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High Rates, Loan Demand to Support BofA's (BAC) Q2 Earnings
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Bank of America (BAC - Free Report) is the most interest rate-sensitive bank among its peers. Hence, the current high interest rate regime is likely to have boosted the company’s net interest income (NII). This is expected to have supported its second-quarter 2023 earnings, slated to be announced on Jul 18 before the opening bell.
The Federal Reserve increased rates by 25 basis points in May and kept the rates unchanged at 5-5.25% during the June FOMC meeting. This is likely to have had a favorable impact on BofA’s net interest margin (NIM) and NII. Nonetheless, the inverted yield curve and rising funding costs, as rates remained high, are expected to have weighed on it to some extent.
Lending activities continued at a slower pace in the to-be-reported quarter due to higher rates and a challenging macroeconomic backdrop. Per the Fed’s latest data, the demand for commercial and industrial loans was subdued in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
The Zacks Consensus Estimate for BofA’s average interest earnings assets is pegged at $2.68 trillion, suggesting an almost 1% decline from the year-ago reported number. Our estimate for the metric is $2.55 trillion, indicating a 5.7% fall.
Management expects NII (FTE) to be approximately $14.3 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.29 billion suggests a 14% increase. Our estimate for NII (FTE) implies a rise of 14.4% to $14.35 billion.
Q2 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for second-quarter earnings is pegged at 84 cents, which has moved 1.2% lower over the past 30 days. The estimate indicates growth of 15.1% from the prior-year quarter reported number. Our estimate for earnings is 83 cents.
The consensus estimate for sales of $25.03 billion indicates 10.3% growth. Our estimate for sales is $24.77 billion, reflecting a rise of 9.2%.
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 View
Modest loan demand and high interest rates might have supported this Zacks Rank #3 (Hold) stock’s second-quarter performance. Yet, muted investment banking and trading businesses, and higher reserve build to counter expected economic downturn are major headwinds.
Similar to BAC, other major banks like JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) are expected to have witnessed a decent NII performance in the second quarter.
JPMorgan is likely to have benefited from higher rates, decent loan demand and the acquisition of First Republic Bank. The Zacks Consensus Estimate for JPM’s NII (reported) of $20.38 billion suggests a 34.7% surge. Our estimate for NII implies a jump of 42.4% to $21.54 billion.
Similarly, Citigroup will benefit from the above-mentioned factors, while inversion of the yield curve and rising funding costs are likely to have limited NII growth to some extent. The consensus estimate for C’s NII of $12.85 billion suggests a 7.4% year-over-year rise. We project NII of $11.9 billion for the quarter.
Both JPM and C will come out with quarterly numbers on Jul 14.
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High Rates, Loan Demand to Support BofA's (BAC) Q2 Earnings
Bank of America (BAC - Free Report) is the most interest rate-sensitive bank among its peers. Hence, the current high interest rate regime is likely to have boosted the company’s net interest income (NII). This is expected to have supported its second-quarter 2023 earnings, slated to be announced on Jul 18 before the opening bell.
The Federal Reserve increased rates by 25 basis points in May and kept the rates unchanged at 5-5.25% during the June FOMC meeting. This is likely to have had a favorable impact on BofA’s net interest margin (NIM) and NII. Nonetheless, the inverted yield curve and rising funding costs, as rates remained high, are expected to have weighed on it to some extent.
Lending activities continued at a slower pace in the to-be-reported quarter due to higher rates and a challenging macroeconomic backdrop. Per the Fed’s latest data, the demand for commercial and industrial loans was subdued in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
The Zacks Consensus Estimate for BofA’s average interest earnings assets is pegged at $2.68 trillion, suggesting an almost 1% decline from the year-ago reported number. Our estimate for the metric is $2.55 trillion, indicating a 5.7% fall.
Management expects NII (FTE) to be approximately $14.3 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.29 billion suggests a 14% increase. Our estimate for NII (FTE) implies a rise of 14.4% to $14.35 billion.
Q2 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for second-quarter earnings is pegged at 84 cents, which has moved 1.2% lower over the past 30 days. The estimate indicates growth of 15.1% from the prior-year quarter reported number. Our estimate for earnings is 83 cents.
The consensus estimate for sales of $25.03 billion indicates 10.3% growth. Our estimate for sales is $24.77 billion, reflecting a rise of 9.2%.
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 View
Modest loan demand and high interest rates might have supported this Zacks Rank #3 (Hold) stock’s second-quarter performance. Yet, muted investment banking and trading businesses, 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 Citigroup (C - Free Report) are expected to have witnessed a decent NII performance in the second quarter.
JPMorgan is likely to have benefited from higher rates, decent loan demand and the acquisition of First Republic Bank. The Zacks Consensus Estimate for JPM’s NII (reported) of $20.38 billion suggests a 34.7% surge. Our estimate for NII implies a jump of 42.4% to $21.54 billion.
Similarly, Citigroup will benefit from the above-mentioned factors, while inversion of the yield curve and rising funding costs are likely to have limited NII growth to some extent. The consensus estimate for C’s NII of $12.85 billion suggests a 7.4% year-over-year rise. We project NII of $11.9 billion for the quarter.
Both JPM and C will come out with quarterly numbers on Jul 14.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.