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BofA (BAC) Up as Q1 Earnings Beat on Solid Lending, Lower Costs
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Bank of America’s (BAC - Free Report) first-quarter 2022 earnings of 80 cents per share outpaced the Zacks Consensus Estimate of 76 cents. The bottom line compared unfavorably with 86 cents earned in the prior-year quarter. Results in the quarter included net reserve release of $362 million.
The stock rallied almost 1.2% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance and prudent cost management.
Driven by a solid improvement in the lending scenario (loans up 10% from the prior-year period) and rising interest rates, BofA recorded substantial net interest income (NII) growth. Backed by improvement in consumer spending and strong economic growth, the company’s consumer banking business acted as a tailwind, with revenues rising 9.2%. Also, combined credit and debit card spending rose 15%.
The asset management business offered support too. The bank posted a 9.5% increase in asset management fees during the quarter. Further, lower non-interest expenses were a tailwind.
During the quarter, BAC recorded a provision for credit losses largely due to the Russia issue while releasing reserves.
As expected, the company’s investment banking fees (IB) of $1.5 billion plunged 35.1% during the first quarter, given the industry-wide disappointing performance of the underwriting business. Advisory fees grew 18.3% to $473 million.
Also, BAC’s trading numbers were not so impressive. Sales and trading revenues (excluding DVA) tanked 8.5% from the prior-year quarter. An 18.5% fall in fixed income trading fees was a major upsetting factor, while 9.5% growth in equity trading income offered some support.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets, Global Banking and All Others, witnessed an improvement in net income. Overall, net income declined 12.2% from the prior-year quarter to $7.07 billion.
Loan Growth, Higher Rates Aid Revenues, Expenses Down
Net revenues were $23.23 billion, which marginally beat the Zacks Consensus Estimate of $23.22 billion. The top line grew 1.8% from the prior-year level.
NII (fully taxable-equivalent basis) rose 13.3% year over year to $11.68 billion, driven by solid deposit growth, rise in loan balance, higher long-end interest rates and investment of excess liquidity. Also, net interest yield grew 1 basis point (bp) to 1.69%.
Non-interest income decreased 7.8% from the year-ago quarter to $11.66 billion. The fall was mainly due to lower IB revenues.
Non-interest expenses were $15.32 billion, down 1.3%. The decline was mainly due to lower compensation and benefit costs.
Efficiency ratio was 65.95%, down from 67.98% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Impressive
Provision for credit losses was $30 million against a benefit of $1.86 billion in the prior-year quarter. This was driven by reserve build related to Russian exposure and loan growth. During the quarter, the company recorded a net reserve release of $362 million.
Net charge-offs plunged 52.4% to $392 million. As of Mar 31, 2022, non-performing loans and leases were 0.47%, down 11 bps.
Strong Capital Position
The company’s book value per share as of Mar 31, 2022, was $29.70 compared with $29.07 a year ago. Tangible book value per share as of first-quarter-end was $20.99, up from $20.90.
At the end of March 2022, common equity tier 1 capital ratio (Advanced approaches) was 12% compared with 13% as of Mar 31, 2021.
Share Repurchase Update
During the quarter, BofA repurchased shares worth $2.6 billion.
Conclusion
BofA’s focus on digitizing operations, loan growth and branch expansion plans are likely to support growth. However, elevated expenses and near-term geopolitical factors pose major concerns.
Bank of America Corporation Price, Consensus and EPS Surprise
Lower markets revenues, reserve build and a decline in IB fees affected JPMorgan’s (JPM - Free Report) first-quarter 2022 earnings of $2.63 per share, which missed the Zacks Consensus Estimate of $2.73. The reported quarter’s results included net credit reserve build and losses in Credit Adjustments & Other.
During the first quarter, JPM reported a net credit reserve build of $902 million, given the “higher probabilities of downside risks.”
Wells Fargo’s (WFC - Free Report) first-quarter 2022 earnings per share of 88 cents surpassed the Zacks Consensus Estimate of 81 cents. However, the bottom line declined 14% year over year. Results in the reported quarter included the impact of a $1.1 billion decline in allowance for credit losses.
Results benefited from higher NII, provision benefits, a marginal decline in costs and solid average loan growth. Further, WFC’s credit quality remained robust during the quarter. However, disappointing non-interest income and weakness in the mortgage business were the major headwinds.
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BofA (BAC) Up as Q1 Earnings Beat on Solid Lending, Lower Costs
Bank of America’s (BAC - Free Report) first-quarter 2022 earnings of 80 cents per share outpaced the Zacks Consensus Estimate of 76 cents. The bottom line compared unfavorably with 86 cents earned in the prior-year quarter. Results in the quarter included net reserve release of $362 million.
The stock rallied almost 1.2% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance and prudent cost management.
Driven by a solid improvement in the lending scenario (loans up 10% from the prior-year period) and rising interest rates, BofA recorded substantial net interest income (NII) growth. Backed by improvement in consumer spending and strong economic growth, the company’s consumer banking business acted as a tailwind, with revenues rising 9.2%. Also, combined credit and debit card spending rose 15%.
The asset management business offered support too. The bank posted a 9.5% increase in asset management fees during the quarter. Further, lower non-interest expenses were a tailwind.
During the quarter, BAC recorded a provision for credit losses largely due to the Russia issue while releasing reserves.
As expected, the company’s investment banking fees (IB) of $1.5 billion plunged 35.1% during the first quarter, given the industry-wide disappointing performance of the underwriting business. Advisory fees grew 18.3% to $473 million.
Also, BAC’s trading numbers were not so impressive. Sales and trading revenues (excluding DVA) tanked 8.5% from the prior-year quarter. An 18.5% fall in fixed income trading fees was a major upsetting factor, while 9.5% growth in equity trading income offered some support.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets, Global Banking and All Others, witnessed an improvement in net income. Overall, net income declined 12.2% from the prior-year quarter to $7.07 billion.
Loan Growth, Higher Rates Aid Revenues, Expenses Down
Net revenues were $23.23 billion, which marginally beat the Zacks Consensus Estimate of $23.22 billion. The top line grew 1.8% from the prior-year level.
NII (fully taxable-equivalent basis) rose 13.3% year over year to $11.68 billion, driven by solid deposit growth, rise in loan balance, higher long-end interest rates and investment of excess liquidity. Also, net interest yield grew 1 basis point (bp) to 1.69%.
Non-interest income decreased 7.8% from the year-ago quarter to $11.66 billion. The fall was mainly due to lower IB revenues.
Non-interest expenses were $15.32 billion, down 1.3%. The decline was mainly due to lower compensation and benefit costs.
Efficiency ratio was 65.95%, down from 67.98% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Impressive
Provision for credit losses was $30 million against a benefit of $1.86 billion in the prior-year quarter. This was driven by reserve build related to Russian exposure and loan growth. During the quarter, the company recorded a net reserve release of $362 million.
Net charge-offs plunged 52.4% to $392 million. As of Mar 31, 2022, non-performing loans and leases were 0.47%, down 11 bps.
Strong Capital Position
The company’s book value per share as of Mar 31, 2022, was $29.70 compared with $29.07 a year ago. Tangible book value per share as of first-quarter-end was $20.99, up from $20.90.
At the end of March 2022, common equity tier 1 capital ratio (Advanced approaches) was 12% compared with 13% as of Mar 31, 2021.
Share Repurchase Update
During the quarter, BofA repurchased shares worth $2.6 billion.
Conclusion
BofA’s focus on digitizing operations, loan growth and branch expansion plans are likely to support growth. However, elevated expenses and near-term geopolitical factors pose major concerns.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation price-consensus-eps-surprise-chart | Bank of America Corporation Quote
Currently, BofA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Big Banks
Lower markets revenues, reserve build and a decline in IB fees affected JPMorgan’s (JPM - Free Report) first-quarter 2022 earnings of $2.63 per share, which missed the Zacks Consensus Estimate of $2.73. The reported quarter’s results included net credit reserve build and losses in Credit Adjustments & Other.
During the first quarter, JPM reported a net credit reserve build of $902 million, given the “higher probabilities of downside risks.”
Wells Fargo’s (WFC - Free Report) first-quarter 2022 earnings per share of 88 cents surpassed the Zacks Consensus Estimate of 81 cents. However, the bottom line declined 14% year over year. Results in the reported quarter included the impact of a $1.1 billion decline in allowance for credit losses.
Results benefited from higher NII, provision benefits, a marginal decline in costs and solid average loan growth. Further, WFC’s credit quality remained robust during the quarter. However, disappointing non-interest income and weakness in the mortgage business were the major headwinds.