(Reuters) - Bank of America Corp lowered its annual net interest income guidance on Wednesday to reflect a weakened interest rate environment as the second-largest U.S. lender reported higher-than expected earnings fueled by strong consumer trends.
Rate trends have prompted the bank to scale back its expected full-year net interest margin, a key measure of profitability, to 2% from 3%, executives said on a conference call with analysts.
Net interest income, the difference between interest earned from lending and how much the bank pays for deposits, rose 6% last year.
Its interest margin fell in the second quarter to 2.44% from 2.51% three months earlier, though it was still higher than a year earlier.
Chief Financial Officer Paul Donofrio said on a call with reporters the sequential decline was due to lower long-term interest rates.
“When long-term interest rates fall, we see more people pay off their mortgages and that translates into more mortgage-backed securities being redeemed and that forces us to write off some premiums,” he said. “I don’t think you can extrapolate that into the future because long-term rates have stabilized at this point.”
The lender is the most sensitive of the big U.S. banks to interest rate changes because of its large deposit stock and rate-sensitive mortgage securities.
Consumer banking has held up for the big Wall Street banks that have reported second-quarter results this week, cushioning a blow from weakness in trading and advisory businesses.
But warning signs also emerged with JPMorgan, Citigroup and Well Fargo reporting a dip in margins, stoking fears that interest rate cuts could further pressure profit by narrowing the spread