HellerApril 16, 2019

Bank of America reported a second straight record quarterly profit on Tuesday but predicted net interest income growth would decline to 3% this year.

Big banks are experiencing pressure on net interest income — the spread between what a lender earns on loans and pays on deposits — as the U.S. Federal Reserve has eased off on raising interest rates due to risks to the U.S. economy from a global slowdown.

In the first quarter, BofA’s net interest income rose 5% to $12.38 billion as the bank paid 0.73% on U.S. interest-bearing deposits, compared with 0.63% in the previous quarter.

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But CFO Paul Donofrio told analysts in an earnings call that BofA expects net interest income will rise by only 3% in 2019 after a 6% gain last year.

“The economy is expected to grow more moderately in 2019 and rate expectations have been lowered, plus we have some seasonal headwinds in Q2,” he said. “Ultimately, we expect NII for the full year of 2019 to be up roughly half the pace of 2018.”

“This perspective assumes today’s forward curve and loan and deposit growth consistent with the current economy,” Donofrio added.

As Reuters reports, BofA “has benefited from the [Fed’s] four rate hikes in 2018. It relies heavily on higher interest rates to maximize profits as it has a large deposit pool and retains rate-sensitive mortgage securities.”

The bank’s profit rose 6% to a record $7.3 billion, or 70 cents a share, in the first quarter, beating analysts’ estimates of 66 cents a share. Revenue was roughly unchanged from a year earlier at $23 billion, essentially meeting estimates.

The bottom line reflected BofA’s strict cost management, with expenses falling 4% to $13.2 billion, almost $500 million below estimates. Net interest yield, a key metric of profitability for a bank’s core lending activities, rose 9 basis points to 2.51%, above estimates of 2.48%.

“It was a challenging capital markets environment but our team and platform are optimized to serve clients and generate stable revenues across a range of market conditions over time,” CEO Brian Moynihan said in a news release.