What happened

Bank of America (NYSE:BAC) delivered second-quarter earnings today that came in ahead of expectations, but investors were more focused on faltering loan growth. As a result, the stock traded down as much as 5% on Wednesday.

So what

Before markets opened today, Bank of America reported second-quarter earnings of $1.03 per share, besting the $0.77 consensus, on revenue of $21.5 billion that was slightly under the $21.83 billion expectation.

The issue for Bank of America and other large financial institutions is that consumers and small businesses aren't taking on new debt the way they used to. Government programs designed to keep banks and businesses afloat during the pandemic largely succeeded in avoiding widespread defaults, but they have left borrowers with little need to apply for new loans or tap credit lines. And cash payments have left consumers awash with money, leading consumer loans and leases to fall by 12% from a year prior.

A banker discusses options with customers.

Image source: Getty Images.

Lower interest rates are also taking their toll. Net interest income declined 6% to $10.2 billion. But average deposits during the quarter were up $231 billion to $1.9 trillion.

"Despite the continued challenge of low interest rates, the diversity and leadership positions of our eight lines of business enabled us to benefit from a faster economic recovery this quarter," CFO Paul Donofrio said in a statement. "At the same time, our balance sheet remains a source of strength, as supported by our performance in the most recent stress tests, which showed significant excess capital."

Bank of America deployed nearly $6 billion this quarter for dividends and share repurchases and said it expects that number to tick higher in the quarters to come.

Now what

Bank officials on the post-earnings conference call said they believe they are nearing a turning point for loan growth, and the company expects to see net interest income move higher as the year goes on. But with interest rates hovering near lows, it is difficult for banks to rev up the profit machine, leading to sluggish earnings.

Bank of America shares are up 60% over the past year even with Wednesday's declines. The company is headed in the right direction, but given the tepid loan numbers, investors are choosing to take some profits following the bank's earnings report.

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