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Bank of America Earnings: Q3 Results Largely as Expected

Expenses look to be higher than anticipated for 2022, but net interest income is still climbing.

Image of Sign for Bank of America

Wide-moat-rated Bank of America (BAC) reported third-quarter earnings of $0.81, roughly in line with the Factset consensus of $0.78 and just below our own estimate of $0.88. The main difference between or own estimates and Bank of America’s results were expenses, which came in 4% above our expectations. A legal charge in the quarter accounted for roughly half of this difference. Top-line revenue on a reported basis came in at $24.5 billion, in line with our own estimate of $24.4 billion and above consensus of $23.5 billion.

Management gave updated guidance for fourth-quarter net interest income, or NII, and expenses. The NII outlook was in line with our full-year 2022 expectations, however, management thinks it can grow NII in 2023 compared with the fourth-quarter 2022 run rate given the current rate outlook. We projected a more dour rate outlook in 2023, and given that rates are now likely to peak higher than we initially expected, we plan to raise our 2023 NII outlook. On the expense front, expenses look likely to come in above what we were expecting in 2022. Management was fairly vague about what it expects for 2023, and we’ll certainly get more details next quarter, but for now we would expect 2% or more growth in 2023. With this in mind, we plan to raise our expense outlook. Overall, these are going to be minor changes, and we do not expect to make a material change to our fair value estimate of $40 per share, with time value of money and slightly more NII in 2023 offsetting an increase in the overall expense base.

Not unexpectedly, fees remain under some pressure. Service fees predictably declined, lower market levels drag down wealth fees, and investment banking remains in a weak environment. Card fees and trading fees were the lone bright spots. This is a common trend we are seeing throughout the industry, and we expect some pressure to continue as long as we remain in the current economic environment, although growth in NII is more than making up for lower fees.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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