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BofA's (BAC) Q1 Earnings Top Estimates on Solid Trading & NII
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Bank of America’s (BAC - Free Report) first-quarter 2023 earnings of 94 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared favorably with 80 cents earned in the prior-year quarter. Our estimate for earnings was 75 cents per share.
Shares of the company gained almost 1.5% in pre-market trading as investors are encouraged by solid net interest income (NII) growth and robust trading performance despite a fall in deposits and a deteriorating economic outlook.
Driven by robust loan growth (loan balances up 5.4% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in NII.
Backed by robust consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21.5%. We had projected 16.8% revenue growth for this business. Also, combined credit and debit card spending rose 6%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 9% from the prior-year quarter to $5.1 billion. Fixed-income trading fees rose 29%, while equity trading income decreased 19%.
As expected, the company’s investment banking (IB) business did not perform well. Total IB fees of $668 million tanked 24.1% in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Further, advisory fees plunged 28.7% to $313 million.
Also, during the quarter, BAC witnessed a 7.8% decline in deposit balances amid the banking crisis.
Overall, the company’s net income applicable to common shareholders grew 16% from the prior-year quarter to $7.66 billion. Our estimate for the same was $6.10 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $26.3 billion, which beat the Zacks Consensus Estimate of $25.07 billion. The top line grew 13% from the prior-year quarter. Our estimate for the metric was $24.62 billion.
NII (fully taxable-equivalent basis) rose 24.9% to $14.6 billion, driven by higher interest rates and loan growth. Also, the net interest yield expanded 51 basis points (bps) to 2.20%. Our estimates for NII and net interest yield were $14.44 billion and 2.23%, respectively.
Non-interest income increased 1.3% to $11.8 billion. The rise was mainly due to higher total card income and market making, and similar activities. We had projected a non-interest income of $10.3 billion.
Non-interest expenses were $16.2 billion, up 6%. The rise was due to an increase in almost all cost components except product delivery and transaction-related costs. We had projected non-interest expenses of $16.1 billion.
The efficiency ratio was 61.84%, down from 65.95% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsening
Provision for credit losses was $931 million compared with $30 million in the prior-year quarter. Our estimate for the metric was $1.14 billion. Net charge-offs rose substantially to $807 million.
As of Mar 31, 2023, non-performing loans and leases as a percentage of total loans were 0.38%, down 9 bps year over year.
Capital Position Strong
The company’s book value per share as of Mar 31, 2023, was $31.58 compared with $29.70 a year ago. Tangible book value per share as of the first-quarter end was $22.78, up from $20.99.
At the end of March 2023, the common equity tier 1 capital ratio (Advanced approach) was 12.9%, up from 12% as of Mar 31, 2022.
Conclusion
BofA’s focus on digitizing operations, decent loan growth, higher interest rates and branch expansion plans are likely to support growth. However, elevated expenses and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
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BofA's (BAC) Q1 Earnings Top Estimates on Solid Trading & NII
Bank of America’s (BAC - Free Report) first-quarter 2023 earnings of 94 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared favorably with 80 cents earned in the prior-year quarter. Our estimate for earnings was 75 cents per share.
Shares of the company gained almost 1.5% in pre-market trading as investors are encouraged by solid net interest income (NII) growth and robust trading performance despite a fall in deposits and a deteriorating economic outlook.
Driven by robust loan growth (loan balances up 5.4% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in NII.
Backed by robust consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21.5%. We had projected 16.8% revenue growth for this business. Also, combined credit and debit card spending rose 6%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 9% from the prior-year quarter to $5.1 billion. Fixed-income trading fees rose 29%, while equity trading income decreased 19%.
As expected, the company’s investment banking (IB) business did not perform well. Total IB fees of $668 million tanked 24.1% in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Further, advisory fees plunged 28.7% to $313 million.
Also, during the quarter, BAC witnessed a 7.8% decline in deposit balances amid the banking crisis.
Overall, the company’s net income applicable to common shareholders grew 16% from the prior-year quarter to $7.66 billion. Our estimate for the same was $6.10 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $26.3 billion, which beat the Zacks Consensus Estimate of $25.07 billion. The top line grew 13% from the prior-year quarter. Our estimate for the metric was $24.62 billion.
NII (fully taxable-equivalent basis) rose 24.9% to $14.6 billion, driven by higher interest rates and loan growth. Also, the net interest yield expanded 51 basis points (bps) to 2.20%. Our estimates for NII and net interest yield were $14.44 billion and 2.23%, respectively.
Non-interest income increased 1.3% to $11.8 billion. The rise was mainly due to higher total card income and market making, and similar activities. We had projected a non-interest income of $10.3 billion.
Non-interest expenses were $16.2 billion, up 6%. The rise was due to an increase in almost all cost components except product delivery and transaction-related costs. We had projected non-interest expenses of $16.1 billion.
The efficiency ratio was 61.84%, down from 65.95% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsening
Provision for credit losses was $931 million compared with $30 million in the prior-year quarter. Our estimate for the metric was $1.14 billion. Net charge-offs rose substantially to $807 million.
As of Mar 31, 2023, non-performing loans and leases as a percentage of total loans were 0.38%, down 9 bps year over year.
Capital Position Strong
The company’s book value per share as of Mar 31, 2023, was $31.58 compared with $29.70 a year ago. Tangible book value per share as of the first-quarter end was $22.78, up from $20.99.
At the end of March 2023, the common equity tier 1 capital ratio (Advanced approach) was 12.9%, up from 12% as of Mar 31, 2022.
Conclusion
BofA’s focus on digitizing operations, decent loan growth, higher interest rates and branch expansion plans are likely to support growth. However, elevated expenses and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation price-consensus-eps-surprise-chart | Bank of America Corporation Quote
Currently, BAC carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
Wells Fargo’s (WFC - Free Report) first-quarter 2023 earnings per share of $1.23 outpaced the Zacks Consensus Estimate of $1.15. The figure improved 35% year over year.
WFC’s results benefited from higher net interest income, rising rates and solid average loan growth. A fall in non-interest expenses acted as another tailwind. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC.
Citigroup Inc.’s (C - Free Report) first-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.86 outpaced the Zacks Consensus Estimate of $1.66. Our estimate for earnings was $1.40 per share.
Citigroup witnessed revenue growth in the quarter, backed by higher revenues in the Institutional Clients Group, and Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.