Bank of America's Q2 Earnings Beat Estimates Amid Fed Rate Hikes: What Analysts Are Saying

Bank of America Corp BAC on Tuesday issued second-quarter earnings which beat consensus estimates as the company — like all banks — brought in more interest income amid the Federal Reserve's latest rate hike campaign.

By The Numbers: Bank of America issued earnings of 88 cents per share, ahead of the 84 cent Street estimate, on revenues of $25.33 billion, which beat the $25.05 billion estimate, according to Benzinga Pro.

Despite the upbeat earnings print, Bank of America’s net interest income — one of the main drivers of a bank’s revenue — has recently been under scrutiny due to a slowdown in loan and deposit growth.

That said, let’s get into the reactions of analysts on the bank’s earnings.

The Oppenheimer Analyst: Chris Kotowski said Bank of America's strong trading revenues of $4.3 billion, well above their $3.4 billion estimate, particularly drove the beat. Net interest income only declined slightly, which according to Kotowski, suggests that the benefits of the Fed's rate hikes are still being felt.

Oppenheimer said the beat was driven by trading, and the rest of the performance was close to expectations. The analysts highlighted that despite some runoff, average deposits were $1.875 trillion in the second quarter, compared to $1.41 trillion in the quarter preceding the pandemic.

As a result, Kotowski raised its price target from $49 to $52.

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The BMO Capital Markets Analyst: James Fotheringham lowered out-year estimates by as much as 6% due to expected lower net interest income and share repurchases, reducing his price target to $40.

Despite the bank's revenue and credit beat, Fotheringham was disappointed by Bank of America's full-year guidance compared to JPMorgan Chase & Co JPM.

The analyst said Bank of America may have less net interest income upside should deposit costs remain lower than expected.

The Keefe, Bruyette, & Woods Analyst: David Konrad agrees with Kotowski that Bank of America’s solid quarter was driven by strong capital markets.

However, Konrad pegged Bank of America with an Underperform rating due to shifts in shorter-duration assets and a significant increase in deposit costs, which the analyst believes could set up challenges if the Fed cuts rates next year.

BAC Price action: Shares of Bank of America rose 2.7% to close at $31.53 on Wednesday, according to Benzinga Pro.

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