NEW YORK (AP) – Bank of America’s second quarter profits were sawed in half and the consumer banking giant set aside billions of dollars to cover potentially bad loans caused by the pandemic.
Bank earnings this quarter have begun to paint a picture of American families and businesses struggling to pay bills with swaths of the nation’s economy shut down.
Combined, the five big Wall Street banks that have reported quarterly earnings have set side more than $30 billion to cover loans that may be unrecoverable. Those provisions come on top of the tens of billions they set aside in the first quarter when the pandemic first began to bloom.
Bank of America reported a profit of $3.53 billion, or 37 cents a share, a decline from $7.34 billion, or 74 cents a share, in the same period a year ago. Wall Street had actually expected worse, but shares still sold off before the opening bell Thursday.
Because it is so consumer-focused, BofA is feeling the effects of the coronavirus pandemic more acutely than other major banks. During the quarter, the bank processed 1.8 million requests for payment deferrals on credit cards, mortgages and auto loans, of which 1.7 billion are still in place as of last week.
By the end of the quarter, BofA had allocated $5.1 billion for credit losses.
Total revenue dropped 17.5% to $24 billion compared to the second quarter of 2019, driven primarily by a $5.7 billion cut in interest income to end at $12.5 billion. Noninterest income rose 5.4% to $11.5 billion thanks to strong capital market results, the bank said.
Net interest income – the difference between interest earned on assets like loans, mortgages and securities and interest paid out to customer deposits – decreased 11% from a year ago to $10.5 billion, reflecting continued low interest rates partially offset by loan and deposit growth. Noninterest expenses stayed relatively flat, at $13.4 billion compared to $13.3 billion a year ago.
Total quarterly assets stood at $2.7 billion compared to $2.4 billion a year ago. Total quarterly deposits were $1.7 billion compared to $1.4 billion a year ago.
The net interest margin, the difference between interest income generated and the amount paid out to lenders, dropped 57 basis points to 1.87% compared to the second quarter of 2019.
The bank also revised down its outlook for the U.S. economy, following similar actions by other banks this week. At the start of the pandemic, many economists and bankers expected a sharp “V”-shaped recovery as businesses that shut down, began to reopen.
But a resurgence of infections in heavily populated states like California, Florida, Texas and elsewhere have slowed, stopped or reversed the reopening of economies nationwide.
“While net charge-offs remained relatively low by historical standards, we added another $4 billion to credit reserves to reflect the current economic outlook,” said Bank of America Chief Financial Officer Paul Donofrio in prepared statement.
Ken Sweet is an AP business writer. PBN contributed to this report.
