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BofA (BAC) Q4 Earnings Beat Estimates on Solid Trading & NII
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Bank of America’s (BAC - Free Report) fourth-quarter 2022 earnings of 85 cents per share surpassed the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 82 cents earned in the prior-year quarter. Our estimate for earnings was 80 cents per share.
Driven by robust loan growth (loan balances up 6.9% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in net interest income (NII). We had projected 8.1% growth in loan balances.
Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21%. We had projected 17.9% revenue growth for this business. Also, combined credit and debit card spending rose 5%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 27% from the prior-year quarter. Fixed-income trading fees rose 49% and equity trading income increased 1%.
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion tanked 54.4% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees plunged 42.8% to $486 million.
Probably because of the weak IB business performance, shares of the company lost almost 3% in pre-market trading despite reporting better-than-expected earnings.
Overall, the company’s net income applicable to common shareholders increased 1.9% from the prior-year quarter to $6.90 billion. Our estimate for the same was $6.43 billion.
For 2022, earnings of $3.19 per share surpassed the Zacks Consensus Estimate of $3.11. The bottom line compared unfavorably with $3.57 earned in the prior year. Our estimate for earnings was $3.13. Net income applicable to common shareholders declined 14.9% from the prior year to $26.02 billion. Our estimate for the same was $25.54 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $24.5 billion, which marginally beat the Zacks Consensus Estimate of $24.1 billion. The top line grew 11.2% from the prior-year quarter. Our estimate for the metric was $24.19 billion.
For 2022, revenues were $95 billion, which beat the Zacks Consensus Estimate of $94.6 billion. The top line grew 6.6% from the prior year.
Quarterly NII (fully taxable-equivalent basis) rose 28.6% year over year to $14.8 billion, driven by higher interest rates, lower premium amortization expenses and loan growth. Also, the net interest yield expanded 55 basis points (bps) to 2.22%. Our estimates for NII and net interest yield were $15.38 billion and 2.10%, respectively.
Non-interest income decreased 7.5% to $9.9 billion. The fall was mainly due to lower fees and commissions. We had projected a non-interest income of $8.92 billion.
Non-interest expenses were $15.5 billion, up 5.5%. The rise was due to an increase in almost all cost components except for product delivery and transaction-related costs. We had projected non-interest expenses of $15.87 billion.
The efficiency ratio was 63.36%, down from 66.78% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality: Mixed Bag
Provision for credit losses was $1.09 billion against a benefit of $489 million in the prior-year quarter. Net charge-offs rose 90.3% year over year to $689 million.
As of Dec 31, 2022, non-performing loans and leases as a percentage of total loans were 0.37%, down 10 bps year over year.
Capital Position Strong
The company’s book value per share as of Dec 31, 2022, was $30.61 compared with $30.37 a year ago. Tangible book value per share as of the fourth-quarter end was $21.83, up from $21.68.
At the end of December 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.8%, up from 12.3% as of Dec 31, 2021.
Conclusion
BofA’s focus on digitizing operations, 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
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BofA (BAC) Q4 Earnings Beat Estimates on Solid Trading & NII
Bank of America’s (BAC - Free Report) fourth-quarter 2022 earnings of 85 cents per share surpassed the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 82 cents earned in the prior-year quarter. Our estimate for earnings was 80 cents per share.
Driven by robust loan growth (loan balances up 6.9% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in net interest income (NII). We had projected 8.1% growth in loan balances.
Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21%. We had projected 17.9% revenue growth for this business. Also, combined credit and debit card spending rose 5%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 27% from the prior-year quarter. Fixed-income trading fees rose 49% and equity trading income increased 1%.
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion tanked 54.4% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees plunged 42.8% to $486 million.
Probably because of the weak IB business performance, shares of the company lost almost 3% in pre-market trading despite reporting better-than-expected earnings.
Overall, the company’s net income applicable to common shareholders increased 1.9% from the prior-year quarter to $6.90 billion. Our estimate for the same was $6.43 billion.
For 2022, earnings of $3.19 per share surpassed the Zacks Consensus Estimate of $3.11. The bottom line compared unfavorably with $3.57 earned in the prior year. Our estimate for earnings was $3.13. Net income applicable to common shareholders declined 14.9% from the prior year to $26.02 billion. Our estimate for the same was $25.54 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $24.5 billion, which marginally beat the Zacks Consensus Estimate of $24.1 billion. The top line grew 11.2% from the prior-year quarter. Our estimate for the metric was $24.19 billion.
For 2022, revenues were $95 billion, which beat the Zacks Consensus Estimate of $94.6 billion. The top line grew 6.6% from the prior year.
Quarterly NII (fully taxable-equivalent basis) rose 28.6% year over year to $14.8 billion, driven by higher interest rates, lower premium amortization expenses and loan growth. Also, the net interest yield expanded 55 basis points (bps) to 2.22%. Our estimates for NII and net interest yield were $15.38 billion and 2.10%, respectively.
Non-interest income decreased 7.5% to $9.9 billion. The fall was mainly due to lower fees and commissions. We had projected a non-interest income of $8.92 billion.
Non-interest expenses were $15.5 billion, up 5.5%. The rise was due to an increase in almost all cost components except for product delivery and transaction-related costs. We had projected non-interest expenses of $15.87 billion.
The efficiency ratio was 63.36%, down from 66.78% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality: Mixed Bag
Provision for credit losses was $1.09 billion against a benefit of $489 million in the prior-year quarter. Net charge-offs rose 90.3% year over year to $689 million.
As of Dec 31, 2022, non-performing loans and leases as a percentage of total loans were 0.37%, down 10 bps year over year.
Capital Position Strong
The company’s book value per share as of Dec 31, 2022, was $30.61 compared with $30.37 a year ago. Tangible book value per share as of the fourth-quarter end was $21.83, up from $21.68.
At the end of December 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.8%, up from 12.3% as of Dec 31, 2021.
Conclusion
BofA’s focus on digitizing operations, 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Banks
We now look forward to the earnings release of Hancock Whitney (HWC - Free Report) and Bank OZK (OZK - Free Report) .
HWC is slated to release fourth-quarter numbers on Jan 17 and OZK will release quarterly results on Jan 19.