Shares of Bank of America Corp. (BAC) gained in pre-market trading after the investment bank reported better-than-expected Q3 earnings. This was even as the bank’s earnings declined by 10% year-over-year to $0.81 per share in the third quarter, which beat the analysts’ consensus estimate of $0.76 per share. The bank’s drop in earnings was driven by higher expenses and provision for loan losses.
BAC’s Revenues Driven By Higher Investment Banking Fees
Furthermore, the bank’s revenues (net of interest expense) increased by 1% year-over-year to $25.3 billion, in line with analysts’ expectations. The growth in revenues was driven by a year-over-year surge of 18% in investment banking fees to $1.4 billion. This growth was driven by a recent rebound in business activity, as improving market confidence encouraged clients to issue both debt and equity.
However, BofA’s net interest income (NII) declined 3% year-over-year to $14 billion in the third quarter. NII is the difference between what the bank earns on loans and pays on deposits. This decline reflected the bank’s efforts to retain customers by offering higher interest rates amid stiff competition for deposits, as customers increasingly shift funds to higher-yielding options like money market accounts.
Additionally, the bank raised the provision for credit losses to $1.5 billion in Q3, compared to $1.2 billion in the same period last year, reflecting a higher risk of its customers defaulting on loans.
BAC Increases Its Dividend in Q3
The bank announced an 8% rise in its quarterly dividend to $0.26 per share and conducted stock buybacks totaling $3.5 billion during the third quarter.
Is BAC a Good Buy Right Now?
Analysts remain cautiously optimistic about BAC stock, with a Moderate Buy consensus rating based on 13 Buys and six Holds. Over the past year, BAC has surged by more than 50%, and the average BAC price target of $45.89 implies an upside potential of 9.5% from current levels. These analyst ratings are likely to change following BAC’s Q3 results today.
