Loan and deposit growth offset a declining net interest margin at Bank of America Corp., keeping the bank's net interest income in the fourth quarter of 2019 about flat with the third quarter and helping it beat its target of 1% year-over-year growth for 2019.
But BofA expects net interest income to fall below fourth-quarter levels in the first half of 2020, as lower rates continue to pressure loan yields and hit reinvestment opportunities. Seasonal factors will also reduce net interest income in the second quarter before the bank's NIM stabilizes and balance sheet growth starts to drive net interest income higher in the second half of the year, executives said on a fourth-quarter 2019 earnings call.
Chairman and CEO Brian Moynihan described the fourth quarter as "one of transition from a period of rising rates in 2018 to one that is moving through the impact of the declining rates in the second half of 2019."
Overall, BofA expects net interest income to be down modestly in 2020 relative to 2019. The forecast assumes that interest rates will remain flat with current levels.
Despite the forecast, BofA has been outperforming analyst projections, and executives gave an upbeat assessment of consumer strength and business sentiment as global trade tensions appear to ease.
"We are very encouraged by [net interest income] resiliency," analysts at Wolfe Research said in a note on BofA's fourth-quarter results.
BofA continued to post strong deposit growth, including in core consumer checking accounts, with total deposits rising 3% from Sept. 30, 2019, to $1.435 trillion at Dec. 31, 2019. The bank's cost of interest-bearing deposits also fell 15 basis points from the third quarter of 2019 to 61 basis points in the fourth quarter, even as rates paid on retail accounts appear to have bottomed out at 11 basis points.
CFO Paul Donofrio said the bank plans some further "modest reductions in deposit pricing" if market rates stay flat. If the Federal Reserve cuts again, "we expect deposit rate paid for the industry and for us to decline even further as higher pass-through products in wealth management, global banking react relatively quickly," he said.
Asked about the bank's conviction that net interest income growth will resume in the second half of 2020, Donofrio said the driving factors will be loan and deposit growth and deposit pricing discipline.