Shares of Bank of America Corp. dropped Wednesday, after the bank reported a better-than-expected profit but revenue that fell more than forecast, while providing an upbeat outlook for net interest income next year.
“[W]e believe Q3 likely will be the bottom for NII and we are optimistic it will move higher in 2021.” — Chief Financial Officer Paul Donofrio in a post-earnings conference call with analysts, according to a FactSet transcript .
Net interest income (NII) is the difference between what the bank earns on its interest-bearing assets, like loans, and what it pays out in interest on liabilities used to fund those assets.
Here are some of the reasons for Donofrio’s optimism:
Earlier Wednesday, BofA reported that third-quarter NII declined 16.9% from last year, and fell 6.6% from the second quarter, to $10.13 billion, to miss the FactSet consensus of $10.24 billion. Total revenue dropped 10.8% from a year ago to $20.34 billion, below expectations of $20.8 billion.
The stock /zigman2/quotes/200894270/composite BAC +5.81% dropped 4.1% in afternoon trading, putting it on track to extend the streak of disappointing earnings reports to four quarters. The stock dropped on the day that earnings were reported the past three quarters, by an average of about 3.7%, according to a MarketWatch analysis of FactSet data.
Meanwhile, net income was down to $4.9 billion, or 51 cents a share, from $5.8 billion, or 56 cents a share, but beat the FactSet earnings consensus of 49 cents a share.
CEO Moynihan also in effect called a post-pandemic bottom, by saying the second quarter saw the worst of the COVID-19 crisis in terms of customer spending. And in the third quarter, Moynihan said loan demand is stabilizing, “and we may have seen a trough in September.”
“As the economy continues to grind forward, we believe we see some demand recovery over the next few quarters,” Moynihan said, according to a FactSet transcript.
BofA’s stock has tumbled 32.0% year to date, while the SPDR Financial Select Sector exchange-traded fund /zigman2/quotes/209660484/composite XLF +3.50% has lost 19.1% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.62% has gained 0.2%.