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High Rates, Loan Demand to Aid BofA's (BAC) Q3 Earnings
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Bank of America (BAC - Free Report) , set to announce third-quarter 2023 results on Oct 17 before the market opens, 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 quarterly net interest income (NII) and net interest margin (NIM).
The Federal Reserve increased rates by 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. This is likely to have had a favorable impact on BofA’s NIM and NII.
But the inverted yield curve and rising funding costs are expected to have weighed on both. Further, BAC’s billions of dollars’ worth of long-dated Treasuries and mortgage bonds, which it piled up at low rates that prevailed during the pandemic, are expected to have hampered NII and NIM growth in the quarter under review.
Additionally, lending activities continued to slow down in the to-be-reported quarter. Per the Fed’s latest data, the demand for commercial and industrial loans was subdued in July and August, while real estate loans and consumer loans (specifically credit cards) witnessed modest demand.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.76 trillion, suggesting a 3.4% rise from the year-ago reported number. Our estimate for the metric is $2.74 trillion, indicating a 2.6% increase.
The Zacks Consensus Estimate for NII (FTE basis) of $14.24 billion suggests a 2.7% increase. Our estimate for NII (FTE) implies a rise of 2.8% to $14.26 billion.
Management expects NII (FTE) to be stable sequentially at $14.3 billion.
Q3 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for third-quarter earnings is pegged at 80 cents, which has moved 1.2% lower over the past week. The estimate indicates a decline of 1.2% from the prior-year quarter. Our estimate for earnings is 78 cents.
The consensus estimate for sales of $25.13 billion indicates 2.6% growth. Our estimate for sales is $24.57 billion, suggesting a rise of 0.3%.
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
Subdued loan demand and high interest rates might have offered some support to this Zacks Rank #3 (Hold) firm’s third-quarter performance. Nonetheless, soft investment banking and trading businesses, and higher reserve build to counter expected economic downturn are major headwinds.
Other major banks like U.S. Bancorp (USB - Free Report) and Truist Financial (TFC - Free Report) are expected to have witnessed a modest NII performance in the third quarter.
U.S. Bancorp is likely to have benefited from high rates and modest loan demand, while rising funding costs might have weighed on it. The Zacks Consensus Estimate for USB’s NII (FTE) of $4.27 billion suggests a 10.6% rise. USB is scheduled to announce quarterly numbers on Oct 18
Similarly, Truist is expected to have benefited from the above-mentioned factors, while inversion of the yield curve and rising deposit costs are likely to have limited NII growth. The consensus estimate for TFC’s NII (FTE) of $3.54 billion suggests a 6.4% year-over-year decline. Truist will come out with third-quarter 2023 results on Oct 19.
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High Rates, Loan Demand to Aid BofA's (BAC) Q3 Earnings
Bank of America (BAC - Free Report) , set to announce third-quarter 2023 results on Oct 17 before the market opens, 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 quarterly net interest income (NII) and net interest margin (NIM).
The Federal Reserve increased rates by 25 basis points in July and kept the rates unchanged at 5.25-5.5% during the September FOMC meeting. This is likely to have had a favorable impact on BofA’s NIM and NII.
But the inverted yield curve and rising funding costs are expected to have weighed on both. Further, BAC’s billions of dollars’ worth of long-dated Treasuries and mortgage bonds, which it piled up at low rates that prevailed during the pandemic, are expected to have hampered NII and NIM growth in the quarter under review.
Additionally, lending activities continued to slow down in the to-be-reported quarter. Per the Fed’s latest data, the demand for commercial and industrial loans was subdued in July and August, while real estate loans and consumer loans (specifically credit cards) witnessed modest demand.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.76 trillion, suggesting a 3.4% rise from the year-ago reported number. Our estimate for the metric is $2.74 trillion, indicating a 2.6% increase.
The Zacks Consensus Estimate for NII (FTE basis) of $14.24 billion suggests a 2.7% increase. Our estimate for NII (FTE) implies a rise of 2.8% to $14.26 billion.
Management expects NII (FTE) to be stable sequentially at $14.3 billion.
Q3 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for third-quarter earnings is pegged at 80 cents, which has moved 1.2% lower over the past week. The estimate indicates a decline of 1.2% from the prior-year quarter. Our estimate for earnings is 78 cents.
The consensus estimate for sales of $25.13 billion indicates 2.6% growth. Our estimate for sales is $24.57 billion, suggesting a rise of 0.3%.
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
Subdued loan demand and high interest rates might have offered some support to this Zacks Rank #3 (Hold) firm’s third-quarter performance. Nonetheless, soft 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
Other major banks like U.S. Bancorp (USB - Free Report) and Truist Financial (TFC - Free Report) are expected to have witnessed a modest NII performance in the third quarter.
U.S. Bancorp is likely to have benefited from high rates and modest loan demand, while rising funding costs might have weighed on it. The Zacks Consensus Estimate for USB’s NII (FTE) of $4.27 billion suggests a 10.6% rise. USB is scheduled to announce quarterly numbers on Oct 18
Similarly, Truist is expected to have benefited from the above-mentioned factors, while inversion of the yield curve and rising deposit costs are likely to have limited NII growth. The consensus estimate for TFC’s NII (FTE) of $3.54 billion suggests a 6.4% year-over-year decline. Truist will come out with third-quarter 2023 results on Oct 19.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.