Why Bank Of America's Q1 Earnings Soared And Why Q2 Might Disappoint

May 31, 2017 12:08 PM ETBank of America Corporation (BAC)JPM, KBE, WFC, XLF
Chris B Murphy profile picture
Chris B Murphy


  • Bank of America reported better-than-expected Q2 earnings largely due to higher Treasury yields.
  • Net interest income is a key driver for earnings, and our analysis of Q1 yields, we showed how Q1 NII would surpass expectations.
  • However, yields have fallen, narrowing the 2-to-10-year yield spread which typically translates to waning optimism in the economy.
  • Waning optimism about economic growth and lower yields may put pressure on bank stocks in the short-term.

In this continuing series of articles, we've been analyzing how economic fundamentals, Treasury yields, and market events have impacted the stock prices and the profitability of the banking industry.

Prior to the Q1 earnings report for Bank of America Corporation (NYSE:BAC), we analyzed how yields drove net interest income or NII and ultimately earnings. There are a myriad of factors that drive the stock price, but in this analysis, we'll look at how Bank of America (BofA) performed in Q1 versus expectations and Q4.

Also, we'll look forward and attempt to ascertain if yields and economic conditions are favorable for NII and Bank of America.

This analysis also applies to JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) and Bank ETFs like the FinancialSelect Sector SPDR ETF (XLF) and SPDR S&P Bank ETF (KBE).

In full disclosure, this article is not a comprehensive analysis of Bank of America. I am not a financial advisor, and we will only be analyzing a few of the many factors that drive the stock price and profitability of BAC. Before making any investment decision, please contact your financial advisor and past performance does not guarantee future results.

If you recall from January, Mr. Donofrio forecasted a $600M NII jump in Q1.

From my prior article: (March 28, 2017)

BofA is expecting a Q1 boost of $600 million, according to Mr. Donofrio, the CFO, pushing net interest income to approximately $11 billion:

"Net interest income is expected to increase by about $600 million in the first quarter, Chief Financial Officer Paul Donofrio said Friday on conference call with analysts, helped by the Federal Reserve's quarter-point rate hike in December."

- Source: Bloomberg

Q1 results were better than expected coming in at $11.1B or $700 million for the quarter. And in the earnings report, yields

This article was written by

Chris B Murphy profile picture
Hello. I'm a financial writer/blogger & market risk analyst with 15 years in the financial services industry including over 10 years on trading desks of two major banks. --------------------------------------------------------------------------------------------------------------------- My Top-Down meets Bottom-Up Approach to financial analysis includes: ----------------------------------------------------------------------------------------- How Macro Trends & Economic Indicators, Bond yields, Capital flows, & The Fed - Drive Sectors & ultimately Individual Stocks. - Financial analysis of Bank stocks, Commodities, Industrials, & Tech. - Former currency risk advisor to Corporates, with Options and risk policy experience.- Published Work includes: Financial analysis (Investopedia); - Retirement Income (RetirementIncomeAnalyst.com) & Wealth Management Firms. - Hold an Economics degree with a concentration in Finance (University of Rhode Island).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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