Analysts believe Bank of America's (BAC 0.38%) earnings will meaningfully climb in the second quarter of 2017, on the back of higher interest rates and lower expenses.
Bank of America's earnings per share are expected to increase 15% to $0.47 per share in the three months ending June 30. That's up from $0.41 per share in the first quarter of this year and the second quarter of last year.
Higher interest rates
Higher interest rates are the most potent catalyst fueling the ongoing growth in Bank of America's bottom line.
The North Carolina-based bank estimated last year that the Federal Reserve's decision to raise rates in December, combined with the increase in long-term interest rates following the presidential election, would translate into $600 million in additional net interest income each quarter this year.
That's just about exactly what investors saw when Bank of America reported first-quarter earnings last month. Its net interest income grew on a year-over-year basis by $573 million.
Things should continue to get better on this front, too.
The Fed raised rates again in March. It was too late to materially impact first-quarter results, but Bank of America says it should add another $150 million in quarterly net interest income going forward.
The central bank is poised to continue inching rates higher, moreover, with a majority of the members on its monetary policy committee in favor of doing so two more times this year.
Lower expenses should provide another catalyst to bolster Bank of America's earnings.
Chairman and CEO Brian Moynihan promised last year to cut the bank's annual expenses by $3 billion by the end of 2018. That's on top of the $25 billion Bank of America has cut since 2011.
One thing helping this is the growth of digital banking. One in five deposits at Bank of America are now made on a mobile device by the 22 million active users of its mobile banking app. Non-teller-assisted transactions cost a fraction as much as teller-assisted ones. They also allow Bank of America to trim its cumbersome branch network.
Bank of America is now on track to report a 62% efficiency ratio by the end of this year, meaning 62% of its revenue is consumed by costs. That's still over the bank's 60% target, but it's meaningfully below its 66% efficiency ratio in the first quarter.
In short, while it's impossible for even the best analysts to accurately predict the future, their optimistic perspective on Bank of America seems well founded.