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Despite dismal investment banking and trading performance, loan growth, higher interest rates and tax cuts drove Bank of America’s (BAC - Free Report) third-quarter 2018 earnings of 66 cents per share, which handily outpaced the Zacks Consensus Estimate of 62 cents. Also, the figure was 44% higher than the prior-year quarter.
Shares of BofA rose nearly 1% in the pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.
Net interest income growth (driven by higher interest rates and loan growth), higher card income and rise in equity underwriting fees (up 26%) supported revenues. Operating expenses also recorded a decline. Additionally, provision for credit losses decreased during the reported quarter.
As expected, trading revenues declined, as both equity and fixed income trading witnessed a slowdown. Also, advisory fees and debt issuance fees recorded a fall. Further, mortgage banking fees were lower on decrease in loan production.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income.
Loans & Higher Rates Aid Revenues, Expenses Down
Net revenues amounted to $22.8 billion, beating the Zacks Consensus Estimate of $22.6 billion. Also, the reported figure grew 4% from the year-ago quarter.
Net interest income, on a fully taxable-equivalent basis, grew 5% year over year to $12 billion. Furthermore, net interest yield expanded 6 basis points (bps) to 2.42%.
Non-interest income increased 2% from the year-ago quarter to $10.9 billion. The rise was mainly due to higher card fees, partly offset by a fall in investment banking income.
Non-interest expenses were $13.1 billion, down 2% year over year.
Credit Quality Improves
Provision for credit losses decreased 14% on a year-over-year basis to $716 million. Also, as of Sep 30, 2018, ratio of non-performing assets ratio was 0.59%, down 16 bps year over year. This was largely attributable to credit quality improvement in consumer and commercial loan portfolios.
However, net charge-offs rose 4% from the year-ago quarter to $932 million. The increase was primarily driven by credit card portfolio seasoning and loan growth.
Strong Capital Position
The company’s book value per share as of Sep 30, 2018, was $24.33 compared with $23.87 as of Sep 30, 2017. Tangible book value per share as of Sep 30, 2018, was $17.23, up from $17.18 a year ago.
At the end of September 2018, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.5%, down from 11.9% as of Sep 30, 2017.
Our Take
BofA’s efforts to realign its balance sheet and focus on core operations will likely support bottom-line growth. Also, the bank’s efforts to digitize operations and branch expansion plans are expected to support financials.
In addition, it is well poised to benefit from loan growth, while flattening of yield curve remains a concern. Mortgage banking income continued to decline due to lower volumes and a fall in refinancing activity. Also, investment banking performance was disappointing. These are expected to have an adverse impact on the company’s revenues.
Bank of America Corporation Price, Consensus and EPS Surprise
Higher-than-expected equity trading revenues and rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2018 earnings of $2.34 per share, which outpaced the Zacks Consensus Estimate of $2.24. The figure was up 33% from the prior-year quarter.
Impacted by lower mortgage banking revenues, Wells Fargo (WFC - Free Report) recorded a negative earnings surprise of 3.4% in third-quarter 2018. Earnings of $1.13 per share missed the Zacks Consensus Estimate of $1.17. However, the bottom line compared favorably with 83 cents recorded in the prior-year quarter.
Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in the third quarter. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year.
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BofA (BAC) Beats Q3 Earnings on Loan Growth & Higher Rates
Despite dismal investment banking and trading performance, loan growth, higher interest rates and tax cuts drove Bank of America’s (BAC - Free Report) third-quarter 2018 earnings of 66 cents per share, which handily outpaced the Zacks Consensus Estimate of 62 cents. Also, the figure was 44% higher than the prior-year quarter.
Shares of BofA rose nearly 1% in the pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.
Net interest income growth (driven by higher interest rates and loan growth), higher card income and rise in equity underwriting fees (up 26%) supported revenues. Operating expenses also recorded a decline. Additionally, provision for credit losses decreased during the reported quarter.
As expected, trading revenues declined, as both equity and fixed income trading witnessed a slowdown. Also, advisory fees and debt issuance fees recorded a fall. Further, mortgage banking fees were lower on decrease in loan production.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income.
Loans & Higher Rates Aid Revenues, Expenses Down
Net revenues amounted to $22.8 billion, beating the Zacks Consensus Estimate of $22.6 billion. Also, the reported figure grew 4% from the year-ago quarter.
Net interest income, on a fully taxable-equivalent basis, grew 5% year over year to $12 billion. Furthermore, net interest yield expanded 6 basis points (bps) to 2.42%.
Non-interest income increased 2% from the year-ago quarter to $10.9 billion. The rise was mainly due to higher card fees, partly offset by a fall in investment banking income.
Non-interest expenses were $13.1 billion, down 2% year over year.
Credit Quality Improves
Provision for credit losses decreased 14% on a year-over-year basis to $716 million. Also, as of Sep 30, 2018, ratio of non-performing assets ratio was 0.59%, down 16 bps year over year. This was largely attributable to credit quality improvement in consumer and commercial loan portfolios.
However, net charge-offs rose 4% from the year-ago quarter to $932 million. The increase was primarily driven by credit card portfolio seasoning and loan growth.
Strong Capital Position
The company’s book value per share as of Sep 30, 2018, was $24.33 compared with $23.87 as of Sep 30, 2017. Tangible book value per share as of Sep 30, 2018, was $17.23, up from $17.18 a year ago.
At the end of September 2018, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.5%, down from 11.9% as of Sep 30, 2017.
Our Take
BofA’s efforts to realign its balance sheet and focus on core operations will likely support bottom-line growth. Also, the bank’s efforts to digitize operations and branch expansion plans are expected to support financials.
In addition, it is well poised to benefit from loan growth, while flattening of yield curve remains a concern. Mortgage banking income continued to decline due to lower volumes and a fall in refinancing activity. Also, investment banking performance was disappointing. These are expected to have an adverse impact on the company’s revenues.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation Price, Consensus and EPS Surprise | 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-than-expected equity trading revenues and rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2018 earnings of $2.34 per share, which outpaced the Zacks Consensus Estimate of $2.24. The figure was up 33% from the prior-year quarter.
Impacted by lower mortgage banking revenues, Wells Fargo (WFC - Free Report) recorded a negative earnings surprise of 3.4% in third-quarter 2018. Earnings of $1.13 per share missed the Zacks Consensus Estimate of $1.17. However, the bottom line compared favorably with 83 cents recorded in the prior-year quarter.
Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in the third quarter. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>