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Higher Interest Rates, Loans to Aid BofA (BAC) Q4 Earnings
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Bank of America (BAC - Free Report) is the most interest rate-sensitive bank among its peers. So, the current higher interest rate regime is likely to have significantly boosted the company’s net interest income (NII). This, in turn, is expected to have immensely supported its fourth-quarter and full-year 2022 earnings, slated to be announced on Jan 13 before the opening bell.
The Federal Reserve continued with its ultra-hawkish monetary policy stance, raising the interest rates by another 125 basis points during the quarter. Thus, the policy rate reached 4.25-4.50%, the highest in the past 15 years. This is likely to have had a favorable impact on BofA’s net interest margin (NIM) and NII. Yet, the inversion of the yield curve in the to-be-reported quarter is expected to have weighed on NIM to some extent.
Further, similar to the first three quarters of 2022, lending activities continued at a decent pace in the fourth quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans (specifically credit cards) improved in October and November.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.74 trillion, suggesting a marginal decline on a year-over-year basis. Our estimate for the metric is $2.94 trillion, indicating a 6.9% rise.
BofA recorded a 20% year-over-year jump in its NII for the nine months ended Sep 30, 2022, supported by robust loan growth and higher rates. The momentum is likely to have continued in the fourth quarter too. Management expects NII to be at least $1.25 billion higher than the third-quarter level.
The Zacks Consensus Estimate for NII on FTE basis of $15.17 billion suggests a 31.7% surge. Our estimate for NII on FTE basis implies a sharp rise of 33.6% to $15.38 billion.
Q4 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 80 cents, which has moved 2.4% lower over the past seven days. Further, the estimated figure suggests a fall of 2.4% from the year-ago reported number. Our estimate for earnings is the same as the consensus number.
The consensus estimate for sales of $24.24 billion indicates 9.9% growth. Our estimate for sales is $24.19 billion, reflecting a rise of 9.7%.
Bank of America Corporation Price and EPS Surprise
Click here to know about the other factors that are likely to have influenced BAC’s overall performance.
Our Viewpoint
Decent loan demand and higher interest rates, along with robust trading business, might have supported this Zacks Rank #3 (Hold) stock’s fourth-quarter performance. Yet, muted investment banking business and higher reserve build to counter expected economic downturn are major headwinds.
Similar to BAC, other major banks like JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) are expected to have witnessed a strong NII performance in the fourth quarter.
For the fourth quarter, JPMorgan expects NII to be approximately $19 billion, implying a full-year 2022 number of nearly $66 billion. Further, management anticipates NII (excluding Markets) to be about $19 billion in the fourth quarter, implying that Markets NII will be around zero. This brings NII (excluding Markets) to about $61.5 billion for 2022.
Similarly, Wells Fargo anticipates NII to be $12.9 billion in the fourth quarter. Also, NII is projected to grow 24% in 2022.
Both JPM and WFC will come out with quarterly numbers on Jan 13.
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Higher Interest Rates, Loans to Aid BofA (BAC) Q4 Earnings
Bank of America (BAC - Free Report) is the most interest rate-sensitive bank among its peers. So, the current higher interest rate regime is likely to have significantly boosted the company’s net interest income (NII). This, in turn, is expected to have immensely supported its fourth-quarter and full-year 2022 earnings, slated to be announced on Jan 13 before the opening bell.
The Federal Reserve continued with its ultra-hawkish monetary policy stance, raising the interest rates by another 125 basis points during the quarter. Thus, the policy rate reached 4.25-4.50%, the highest in the past 15 years. This is likely to have had a favorable impact on BofA’s net interest margin (NIM) and NII. Yet, the inversion of the yield curve in the to-be-reported quarter is expected to have weighed on NIM to some extent.
Further, similar to the first three quarters of 2022, lending activities continued at a decent pace in the fourth quarter. Per the Fed’s latest data, demand for commercial and industrial loans, real estate loans and consumer loans (specifically credit cards) improved in October and November.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.74 trillion, suggesting a marginal decline on a year-over-year basis. Our estimate for the metric is $2.94 trillion, indicating a 6.9% rise.
BofA recorded a 20% year-over-year jump in its NII for the nine months ended Sep 30, 2022, supported by robust loan growth and higher rates. The momentum is likely to have continued in the fourth quarter too. Management expects NII to be at least $1.25 billion higher than the third-quarter level.
The Zacks Consensus Estimate for NII on FTE basis of $15.17 billion suggests a 31.7% surge. Our estimate for NII on FTE basis implies a sharp rise of 33.6% to $15.38 billion.
Q4 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 80 cents, which has moved 2.4% lower over the past seven days. Further, the estimated figure suggests a fall of 2.4% from the year-ago reported number. Our estimate for earnings is the same as the consensus number.
The consensus estimate for sales of $24.24 billion indicates 9.9% growth. Our estimate for sales is $24.19 billion, reflecting a rise of 9.7%.
Bank of America Corporation Price and EPS Surprise
Bank of America Corporation price-eps-surprise | Bank of America Corporation Quote
Click here to know about the other factors that are likely to have influenced BAC’s overall performance.
Our Viewpoint
Decent loan demand and higher interest rates, along with robust trading business, might have supported this Zacks Rank #3 (Hold) stock’s fourth-quarter performance. Yet, muted investment banking business and higher reserve build to counter expected economic downturn are major headwinds.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
Similar to BAC, other major banks like JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) are expected to have witnessed a strong NII performance in the fourth quarter.
For the fourth quarter, JPMorgan expects NII to be approximately $19 billion, implying a full-year 2022 number of nearly $66 billion. Further, management anticipates NII (excluding Markets) to be about $19 billion in the fourth quarter, implying that Markets NII will be around zero. This brings NII (excluding Markets) to about $61.5 billion for 2022.
Similarly, Wells Fargo anticipates NII to be $12.9 billion in the fourth quarter. Also, NII is projected to grow 24% in 2022.
Both JPM and WFC will come out with quarterly numbers on Jan 13.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.