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BofA (BAC) Sees Q2 Loan Growth, Plans to Raise Capital Distribution

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In an interview with FOX Business' Maria Bartiromo, Bank of America BAC Chairman and CEO Brian Moynihan discussed how the company is faring amid solid economic growth, and also revealed future plans.

Moynihan stated that BofA is witnessing a “modest” loan growth in the current quarter after decline in loan balances gradually stabilized in first-quarter 2021. He said, “One of the things we've liked to see is that our pipelines are up, our origination activity, our customers are doing things.”

Moynihan noted that customers have reduced paying downs lines of credit and started borrowing to efficiently run their businesses. Also, he said that consumer spending is up 20% from 2019 level, and several industries like airlines, hotels and restaurants (that were hit hard during the coronavirus mayhem) are starting to turn around.

It must be noted that BofA, along with several other large banks like JPMorgan JPM, Citigroup C and Wells Fargo WFC, recorded fall in loan balances during the first quarter compared with 2020 level. This has remained the single most important concern for banks as faltering loan demand (since the beginning of the pandemic last year) and lower interest rates have been hurting top-line growth.

Nonetheless, BofA is seeing loan growth, which along with steepening of the yield curve, is expected to support net interest income (NII) in the quarters ahead. The company expects NII to improve and rise roughly $1 billion from the first-quarter level to $11.3 billion in fourth-quarter 2021 on the assumptions of the forward interest rate curve materializing, the economy’s recovery and modest loan growth.

Thus, the bank’s loan growth is a major favorable development and will cheer investors.

Moreover, BofA plans to hike quarterly dividend and increase share repurchases once it clears this year’s stress test, and the Federal Reserve approves the capital plan.

In the interview, Moynihan stated, “We’d expect, assuming we get through the stress test, which is in the process and I’m sure we will, and [as] the new rules come in, we expect to increase our dividend and increase our share buybacks.”

Earlier in March, the Fed had announced plans to remove restrictions on large banks’ capital distributions after Jun 30, following the completion of this year’s stress test. The restrictions have been in place since March last year.

Another key topic Moynihan touched up on during the interview was steady rise in digital usage since last year. He noted what has been “interesting during the pandemic,” is that digital usage rose “across businesses into the commercial businesses, into the wealth management businesses so they are adapting.”

BofA had reported 40.3 million active digital banking users in the first quarter, with digital sales accounting for 49% of total consumer banking sales. Further, Moynihan commented, “our Zelle program is seeing massive amounts of money transferred going through.”

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