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Why Is Bank of America (BAC) Up 8.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 8.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Bank of America Q3 Earnings Beat on Solid NII, Provisions & IB Ail
Bank of America’s third-quarter 2022 earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared unfavorably with 85 cents earned in the prior-year quarter. The reported quarter’s number included $354 million related to the settlement of “legacy monoline insurance litigation.”
Driven by robust loan growth (loan balances up 11.5% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in net interest income.
Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 12.1%. Also, combined credit and debit card spending rose 9%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding DVA) were up 13% from the prior-year quarter. A 27% jump in fixed-income trading fees more than offset a 4% decrease in equity trading income.
As expected, the company’s investment banking business did not perform well. IB fees of $1.2 billion tanked 46.2% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees plunged 34% to $432 million.
Likewise, the asset management business performance was subdued. The bank posted a 10.9% decline in asset management fees in the quarter.
Overall, the company’s net income applicable to common shareholders declined 9.4% from the prior-year quarter to $6.58 billion.
Revenues Improve, Expenses Rise
Net revenues were $24.5 billion, which beat the Zacks Consensus Estimate of $23.6 billion. The top line grew 7.6% from the prior year.
NII (fully taxable-equivalent basis) rose 23.9% to $13.9 billion, driven by higher interest rates, lower premium amortization and loan growth. Also, the net interest yield expanded 20 basis points (bps) to 2.06%.
Non-interest income decreased 8% to $10.7 billion. The fall was mainly due to lower fees and commissions.
Non-interest expenses were $15.3 billion, up 6%. The rise was largely due to the inclusion of the above-mentioned litigation settlement charges. Excluding this one-time charge, expenses would have been $14.9 billion.
The efficiency ratio was 62.45%, down from 63.43% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Deteriorates
Provision for credit losses was $898 million against a benefit of $624 million in the prior-year quarter. This was mainly attributable to credit card loan growth and worsening macroeconomic outlook.
Net charge-offs rose 12.3% year over year to $520 million.
As of Sep 30, 2022, non-performing loans and leases as a percentage of total loans were 0.39%, down 12 bps year over year.
Capital Position Strong
The company’s book value per share as of Sep 30, 2022, was $29.96 compared with $30.22 a year ago. Tangible book value per share as of the third-quarter end was $21.21, down from $21.69.
At the end of September 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.6%, on par with the Sep 30, 2021 level.
Outlook
Management expects NII in the fourth quarter to be at least $1.25 billion higher than in the third quarter.
With expectations of growing NII along with strong expense control, the company expects to drive operating leverage and see efficiency ratio of 60%.
In 2022, loan growth is expected in the mid to high-single digits.
Driven by efforts taken to eliminate non-sufficient funds (NSF) fees and reduce the overdraft charge per occurrence, the company expects fees related to these to fall 75% in 2022 from nearly $1 billion earned in 2021.
For 2022, expenses are expected to be $61 billion. That includes the cost noted for resolving the second-quarter and third-quarter regulatory and litigation matters. Without that, expenses are expected to be a little more than $60 billion.
The tax rate in the fourth quarter of 2022 is expected to be similar to the third-quarter level. For 2022, the tax rate will likely be 12%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Bank of America belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, Wells Fargo (WFC - Free Report) , has gained 4.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Wells Fargo reported revenues of $19.51 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $1.30 for the same period compares with $1.17 a year ago.
For the current quarter, Wells Fargo is expected to post earnings of $1.28 per share, indicating a change of -7.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.
Wells Fargo has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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Why Is Bank of America (BAC) Up 8.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 8.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Bank of America Q3 Earnings Beat on Solid NII, Provisions & IB Ail
Bank of America’s third-quarter 2022 earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared unfavorably with 85 cents earned in the prior-year quarter. The reported quarter’s number included $354 million related to the settlement of “legacy monoline insurance litigation.”
Driven by robust loan growth (loan balances up 11.5% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in net interest income.
Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 12.1%. Also, combined credit and debit card spending rose 9%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding DVA) were up 13% from the prior-year quarter. A 27% jump in fixed-income trading fees more than offset a 4% decrease in equity trading income.
As expected, the company’s investment banking business did not perform well. IB fees of $1.2 billion tanked 46.2% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees plunged 34% to $432 million.
Likewise, the asset management business performance was subdued. The bank posted a 10.9% decline in asset management fees in the quarter.
Overall, the company’s net income applicable to common shareholders declined 9.4% from the prior-year quarter to $6.58 billion.
Revenues Improve, Expenses Rise
Net revenues were $24.5 billion, which beat the Zacks Consensus Estimate of $23.6 billion. The top line grew 7.6% from the prior year.
NII (fully taxable-equivalent basis) rose 23.9% to $13.9 billion, driven by higher interest rates, lower premium amortization and loan growth. Also, the net interest yield expanded 20 basis points (bps) to 2.06%.
Non-interest income decreased 8% to $10.7 billion. The fall was mainly due to lower fees and commissions.
Non-interest expenses were $15.3 billion, up 6%. The rise was largely due to the inclusion of the above-mentioned litigation settlement charges. Excluding this one-time charge, expenses would have been $14.9 billion.
The efficiency ratio was 62.45%, down from 63.43% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Deteriorates
Provision for credit losses was $898 million against a benefit of $624 million in the prior-year quarter. This was mainly attributable to credit card loan growth and worsening macroeconomic outlook.
Net charge-offs rose 12.3% year over year to $520 million.
As of Sep 30, 2022, non-performing loans and leases as a percentage of total loans were 0.39%, down 12 bps year over year.
Capital Position Strong
The company’s book value per share as of Sep 30, 2022, was $29.96 compared with $30.22 a year ago. Tangible book value per share as of the third-quarter end was $21.21, down from $21.69.
At the end of September 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.6%, on par with the Sep 30, 2021 level.
Outlook
Management expects NII in the fourth quarter to be at least $1.25 billion higher than in the third quarter.
With expectations of growing NII along with strong expense control, the company expects to drive operating leverage and see efficiency ratio of 60%.
In 2022, loan growth is expected in the mid to high-single digits.
Driven by efforts taken to eliminate non-sufficient funds (NSF) fees and reduce the overdraft charge per occurrence, the company expects fees related to these to fall 75% in 2022 from nearly $1 billion earned in 2021.
For 2022, expenses are expected to be $61 billion. That includes the cost noted for resolving the second-quarter and third-quarter regulatory and litigation matters. Without that, expenses are expected to be a little more than $60 billion.
The tax rate in the fourth quarter of 2022 is expected to be similar to the third-quarter level. For 2022, the tax rate will likely be 12%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Bank of America belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, Wells Fargo (WFC - Free Report) , has gained 4.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Wells Fargo reported revenues of $19.51 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $1.30 for the same period compares with $1.17 a year ago.
For the current quarter, Wells Fargo is expected to post earnings of $1.28 per share, indicating a change of -7.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.
Wells Fargo has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.