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BofA (BAC) Q2 Earnings Beat on Reserve Release, Advisory Fees
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Bank of America’s (BAC - Free Report) second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter.
Results in the quarter included provision benefits and gains from tax adjustment related to revaluation of the U.K. deferred tax assets.
The stock lost almost 2% in pre-market trading reflecting investors’ concern over disappointing revenue performance. The top line was hurt by weaknesses in trading and underwriting businesses, and lower interest rates. Muted loan demand also adversely impacted revenues.
As expected, BofA’s trading numbers were dismal. Sales and trading revenues (excluding DVA) declined 18.5% from the prior-year quarter. This was due to 38.3% plunge in fixed income trading fees, while 33% improvement in equity trading income was an offsetting factor.
Despite modest rise in loan balance during the quarter, flattening of the yield curve and low interest rate environment hurt BofA’s net interest income. The company recorded a rise in operating expenses.
Driven by stellar deal-making activities during the second quarter, advisory fees rose 9% from the prior-year quarter. However, underwriting business disappointed. The company’s equity and debt underwriting fees declined 5.4% and 4.2%, respectively. Total investment banking fees, thus, fell almost 1%.
A large reserve release, leading to provision benefits, supported the company’s financials. Backed by improvement in consumer spending and economic rebound, BofA witnessed 27% surge in total card income on a year-over-year basis.
Asset management business acted as tailwind. The bank posted 27.1% jump in asset management fees during the quarter.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets, witnessed an improvement in net income.
Overall, net income soared substantially from the prior-year quarter to $9.2 billion.
Dismal Trading Hurts Revenues, Expenses Rise
Net revenues amounted to $21.5 billion, which lagged the Zacks Consensus Estimate of $21.8 billion. The top line declined 3.9% from the prior-year level.
Net interest income (fully taxable-equivalent basis) declined 3.9% year over year to $10.3 billion, mainly due to lower interest rates and soft loan demand. Also, net interest yield contracted 26 basis points (bps) to 1.61%.
Non-interest income declined 2.1% from the year-ago quarter to $11.2 billion.
Non-interest expenses were $15 billion, up 12.2%.
Efficiency ratio was 70.09%, up from 60.06% 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 $1.6 billion against a provision of $5.1 billion in the prior-year quarter. This reflected a reserve release of $2.2 billion amid an improved macroeconomic outlook. Net charge-offs plunged 48.1% to $595 million.
As of Jun 30, 2021, non-performing loans and leases were 0.54%, up 10 bps.
Strong Capital Position
The company’s book value per share as of Jun 30, 2021 was $29.89 compared with $27.96 a year ago. Tangible book value per share as of second quarter-end was $21.61, up from $19.90.
At the end of June 2021, common equity tier 1 capital ratio (Advanced approaches) was 13.0%, up from 11.4% as of Jun 30, 2020.
Capital Deployment Updates
During the quarter, BofA repurchased shares worth $4.2 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
In June-end, following the clearance of this year’s stress test, BofA announced plans to hike dividend by 17% to 21 cents per share, effective third quarter. The company kept the share repurchases plan at previously announced level of $25 billion.
Conclusion
BofA’s focus on digitizing operations and branch expansion plans are likely to support growth, going forward. However, subdued loan demand, rising expenses and near-zero interest rates are near-term concerns.
Bank of America Corporation Price, Consensus and EPS Surprise
Large reserve releases, solid investment banking (“IB”) performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
First Republic Bank delivered an earnings surprise of 14.04% in second-quarter 2021 on solid top-line strength. Earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.71. The bottom line climbed 45.3% from the year-ago quarter.
Goldman Sachs’ (GS - Free Report) second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. The bottom line compares favorably with 53 cents per share earned in the year-earlier quarter.
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BofA (BAC) Q2 Earnings Beat on Reserve Release, Advisory Fees
Bank of America’s (BAC - Free Report) second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter.
Results in the quarter included provision benefits and gains from tax adjustment related to revaluation of the U.K. deferred tax assets.
The stock lost almost 2% in pre-market trading reflecting investors’ concern over disappointing revenue performance. The top line was hurt by weaknesses in trading and underwriting businesses, and lower interest rates. Muted loan demand also adversely impacted revenues.
As expected, BofA’s trading numbers were dismal. Sales and trading revenues (excluding DVA) declined 18.5% from the prior-year quarter. This was due to 38.3% plunge in fixed income trading fees, while 33% improvement in equity trading income was an offsetting factor.
Despite modest rise in loan balance during the quarter, flattening of the yield curve and low interest rate environment hurt BofA’s net interest income. The company recorded a rise in operating expenses.
Driven by stellar deal-making activities during the second quarter, advisory fees rose 9% from the prior-year quarter. However, underwriting business disappointed. The company’s equity and debt underwriting fees declined 5.4% and 4.2%, respectively. Total investment banking fees, thus, fell almost 1%.
A large reserve release, leading to provision benefits, supported the company’s financials. Backed by improvement in consumer spending and economic rebound, BofA witnessed 27% surge in total card income on a year-over-year basis.
Asset management business acted as tailwind. The bank posted 27.1% jump in asset management fees during the quarter.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets, witnessed an improvement in net income.
Overall, net income soared substantially from the prior-year quarter to $9.2 billion.
Dismal Trading Hurts Revenues, Expenses Rise
Net revenues amounted to $21.5 billion, which lagged the Zacks Consensus Estimate of $21.8 billion. The top line declined 3.9% from the prior-year level.
Net interest income (fully taxable-equivalent basis) declined 3.9% year over year to $10.3 billion, mainly due to lower interest rates and soft loan demand. Also, net interest yield contracted 26 basis points (bps) to 1.61%.
Non-interest income declined 2.1% from the year-ago quarter to $11.2 billion.
Non-interest expenses were $15 billion, up 12.2%.
Efficiency ratio was 70.09%, up from 60.06% 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 $1.6 billion against a provision of $5.1 billion in the prior-year quarter. This reflected a reserve release of $2.2 billion amid an improved macroeconomic outlook. Net charge-offs plunged 48.1% to $595 million.
As of Jun 30, 2021, non-performing loans and leases were 0.54%, up 10 bps.
Strong Capital Position
The company’s book value per share as of Jun 30, 2021 was $29.89 compared with $27.96 a year ago. Tangible book value per share as of second quarter-end was $21.61, up from $19.90.
At the end of June 2021, common equity tier 1 capital ratio (Advanced approaches) was 13.0%, up from 11.4% as of Jun 30, 2020.
Capital Deployment Updates
During the quarter, BofA repurchased shares worth $4.2 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
In June-end, following the clearance of this year’s stress test, BofA announced plans to hike dividend by 17% to 21 cents per share, effective third quarter. The company kept the share repurchases plan at previously announced level of $25 billion.
Conclusion
BofA’s focus on digitizing operations and branch expansion plans are likely to support growth, going forward. However, subdued loan demand, rising expenses and near-zero interest rates are near-term concerns.
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
Large reserve releases, solid investment banking (“IB”) performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
First Republic Bank delivered an earnings surprise of 14.04% in second-quarter 2021 on solid top-line strength. Earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.71. The bottom line climbed 45.3% from the year-ago quarter.
Goldman Sachs’ (GS - Free Report) second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. The bottom line compares favorably with 53 cents per share earned in the year-earlier quarter.