Bank of America (BAC) sees volatility in net interest income going forward

Bank of America (NYSE: BAC), like its peers in the banking industry, took a hit to its earnings results from the coronavirus outbreak. The company reported net income of $4 billion, or $0.40 per share, for the first quarter of 2020, which was down 45% year-over-year.

The company saw large declines in debit and credit card spending during the quarter due to people staying at home. Overall payments declined but remained in the high single-digit level year-over-year, coming down from double-digit levels to around 8%. Card spending dropped significantly with impacts from the travel, entertainment and retail areas.

During the quarter, net interest income (NII) amounted to $12.1 billion on a GAAP basis and $12.3 billion on an FTE basis. NII was down compared to Q1 2019 and flat versus Q4 2019. NII was negatively impacted by lower asset yields driven by lower rates. This negative impact was offset by good loan and deposit growth, and by a reduction in the cost of long-term debt due to lower rates which improved funding costs in global markets.

Looking ahead, net interest income results will be influenced by interest rates as well as loan and deposit balances which in turn is likely to be highly influenced by the impact of the pandemic on the economy. These drivers have been volatile and may continue to be in future.

In terms of NII for the rest of the year, based on the rate movement related to banking book sensitivity at the end of last year, NII was estimated to see a reduction of $6.5 billion over the following 12 months.

However, since these rates moved less than 100 basis points, NII is expected to see a change of less than $6.5 billion over the next 12 months. The company expects to mitigate some of this decline through loan and deposit growth as well as deposit pricing actions.

Taking into account all factors, NII is estimated to approach $11 billion in Q2 and then stabilize with loan and deposit growth mitigating the negative impacts of longer-term asset repricing.

Expenses increased 2% year-over-year to $13.5 billion as increased investments in various initiatives were partly offset by savings from operational excellence initiatives. The company is still assessing the impacts of the pandemic on expenses and is not in a position to update its previous outlook for expenses in the mid-$53 billion range for this year.

Shares of Bank of America were down 4% in afternoon hours on Thursday. The stock has dropped 39% since the beginning of the year.