Bank of America’s consumer real estate originations are expected to remain solid as balances in this segment are growing well, but “there are headwinds from the runoff from its non-core mortgage portfolio,” the bank said during its investor call to announce its second-quarter results on Monday.
The bank’s residential mortgage portfolio fell from $65 billion in the second quarter of 2017 to $51 billion in Q2 2018. Looking at the rest of the year, the bank told investors that it anticipated “modest growth on consumer loans.” It said that 90 percent of the bank's mortgages are booked on its balance sheet and that it remains "focused on prime and super-prime lending in all loan categories."
The bank said that its second-quarter results included a $729 million charge in other income related to the redemption of certain trust preferred securities, which was largely offset by a $572 million gain from the sale of non-core mortgage loans.
The bank reported that its net income grew 33 percent during the quarter to $6.8 billion, mainly driven by improved operating performance and the benefits of tax reform. The overall consumer loans for Bank of America were up 7 percent to $281 billion, while its deposits grew 5 percent to $688 billion during the quarter. In the first half, the bank recorded a net income of $13.7 billion.
The second quarter of 2018 was Bank of America’s 18th consecutive quarter of positive operating leverage. It said that revenue net of interest expense decreased 1 percent to $22.6 billion against $22.8 billion recorded during the same period last year. Its net interest income increased $664 million to $11.7 billion reflecting benefits from higher interest rates and loan and deposit growth.
“Responsible growth continued to deliver as a driver for every area of the company,” said Brian Moynihan, CEO, Bank of America. “We grew consumer and commercial loans; we grew deposits; we grew assets within our Merrill Edge business; we generated more net new households in Merrill Lynch, and we supported more institutional client activity—all of this
while we continued to invest in our businesses and began an additional $500 million technology investment, which we intend to spend over the next several quarters, due to the benefits we received from tax reform.”
Despite these investments, Moynihan said that the bank “managed to lower expenses again this period.”
Learn more about how Bank of America performed in Q1: