Bank of America Missed Revenue Estimates -- Should Investors Be Worried?

Bank of America (BAC 0.04%) just did something it rarely does -- reported revenue that fell short of analysts' estimates for the second quarter. In this Fool Live video clip, recorded on July 19, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the numbers and whether investors should be concerned.

Jason Moser: Let's talk about this Bank of America numbers because that's another one where I was looking through this call. It was interesting to see the revenue down modestly, 3.5% from a year ago, but it sounded like investment banking fees played a role there. But what stood out to you there with Bank of America's quarter?

Matthew Frankel: Yes. Bank of America, they missed revenue expectations, which is really rare for a bank. Banks generally beat expectations. I really don't know why they even bother putting out expectations because they just beat them every quarter. But Bank of America had a rare miss, they missed revenue by about $200 million. But as you said, a lot of this was on the investment banking side, specifically the trading revenue. Remember, I just said that JPMorgan (JPM 0.50%) blew expectations out of the water for trading revenue. Between the two fixed income and equities, they beat by $1.8 billion. Bank of America did not. Bank of America missed trading revenue estimates on the fixed income side by $800 million, so $800 million lower than expectations. If they missed their revenue expectations by $200 million, but missed trading revenue expectations by $800 million, that means the rest of their business actually beat expectations.

Moser: Yeah.

Frankel: Another concerning thing, net interest margin was, I mentioned this is a problem across the board, but was even lower than expected, net interest margin was 1.61%. That's 26 basis points lower than it was a year ago, and a little bit lower than analysts were looking for. Like JPMorgan, they released some reserves, they released $1.6 billion in reserves. Their loan book grew in the second quarter slightly, but for the first time since the pandemic started, I guess consumers are going to start spending money. One of the most interesting things and then I'll stop talking about Bank of America because I talked about them enough on our show, they actually put out a lot of consumer spending data in their earnings presentation. Remember, Brian Moynihan ahead a couple of weeks ago, said, consumers were spending about 20% more than they were before the pandemic.

Moser: Yeah.

Frankel: But now we have the hard numbers, it's actually 22% more than the first half of 2019. He broke it down into categories. Consumers are spending more than pre-pandemic -- not just 2020, everyone knows we're spending more money on gas and groceries and stuff like that now than we were in 2020. I don't think I bought gas during the second quarter of 2020. 

Frankel: You probably didn't either.

Moser: I'd tell you, I'm still not buying a whole heck of a lot of it, though it's a lot more now than it was a year ago. That's for sure.

Frankel: The average Bank of America customer is spending 34% more on retail than they were before the pandemic, 20% more on services, 16% more on food, and 8% more on gas than they were in 2019. They're spending 13% less on travel, so that really hasn't come back yet. But even with that, across the board, that's 22% higher consumer spending than before the pandemic. Deposits are up, loans are down, but how long is that going to last if people are spending like this?

Moser: Yeah. That's a good point. Deposits are up 14%, that's considerable. But to your point, again, more credit reserves released, much like the loan demand, that's another common thread we're seeing, and it's a good indicator these banks are feeling better and better about being back to where we were before 2020. Ultimately, that's an encouraging sign there, but yet another common thread to pay attention to with these banks.