Key Takeaways

  • Bank of America's net interest margin beat analyst estimates.
  • Net interest margin reflects the difference between the interest banks earn on their assets and the interest they pay out to depositors and other creditors.
  • Net income was boosted by a reserve release of $1.1 billion.
Bank of America Earnings Results
Metric Beat/Miss/Match Reported Value Analysts' Prediction
EPS Beat $0.85 $0.70
Revenue Beat $22.8B $21.6B
Net Interest Margin Beat 1.68% 1.63%

Source: Predictions based on analysts' consensus from Visible Alpha

Bank of America (BAC) Financial Results: Analysis

Bank of America Corporation (BAC) reported Q3 FY 2021 earnings that beat analysts' consensus estimates. Earnings per share (EPS) exceeded analyst expectations, rising 66.7% year over year (YOY). The bank's quarterly revenue also came in above estimates, up 12.3% from the year-ago quarter. Net interest margin surpassed analyst forecasts. The company's shares were up more than 2% in pre-market trading. Over the past year, Bank of America's shares have provided a total return of 76.5%, well above the S&P 500's total return of 24.3%.

BAC Net Interest Margin

Bank of America's net interest margin rose for the first time since the final quarter of FY 2018. Net interest margin is a key metric that measures the difference between the income banks generate from credit products like loans and mortgages and the interest they pay to depositors and other creditors. It is analogous to gross margin reported by non-financial companies, which is the difference between sales and cost of goods sold. In extremely low interest rate environments, net interest margins get squeezed as banks lower rates charged to borrowers in order to remain competitive but are reluctant to push rates they pay to creditors below the lower zero bound.

Bank of America said that, despite interest rates remaining low, its net interest income improved due to increasing loan balances, which rose for the second straight quarter. Overall net income was boosted by a loan loss reserve release of $1.1 billion as asset quality improved during the quarter. Last year, banks put aside billions of dollars as provisions for credit losses amid the COVID-19 pandemic. As the economy improves and risk of defaults declines, banks have begun to release those reserves.

Bank of America's next earnings report (for Q4 FY 2021) is estimated to be released on Jan. 18, 2022.