What Happened

Bank of America reported earnings on the morning of January 15. They reported small earnings and revenue beats as share buybacks and trading revenue helped soften the pressure on their banking business from low interest rates. Their net interest margin fell, roughly matching consensus estimates, but the stock fell slightly after BAC's CFO said that interest income will fall further in the first half of 2020.

(Below is Investopedia's original earnings preview, published 1/08/20)

What To Look For

Bank of America Corp. (BAC) has been on a roll, beating Wall Street's earnings estimates in each of the last four quarters. Investors will be watching to see if the bank can do it again when it reports earnings before the market opens on January 15, 2020 for Q4 2019.  Bank of America's surging earnings have sharply boosted the stock, which has posted a total return of 39% over the past 12 months, outperforming the S&P 500's nearly 26% total return. Investors will also have their eyes on the bank's net interest margin, a key metric for lending institutions. Analysts are expecting Bank of America's net interest margin, along with earnings and revenue, to fall slightly from the same quarter a year ago.

One Year Total Return for S&P 500 and BAC
Source: TradingView.

Bank of America's stock continued its upward surge following an earnings report in mid-October that beat analyst estimates. Earnings per share (EPS) came in at $0.56 for Q3, surprising analyst estimates of $0.51 by 9.8%. It was the bank's largest earnings beat since the 11.1% surprise for the final quarter of 2018.

Earnings for Q3 were down more than 15% from the same three-month period in 2018. But the large drop was due to a one-time non-cash impairment charge, reducing net income by $1.7 billion, or $0.19 per diluted share. Excluding that charge, earnings would have come in at $0.75 per share, resulting in a sharp increase in earnings rather than the reported decline. Analysts expect Bank of America to post a small earnings decline of 1.4% YOY in Q4. 

Revenue for the quarter is also expected to slip by 2.0% in Q4 from the same quarter a year earlier. That would be a sharp reversal from revenue growth in the year earlier period of 11.3% YOY. In Q3, revenue was already showing softness. It rose only 0.4% YOY, a marked slowdown from Q3 2018 when revenue grew 4.3% YOY.

Bank of America Key Metrics
  Estimate for Q4 2019 (FY) Actual for Q4 2018 (FY) Actual for Q4 2017 (FY)
Earnings Per Share ($) 0.69 0.70 0.20
Revenue ($B) 22.2 22.7 20.4
Net Interest Margin (%) 2.35 2.52 2.39

Source: Visible Alpha

As mentioned, investors will also be closely watching Bank of America's net interest margin, a ratio of the difference between what a lending institution earns on its assets and what it pays for its credit products such as loans and mortgages. The net interest margin is a gauge of how successful a lending institution is at investing the capital it has raised.

Bank of America's net interest margin is expected to decline to 2.35% for Q4 2019, a decline from 2.52% from the same quarter a year ago. With interest rates at historic lows, lower interest rates tend to cut into net interest margins as bank's are forced by the pressures of competition to lower the rates they offer customers. After three years of successive rate hikes, the Federal Reserve began cutting interest rates again this year, which has put pressure on net interest margins.

That pressure showed on Bank of America's numbers in Q3. The bank also reported a YOY decline to 2.41% from the year ago period of 2.45%. However, total net interest income increased to $12.2 billion in Q3 YOY. Bank of America says the increase was driven by loan and deposit growth, but was partly offset by lower interest rates.