Bank of America's Third Quarter Earnings Report from a Depositor Point of View

Bank of America came out with its third quarter earnings report. For those interested in the financial details, this Bloomberg article has a good overview of the report along with the recent issues on its foreclosure process. The title of the article "Bank of America Posts $7.3 Billion Loss on Cost of New Rules" makes it sound like Bank of America is hurting. However, this loss was due to a one-time goodwill impairment charge of $10.4B which BofA claims to be "a result of recent legislation and expected impact on debit card business." According to Bloomberg, "Excluding one-time gains and costs, the bank earned $3.1 billion, or 27 cents a share. The average estimate of 26 analysts surveyed by Bloomberg was 14 cents."

Instead of focusing on the financial aspects of the Q3 earnings report, I looked at it from a depositor point of view. I found a few interesting items in Bank of America's Earnings Results Presentation that I thought would be worthwhile to discuss:

Debit Card and Overdrafts

The big news for Bank of America's Q3 earnings report was the goodwill impairment charge of $10.4B. On page 14 of the presentation it stated that the "charge is a result of recent legislation and expected impact on debit card business." Below that statement it states that "some mitigation activities will benefit other business segments, mainly Deposits." That sounds like mitigation activities could include higher fees on deposit accounts.

Page 9 of the presentation had more details on overdrafts. It showed that 58% of fee-generating overdraft transactions came from point of sale debit. That is shown to be going away due to Regulation E. However, at the bottom of page 9 it stated that "nearly 40% of accounts now have overdraft protection." Regulation E required banks to request customer permission for overdraft protection. Apparently, 40% of BofA customers opted in. If that many customers opted in, will BofA really be impacted as much as it claims?

Low Deposit Rates

Deposit rates at Bank of America have always been low, and now they are especially low. An example is BofA's Featured 12-month CD which currently has a 0.60% APY. On page 17 of the presentation, you can see BofA's large interest rate spread (the difference between its loan rate and deposit rate). It shows the average rates paid on total deposits fell from 0.42% to 0.39% from Q2 to Q3. The average consumer loan yield in Q3 was 5.98%, and the average commercial loan yield in Q3 was 4.01%.

Consumer Banking Changes

On page 8 which is titled "Steady Progress on Customer-Focused Franchise", it gave the following bullet:

Introduced e-banking account, ATM emergency cash, and moving forward on new consumer account structure

I reported on the eBanking checking account that BofA rolled out in July. However, I haven't seen any mention of ATM emergency cash. A few more details were included on page 14 under the title "Continuing rollout of new initiatives to drive consumer revenue." On a positive note, it mentioned that Image ATMs are fully deployed. It also suggested that we should see fewer fees: "Recognizing and encouraging other methods of payment from customers in lieu of fees."

If Bank of America's eBanking Checking is a sign of what to expect at Bank of America, fees may only go down for customers who are willing to bank differently. For the case of the eBanking checking, you will have to avoid teller-assisted deposits or withdrawals if you want to avoid a $8.95 monthly fee.