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BofA (BAC) Q1 Earnings Beat on Big Reserve Release, Fee Income

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Bank of America’s (BAC - Free Report) first-quarter 2021 earnings of 86 cents per share handily beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line compared favorably with 40 cents earned in the prior-year quarter level.

The stock gained almost 1.2% in pre-market trading, indicating that investors are encouraged by the results, which were majorly supported by solid capital markets performance and decent consumer banking business.

Driven by stellar deal making activities during the first quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 356%, while debt issuance fees remained relatively stable. Hence, total investment banking fees soared 54%.

Moreover, BofA’s trading numbers were impressive. Sales and trading revenues (excluding DVA) grew 17% from the prior-year quarter. This was driven by 10% rise in equity trading income, while fixed income trading fees rose 22%.

Backed by improvement in consumer spending, BofA witnessed 13% growth in total card income on a year-over-year basis. Further, a large reserve release, leading to provision benefits, supported the company’s financials.

However, as expected, a low interest rate environment and muted loan demand hurt BofA’s net interest income. Also, the company recorded a rise in operating expenses.

Performance of the company’s business segments, in terms of net income generation, was impressive. All segments witnessed a robust improvement in net income. Overall, net income soared substantially from the prior-year quarter to $8.1 billion.

Fee Income Aids Revenues, Expenses Rise

Net revenues amounted to $22.8 billion, which surpassed the Zacks Consensus Estimate of $21.9 billion. The top line was on par with the prior-year level.

Net interest income (fully taxable-equivalent basis) declined 16% year over year to $10.3 billion, mainly due to lower interest rates and fall in loan balance. Also, net interest yield contracted 65 basis points (bps) to 1.68%.

Further, non-interest income grew 19% from the year-ago quarter to $12.6 billion.

Non-interest expenses were $15.5 billion, up 15%.

Efficiency ratio was 67.98%, up from 59.19% in the year-ago quarter. Increase in the efficiency ratio indicates deterioration in profitability.

Credit Quality: Mixed Bag

Provision for credit losses was a benefit of 1.9 billion against a provision of $4.8 billion in the prior-year quarter. This reflected a reserve release of $2.7 billion amid an improved macroeconomic outlook and balance declines. Also, net charge-offs plunged 26% to $823 million.

As of Mar 31, 2021, non-performing loans and leases were 0.58%, up 19 bps.

Strong Capital Position

The company’s book value per share as of Mar 31, 2021 was $29.07 compared with $27.84 a year ago. Tangible book value per share as of first quarter-end was $20.90, up from $19.79.

At the end of March 2021, common equity tier 1 capital ratio (Advanced approaches) was 13.0%, up from 11.1% as of Mar 31, 2020.

Share Repurchase Update

During the quarter, BofA repurchased shares worth $3.5 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.

Conclusion

BofA’s focus on digitizing operations and branch expansion plans are likely to support growth, going forward. However, weak loan demand and near-zero interest rates are major concerns.

Bank of America Corporation Price, Consensus and EPS Surprise

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 Major Banks

Solid mortgage and capital markets performance supported Wells Fargo’s (WFC - Free Report) first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents.

Large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

Given the strong capital markets performance, Goldman Sachs’ (GS - Free Report) first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter.

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