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Bank of America’s (BAC - Free Report) second-quarter 2022 earnings of 73 cents per share have lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion plunged 47% year over year in the quarter, reflecting weaker industry-wide performance of the underwriting business. Advisory fees declined 3.7% to $392 million.
The asset management business also did not offer much support. The bank posted a 1.7% decline in asset management fees in the quarter.
Nevertheless, driven by robust growth in loans (loan balances up 12.2% from the prior-year period) and rising interest rates, BofA recorded an improvement in net interest income (NII). Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 12%. Also, combined credit and debit card spending rose 10%.
BAC’s trading numbers were also good. Sales and trading revenues (excluding DVA) were up 11% from the prior-year quarter. A 19% rise in fixed-income trading fees and a 2% increase in equity trading income offered support.
Overall, the company’s net income applicable to common shareholders declined 33.8% from the prior-year quarter to $5.93 billion.
Revenues Improve, Expenses Rise
Net revenues were $22.69 billion, which marginally lagged the Zacks Consensus Estimate of $22.97 billion. The top line grew 5.7% from the prior year.
NII (fully taxable-equivalent basis) rose 21.3% year over year to $12.55 billion, driven by higher interest rates, lower premium amortization and loan growth. Also, the net interest yield grew 25 basis points (bps) to 1.86%.
Non-interest income decreased 8.8% from the year-ago quarter to $10.24 billion. The fall was mainly due to lower fees and commissions.
Non-interest expenses were $15.27 billion, up 1.5% year over year. The rise was due to an increase in compensation and benefit costs, information processing and communications costs, professional fees, and other general operating expenses.
The efficiency ratio was 67.32%, down from 70.09% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality: A Mixed Bag
Provision for credit losses was $523 million against a benefit of $1.62 billion in the prior-year quarter. In the quarter, the company recorded a net reserve release of $48 million.
Net charge-offs were down 4% year over year to $571 million. As of Jun 30, 2022, non-performing loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties were 0.42%, down 13 bps year over year.
Capital Position Strong
The company’s book value per share as of Jun 30, 2022, was $29.87 compared with $29.89 a year ago. Tangible book value per share as of the second-quarter end was $21.13, down from $21.61.
At the end of June 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.2% compared with 13% as of Jun 30, 2021.
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
Higher reserve build and a decline in investment banking fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.
Higher interest rates and a solid rise in loan balances aided JPM’s net interest income. Operating expenses recorded a year-over-year rise.
First Republic Bank’s second-quarter 2022 earnings per share of $2.16 surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.
FRC’s results were supported by an increase in net interest income and non-interest income. The company’s capital position was strong in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.
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BofA (BAC) Q2 Earnings Lag Estimates, Revenues & Costs Rise Y/Y
Bank of America’s (BAC - Free Report) second-quarter 2022 earnings of 73 cents per share have lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter.
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion plunged 47% year over year in the quarter, reflecting weaker industry-wide performance of the underwriting business. Advisory fees declined 3.7% to $392 million.
The asset management business also did not offer much support. The bank posted a 1.7% decline in asset management fees in the quarter.
Nevertheless, driven by robust growth in loans (loan balances up 12.2% from the prior-year period) and rising interest rates, BofA recorded an improvement in net interest income (NII). Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 12%. Also, combined credit and debit card spending rose 10%.
BAC’s trading numbers were also good. Sales and trading revenues (excluding DVA) were up 11% from the prior-year quarter. A 19% rise in fixed-income trading fees and a 2% increase in equity trading income offered support.
Overall, the company’s net income applicable to common shareholders declined 33.8% from the prior-year quarter to $5.93 billion.
Revenues Improve, Expenses Rise
Net revenues were $22.69 billion, which marginally lagged the Zacks Consensus Estimate of $22.97 billion. The top line grew 5.7% from the prior year.
NII (fully taxable-equivalent basis) rose 21.3% year over year to $12.55 billion, driven by higher interest rates, lower premium amortization and loan growth. Also, the net interest yield grew 25 basis points (bps) to 1.86%.
Non-interest income decreased 8.8% from the year-ago quarter to $10.24 billion. The fall was mainly due to lower fees and commissions.
Non-interest expenses were $15.27 billion, up 1.5% year over year. The rise was due to an increase in compensation and benefit costs, information processing and communications costs, professional fees, and other general operating expenses.
The efficiency ratio was 67.32%, down from 70.09% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality: A Mixed Bag
Provision for credit losses was $523 million against a benefit of $1.62 billion in the prior-year quarter. In the quarter, the company recorded a net reserve release of $48 million.
Net charge-offs were down 4% year over year to $571 million. As of Jun 30, 2022, non-performing loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties were 0.42%, down 13 bps year over year.
Capital Position Strong
The company’s book value per share as of Jun 30, 2022, was $29.87 compared with $29.89 a year ago. Tangible book value per share as of the second-quarter end was $21.13, down from $21.61.
At the end of June 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.2% compared with 13% as of Jun 30, 2021.
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
Higher reserve build and a decline in investment banking fees affected JPMorgan’s (JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million.
Higher interest rates and a solid rise in loan balances aided JPM’s net interest income. Operating expenses recorded a year-over-year rise.
First Republic Bank’s second-quarter 2022 earnings per share of $2.16 surpassed the Zacks Consensus Estimate of $2.05. Additionally, the bottom line improved 10.8% from the year-ago quarter.
FRC’s results were supported by an increase in net interest income and non-interest income. The company’s capital position was strong in the quarter. Yet, higher expenses and elevated provision for credit losses were the offsetting factors.