Bank of America Corp (NYSE: BAC) was able to report $0.07 earnings per share (EPS) beat in the third quarter of fiscal 2016 (3QFY16) mainly by higher-than-expected fee income, a lower-than-anticipated loan loss provision, and a lower-than-forecasted core tax rate. The better fee income resulted from fixed income, commodity and currency (FICC) and investment banking fees.
Barclays sell-side firm has maintained positive industry view for big banks and has given Bank of America stock equal weight rating. It has adjusted its 4QFY16 EPS estimate lower due to seasonality factor, but has maintained its 2017 EPS estimate. The 2017 estimate already encompassed incremental benefits resulting expected improvements in the capital market activities and constant expense reduction efforts.
If we analyze the 3QFY16 result on a sequential basis, then we’ll find slightly higher net interest income (which is most likely helped by one extra day this quarter), and the balance sheet to be almost the same. On the other hand, the net interest margin remained the same at 2.23%, but the core fee income jumped up by 2% on better investment banking, trading, and mortgage performance. The card and brokerage business were reported to be lower on quarter-over-quarter (QoQ) basis.
The core expenses of the bank remained more-or-less flat. The bank witnessed higher outside services fees, but luckily those were offset by lower occupancy, equipment, data processing, and marketing expenses. The loan loss provision declined on lower net charge-off and greater reserve release; this was possible due to improvement in the energy sector. Some other positive aspects of last quarter were lower core tax rate and lower average share count (cut by 0.5%).
Barclays has lowered its 4QFY16 EPS estimate by $0.02 to $0.37 due to the reason mentioned above, while it has increased the full year, 2016 EPS estimate to $1.47 from $1.42 over impressive performance witnessed in 3QFY16. They have maintained 2017 EPS estimate at $1.65. The bank changed its accounting methodology this quarter for premium/discount amortization, which will result in less net interest income volatility for the coming quarters.