Wide-moat Bank of America (BAC) reported second-quarter earnings per share of $0.73, roughly in line with the FactSet consensus of $0.75 and our estimate of $0.74. Revenue on a reported basis came in at $22.7 billion, essentially in line with consensus and just below our estimate of $23 billion.
Similar to what we’ve seen for peers already this quarter, net interest income is coming in stronger than we expected while fees are a bit softer. Loan growth remains solid, and there are no signs of a deterioration in credit conditions so far, both of which are positive signs for the short-term economic picture. Without any major changes in guidance and no material changes in our fundamental outlook for Bank of America, we don’t expect to make a material change to our $41 fair value estimate.
Net interest income grew $872 million from last quarter, well above the $650 million guidance, and management expects it could grow another $900 million-$1 billion next quarter. If this growth rate stays the same or even accelerates in the fourth quarter, Bank of America could reach a roughly $14.5 billion quarterly run rate or higher, or nearly $58 billion in annual NII. This is well above the previous $49 billion peak in 2019. Given that there is no fundamental increase in expenses associated with this type of revenue growth, we expect most of it to fall straight to the bottom line.
While this is a positive development on the surface, it is essentially pulling forward earnings that had already been forecast and does not materially affect our view of Bank of America’s earnings power through the cycle, as we had already forecast $62 billion in NII by 2024. We are also still a bit skeptical of how durable a federal-funds rate above 2.5% will be by the time we get into 2024, but at least for now, aggressive rate hikes remain on the table and NII will benefit.
