Shares Bank of America (NYSE: BAC) It grew by almost 5% on October 14 after the second largest asset bank in the United States reported third-quarter earnings that exceeded expectations. Meanwhile, shares of other large banks, such as: JPMorgan Chase: and Wales Fargo, fought that day to follow his example. The bank reported a decline in revenue of $ 0.85 per share from revenue of almost $ 22.8 billion, both of which exceeded analysts’ estimates. Here are four reasons why the market liked Bank of America Q3 results.
1. interest income has returned to normal
Interest interest on loans and securities after deducting interest income or interest on deposits and other liabilities finally showed signs of life in the third quarter. In the third quarter, this major driver of bank revenues amounted to about $ 11.2 billion, an increase of about $ 1 billion compared to the third quarter of 2020, and about $ 900 million compared to the second quarter of this year. There was some credit growth in the quarter, net interest income gained from the extra day of the quarter, higher deposit growth, lower premium amortization costs, and more than $ 300 million in interest on Paycheck Protection loans. Chief Financial Officer Paul Donofrio said at the Bank’s Revenue Conference that Bank of America was returning to its forecast for early 2021, when it said that fourth-quarter net interest income should exceed $ 10.3 billion in the first quarter by $ 1. billion
For the fourth quarter, Donofrio said it expects lower interest rates on Paycheck Protection Program loans, but that decline should be offset by modest loan growth, with more liquidity investing in securities at slightly lower costs than premium amortization.
2. The lowest quarter of spending this year
For the first time in several quarters, high spending has not been the focus of Bank of America’s revenue stream. Of course, they were discussed, but analysts were not so concerned about them, mainly because Bank of America had a much better quarter. Period expenses recently amounted to $ 14.4 billion, about $ 600 million lower than in the second quarter.
Investors և analysts would like to see the efficiency ratio below 60%, but it was definitely improving. Management’s conditioned the better quarter due to the absence of one-time expenses in the quarter and the reduction of costs associated with the epidemic. And for the first time since the epidemic, the bank raised revenues faster than expenses, raising operating leverage. Management believes that there are still some costs associated with COVID-19 that the bank can cover. The goal is to limit the growth of net expenditures by 1% to 2% per annum, as revenues grow faster, further increasing operating leverage.
3. The loan is excellent
As an industrial trend, the quality of loans at Bank of America continues to improve. Net repayments of total loans (probability of debt repayment լավ good actual loss rate) decreased from 0.27% in the second quarter to 0.2% in the third quarter. Donofrio said it was the lowest the bank had seen in 50 years. The bank has released $ 1.1 billion in outstanding reserves for loan losses if the economic outlook for the loan outlook is still positive. This returned a net profit of $ 624 million. There may be more reserves on the horizon when the bank’s overall credit loss ratio is still higher than before the epidemic.
4. Investment banks are roaring
Bank of America, the global banking unit in which its investment banking operations are located, continued to record very strong results. Gross investment payments of investment banks amounted to $ 2.2 billion in the quarter, due to the growth of merger-acquisition activity, which is a trend in the field of investment banks. Investment bank payments for the third quarter were the second ever, which was simply lower than the record payments made by the bank in the first quarter of this year. Bank of America now has a 6.9% market share of investment bank payments, ranking fourth. Looking ahead, CFO Donofrio said the investment banking pipeline remains strong.
This article presents the opinion of a writer who may disagree with the position of the “official” offer of Motley Fool Premium Consulting. We are motley! Investigating an investment thesis, even our own, helps all of us think critically about investing, making decisions that will help us become smarter, happier, and richer.