Evaluating BAC's Growth Drivers and Risks Ahead of Q2 Earnings

Globe and Mail

16-07-2025

One of the biggest banks in the United States, Bank of America BAC, is scheduled to announce second-quarter 2025 results on July 16 before the opening bell.
Bank of America's first-quarter performance was decent, driven by impressive trading performance and growth in net interest income (NII). This time, the company's performance will likely be solid. The Zacks Consensus Estimate for second-quarter revenues of $26.59 billion suggests 4.8% year-over-year growth.
In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised 1.1% lower to 86 cents. This indicates a 3.6% rise from the prior-year quarter, as higher NII and solid trading business are likely to have supported BAC's bottom-line growth.
Estimate Revision Trend
Image Source: Zacks Investment Research
Bank of America has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 6.63%.
Surprise History
Factors at Play for Bank of America's Q2 Results
NII: In the second quarter, the Federal Reserve kept interest rates unchanged at 4.25-4.5%. This is likely to have offered some support to Bank of America's NII as the funding/deposit costs stabilized. Also, despite an uncertain macroeconomic backdrop because of Trump's tariff plans, the overall lending scenario was impressive. Per the Fed's latest data, the demand for commercial and industrial, real estate and consumer loans was solid during the quarter.
Hence, BAC is expected to have witnessed a modest rise in loan demand. Likewise, its peers, JPMorgan JPM and Citigroup C, are likely to have recorded a robust loan demand.
BAC expects NII (fully tax equivalent) to grow sequentially in the quarter. The Zacks Consensus Estimate for NII of $14.86 billion suggests a 7.2% year-over-year increase. Our estimate for NII is $14.93 billion.
Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) in the second quarter of 2025 were impressive than previously expected. Markets plunged in early April as Trump announced sweeping tariffs, which hurt business confidence. But as trade demands eased and policy direction became clearer, deal-making activities resumed in the last month of the quarter. So, Bank of America's advisory fees are likely to have recorded a marginal rise.
Further, the IPO market witnessed a revival during the to-be-reported quarter, with a significant increase in both the number of IPOs and the amount of capital raised. This was driven by several factors, including strategic tariff pauses and positive economic data, which resulted in a rebound in market sentiment. Also, global bond issuance volume was decent. So, BAC's underwriting fees (accounting for almost 40% of total IB fees) are expected to have recorded an increase during the to-be-reported quarter.
Management expects IB fees to decline more than 20% year over year in the quarter as tariff-related headwinds continue to hamper deal-making sentiments.
The Zacks Consensus Estimate for IB income of $1.32 billion indicates a decline of 15.6% from the prior-year quarter. We expect IB income to be $1.52 billion.
Trading Income: Client activity and market volatility were strong in the second quarter. The uncertainty over the impact of tariffs on the U.S. economy and the Fed's monetary policy drove client activity as investors shifted to safe havens. Volatility was high in equity markets and other asset classes, including commodities, bonds and foreign exchange. Thus, BAC is likely to have recorded a solid performance in trading revenues this time.
Driven by heightened market volatility and a rise in client activity, the company projects trading revenues to grow in the mid-to-high single-digit range in the second quarter.
The Zacks Consensus Estimate for total sales and trading revenues of $5.11 billion suggests a 9.1% growth on a year-over-year basis. Our estimate for the metric is the same as the consensus estimate.
Expenses: While Bank of America managed expenses prudently in the past, expansion into newer markets by opening financial centers and efforts to digitize operations and upgrade existing financial centers are expected to have kept non-interest expenses elevated in the to-be-reported quarter.
Our estimate for non-interest expenses is $16.96 billion, suggesting a 4% year-over-year increase.
Asset Quality: Bank of America is likely to have set aside a significant amount of money for potential delinquent loans, given the expectations of higher interest rates for longer and the impact of Trump's tariffs on inflation. Our estimate for provision for credit losses is pegged at $1.54 billion.
The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.62 billion implies a 21% jump from the prior-year quarter. Also, the consensus estimate for non-performing assets (NPAs) of $6.66 billion suggests a 17.1% rise. Our estimates for NPLs and NPAs are pegged at $6.07 billion and $6.32 billion, respectively.
What Our Model Unveils About Bank of America's Q2 Earnings
Our proven model doesn't predict an earnings beat for Bank of America this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here, as you can see below.
Bank of America has an Earnings ESP of -1.13%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
It carries a Zacks Rank #3 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
BAC's Price Performance & Valuation Analysis
In the second quarter, BAC shares gained 18.6%, outperforming the S&P 500 Index. In the same time frame, shares of JPMorgan and Citigroup rallied 18.5% and 24.4%, respectively.
2Q25 BAC Price Performance
Image Source: Zacks Investment Research
JPMorgan and Citigroup are slated to report quarterly numbers on July 15. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Let's check out the value Bank of America offers investors at current levels. The stock is trading at a 12-month trailing price-to-tangible book (P/TB) of 1.76X. This is below the industry 's 2.86X. This shows that the stock is currently inexpensive.
Price-to-Tangible Book (TTM)
Further, BAC stock is trading at a discount compared with JPMorgan, which has a P/TB of 3.04X. On the other hand, Citigroup has a P/TB of 0.97X, making it inexpensive compared with Bank of America.
How Bank of America is Positioned Before Q2 Earnings
The interest rate pressure that Bank of America has faced since 2023 has subsided to some extent, and risks surrounding deposit outflows have abated. Also, the industry-wide lending scenario is expected to be strong, and the company is anticipated to gain from it.
The company's aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. This will also help capitalize on cross-selling opportunities over the long term. Further, it spends $13 billion annually on technology, of which almost $4 billion will be utilized for new technology initiatives this year.
However, BAC continues to face adverse impacts from prolonged higher rates, leading to high deposit costs. Also, the volatile nature of the capital markets business is expected to make fee income growth a challenge. Mounting operating expenses and weak asset quality are other headwinds.
While Bank of America's prospects remain promising, investors should not rush to buy the stock. Those interested in adding it to their portfolios might be better off waiting until after the release of quarterly numbers for clarity and a potentially attractive entry point. Those who already have the BAC stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.
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Bank of America Corporation (BAC): Free Stock Analysis Report
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