NEW YORK--Bank of America Corp reported a 19 percent drop in second-quarter profit on Monday and set a new expense target as growth in businesses from lending to trading failed to offset the impact of persistently low interest rates.
Like other lenders, the Charlotte, North Carolina-based bank has been struggling under the weight of low rates for years, but analysts say Bank of America is particularly sensitive to the issue because of how management has positioned its balance sheet. Accounting oddities related to interest rates also dented the bank's profit during the quarter.
On conference calls following the results, senior executives said the bank is doing all it can to offset the impact of low rates - including keeping a tight lid on costs.
Chief Executive Brian Moynihan announced a new expense target of $53 billion for 2018. Bank of America did not previously have an annual expense goal, but this one is $3.3 billion less than its total expenses over the past four quarters. It comes after BofA has spent years of working through a sweeping cost-cutting project dubbed "New BAC" and an ongoing efficiency initiative called "Simplify and Improve."
"The question is, can we grow earnings without rates improving?" Moynihan said. "We believe we surely can."
The bank's shares closed 3.3 percent higher at $14.11 on Monday following its results.
Bank of America isn't alone in its struggle to boost earnings without a lift from higher rates. Its decline in profits, despite loan growth, mirrored that of rivals that have reported results lately, including JPMorgan Chase & Co, Wells Fargo & Co and Citigroup Inc.
After keeping rates near-zero for seven years, the U.S. Federal Reserve bumped its target slightly higher last December. But optimism has faded that rates will continue moving upward in the near-term, especially after Britain's shocking vote to leave the European Union.
BofA, the second-largest U.S. bank by assets, reported a 12-percent decline in net interest income - a measurement of how much a bank can earn by lending and investing its deposits and other funds. The decline underscores how difficult it was to boost earnings in a low-rate environment.
The bank was also hurt by its choice some years ago of an accounting method known as FAS 91. The method affects when it can report earnings from the ups and downs of interest rates, Chief Financial Officer Paul Donofrio said.
The method led Bank of America to adjust its income downward by $1 billion during the quarter. In the year-ago quarter, FAS 91 boosted Bank of America's results. Donofrio said he is considering whether to switch to another accounting method to avoid the earnings volatility it creates.
Separately, the bank also took a $200 million negative adjustment related to the value of its own debt. Altogether the adjustments hurt earnings by 6 cents per share.
Overall, Bank of America's net income attributable to BofA's common shareholders fell to $3.87 billion, or 36 cents per share, in the second quarter ended June 30, from $4.80 billion, or 43 cents per share, a year earlier. Excluding special items, the bank earned 37 cents per share, beating the average analyst estimate of 33 cents, according to Thomson Reuters I/B/E/S.
Its adjusted revenue of $20.8 billion topped estimates of $20.4 billion, according to Thomson Reuters I/B/E/S.
