Bank of America Q3 FY2022 Earnings Report Preview: What to Look For

Key Takeaways

  • Analysts estimate EPS of 78 cents vs. 85 cents in Q3 FY 2021.
  • Internet curiosity margin is anticipated to rise sequentially and YOY, whereas not but returning to pre-pandemic ranges.
  • Income is anticipated to extend at a tepid tempo YOY.

Financial institution of America Corp. (BAC), the second-largest U.S. financial institution by consolidated belongings, is more likely to report that Q3 FY 2022 revenue declined modestly on a year-over-year (YOY) foundation, whilst curiosity earnings elevated, due partially to mounting provisions for credit score losses.

Financial institution of America in all probability will say earnings per share (EPS) dropped by 8.7% to 78 cents, whereas income grew by a modest 3.3% to $23.5 billion, in keeping with a median estimate from Seen Alpha. The corporate studies earnings on the morning of Oct. 17.

Main monetary establishments comparable to Financial institution of America face challenges as markets sag, mergers sluggish and the Federal Reserve hikes rates of interest to combat inflation. Whereas Financial institution of America’s web curiosity earnings rose within the second quarter due to these larger charges, a big increase in provision for credit score losses eroded revenue. Chief Govt Officer (CEO) Brian Moynihan mentioned on Oct. 12 that U.S. customers stay in good monetary well being regardless of accelerating inflation, suggesting the lender might rebound from the pandemic despite a slowing financial system.

The corporate can also be more likely to say its web curiosity margin climbed to a two-year excessive, though it is nonetheless removed from pre-pandemic ranges. Traders look to Financial institution of America’s web curiosity margin as a result of it is a key banking business metric that reveals the distinction between curiosity banks earn on their belongings and the curiosity they pay to depositors and collectors.

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Financial institution of America shares spiked in August earlier than dropping sharply in September 2022. That is half of a bigger downward pattern that started in February of this yr. Total, Financial institution of America inventory fell 29.9% within the 12 months by means of Oct. 12, in contrast with a drop of 17.8% for the S&P 500.

Supply: TradingView.

Financial institution of America Earnings Historical past

Financial institution of America’s revenue has wavered over the previous a number of years. The corporate posted 4 consecutive quarters of YOY EPS declines in FY 2020 because the pandemic unfolded. Then every quarter of FY 2021 confirmed a YOY enchancment. Now, the primary two quarters of FY 2022 have returned to YOY drops in EPS.

The agency’s income efficiency has been equally erratic. Income declined YOY for 5 consecutive quarters beginning in This fall FY 2019 after which once more for Q2 FY 2021. Though 5 of the final six quarters have posted YOY income progress, a number of of them have skilled anemic good points.

Financial institution of America Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Earnings Per Share ($) 0.78 0.85 0.51
Income ($B) 23.5 22.8 20.3
Internet Curiosity Margin (%) 2.00 1.68 1.72

Supply: Seen Alpha

The Key Metric

Financial institution of America’s web curiosity margin measures the hole between the earnings banks generate from credit score merchandise comparable to loans and mortgages and the curiosity they pay to depositors and different collectors. It’s analogous to gross margin, reported by non-financial corporations, which is the distinction between gross sales and price of products offered. In extraordinarily low rate of interest environments, web curiosity margins get squeezed as banks decrease charges charged to debtors to stay aggressive however they’re reluctant to push charges they pay to collectors under the decrease zero certain, or zero nominal rate of interest. Observe that Financial institution of America refers to web curiosity margin as “web yield on interest-earning belongings” in its monetary supplies.

Internet curiosity margin might present traders with an particularly useful view of Financial institution of America’s monetary well-being at this stage of its restoration. The financial institution’s web curiosity margin—already declining modestly from This fall FY 2018—fell in FY 2020 and early FY 2021 whereas the Fed lowered rates of interest amid the COVID-19 pandemic. Price hikes in current months have begun to enhance Financial institution of America’s web curiosity margin.

Financial institution of America’s web curiosity margin hovered between 2.33% and a pair of.52% from Q1 FY 2018 by means of Q1 FY 2020. It fell to 1.87% for Q2 FY 2020 and continued to drop over subsequent quarters, reaching as little as 1.61% by Q2 FY 2021. Since that point it has improved with out but recovering all the misplaced floor. Internet curiosity margin reached as excessive as 1.86% for Q2 FY 2022. Analysts now predict web curiosity margin of two.00% for Q3, the best stage in 10 quarters.