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BofA (BAC) Up as Q4 Earnings Beat on M&A Fees, Solid Lending
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Bank of America’s (BAC - Free Report) fourth-quarter 2021 earnings of 82 cents per share beat the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 59 cents earned in the prior-year quarter. Results in the quarter included net reserve release of $851 million.
The stock rallied almost 3% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance and management’s expense guidance. The company expects non-interest expenses for 2022 to be relatively stable.
Driven by a solid improvement in the lending scenario (loans up 6% from the prior-year period), BofA recorded substantial net interest income growth despite a low-interest-rate environment. Further, backed by improvement in consumer spending and economic rebound, the company witnessed a nearly 3% rise in total card income on a year-over-year basis. Also, combined credit and debit card spending rose 22%.
Driven by stellar global M&A activities during the fourth quarter, advisory fees surged 56.5%. The underwriting business also performed decently. The company’s equity underwriting fees declined 15.4%, while debt underwriting income jumped 39.6%. Total investment banking (IB) fees, thus, surged 33.4%.
Asset management business acted as a tailwind as well. The bank posted a 17.6% rise in asset management fees during the quarter.
A reserve release, leading to provision benefits, also supported BofA’s financials. However, higher non-interest expenses posed a headwind.
As expected, BofA’s trading numbers were not so impressive. Sales and trading revenues (excluding DVA) fell 4.2% from the prior-year quarter. A 9.9% fall in fixed income trading fees was a major upsetting factor, while a 3.3% improvement in equity trading income offered some support.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets and All Others, witnessed an improvement in net income. Overall, net income surged 28.2% from the prior-year quarter to $7.01 billion.
Loan Growth, IB Fees Aid Revenues, Expenses Rise
Net revenues were $22.06 billion, which marginally missed the Zacks Consensus Estimate of $22.08 billion. The top line grew 9.8% from the prior-year level.
Net interest income (fully taxable-equivalent basis) rose 11.1% year over year to $11.52 billion, driven by solid deposit growth, rise in loan balance and investment of excess liquidity. However, net interest yield contracted 4 basis points (bps) to 1.67%.
Non-interest income increased 8.2% from the year-ago quarter to $10.65 billion. The rise was mainly driven by improvement in asset management fees and IB revenues.
Non-interest expenses were $14.73 billion, up 5.8%. The rise was mainly due to higher compensation and benefit costs.
Efficiency ratio was 66.78%, down from 69.29% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Improves
Provision for credit losses was a benefit of $489 million against a provision of $53 million in the prior-year quarter. This reflected a net reserve release of $851 million amid an improved macroeconomic outlook.
Net charge-offs plunged 58.9% to $463 million. As of Dec 31, 2021, non-performing loans and leases were 0.47%, down 7 bps.
Strong Capital Position
The company’s book value per share as of Dec 31, 2021, was $30.37 compared with $28.72 a year ago. Tangible book value per share as of fourth-quarter-end was $21.68, up from $20.60.
At the end of December 2021, common equity tier 1 capital ratio (Advanced approaches) was 12.3% compared with 12.9% as of Dec 31, 2020.
Share Repurchase Update
During the quarter, BofA repurchased shares worth $7.5 billion.
Conclusion
BofA’s focus on digitizing operations, solid IB performance, loan growth and branch expansion plans are likely to support growth, going forward. However, near-zero interest rates and a rise in expenses are near-term concerns.
Bank of America Corporation Price, Consensus and EPS Surprise
Robust advisory business, reserve release and a rise in loan demand drove JPMorgan’s (JPM - Free Report) fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01. Results included net credit reserve releases. Excluding this, earnings came in at $2.86 per share.
However, disappointing trading performance, lower interest rates and an increase in operating expenses were the major headwinds for JPMorgan’s quarterly results. Also, the company’s mortgage fees and related income plunged during the quarter.
Wells Fargo’s (WFC - Free Report) fourth-quarter 2021 earnings per share of $1.38 surpassed the Zacks Consensus Estimate of 1.09. Also, the bottom line improved 86% year over year. Results included certain non-recurring items.
Improved investment banking and other asset-based fees and strong equity gains in WFC’s affiliated venture capital and private equity businesses, as well as lower costs, supported the bank’s performance. Yet, a decline in NII due to low yields from earning assets and lower loans were the undermining factors.
Citigroup (C - Free Report) delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 beat the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter.
Citigroup’s investment banking revenues jumped, driven by equity underwriting and growth in advisory revenues. The dismal consumer banking business and higher operating expenses were the major headwinds.
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BofA (BAC) Up as Q4 Earnings Beat on M&A Fees, Solid Lending
Bank of America’s (BAC - Free Report) fourth-quarter 2021 earnings of 82 cents per share beat the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 59 cents earned in the prior-year quarter. Results in the quarter included net reserve release of $851 million.
The stock rallied almost 3% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance and management’s expense guidance. The company expects non-interest expenses for 2022 to be relatively stable.
Driven by a solid improvement in the lending scenario (loans up 6% from the prior-year period), BofA recorded substantial net interest income growth despite a low-interest-rate environment. Further, backed by improvement in consumer spending and economic rebound, the company witnessed a nearly 3% rise in total card income on a year-over-year basis. Also, combined credit and debit card spending rose 22%.
Driven by stellar global M&A activities during the fourth quarter, advisory fees surged 56.5%. The underwriting business also performed decently. The company’s equity underwriting fees declined 15.4%, while debt underwriting income jumped 39.6%. Total investment banking (IB) fees, thus, surged 33.4%.
Asset management business acted as a tailwind as well. The bank posted a 17.6% rise in asset management fees during the quarter.
A reserve release, leading to provision benefits, also supported BofA’s financials. However, higher non-interest expenses posed a headwind.
As expected, BofA’s trading numbers were not so impressive. Sales and trading revenues (excluding DVA) fell 4.2% from the prior-year quarter. A 9.9% fall in fixed income trading fees was a major upsetting factor, while a 3.3% improvement in equity trading income offered some support.
Performance of the company’s business segments, in terms of net income generation, was solid. All segments, except Global Markets and All Others, witnessed an improvement in net income. Overall, net income surged 28.2% from the prior-year quarter to $7.01 billion.
Loan Growth, IB Fees Aid Revenues, Expenses Rise
Net revenues were $22.06 billion, which marginally missed the Zacks Consensus Estimate of $22.08 billion. The top line grew 9.8% from the prior-year level.
Net interest income (fully taxable-equivalent basis) rose 11.1% year over year to $11.52 billion, driven by solid deposit growth, rise in loan balance and investment of excess liquidity. However, net interest yield contracted 4 basis points (bps) to 1.67%.
Non-interest income increased 8.2% from the year-ago quarter to $10.65 billion. The rise was mainly driven by improvement in asset management fees and IB revenues.
Non-interest expenses were $14.73 billion, up 5.8%. The rise was mainly due to higher compensation and benefit costs.
Efficiency ratio was 66.78%, down from 69.29% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Improves
Provision for credit losses was a benefit of $489 million against a provision of $53 million in the prior-year quarter. This reflected a net reserve release of $851 million amid an improved macroeconomic outlook.
Net charge-offs plunged 58.9% to $463 million. As of Dec 31, 2021, non-performing loans and leases were 0.47%, down 7 bps.
Strong Capital Position
The company’s book value per share as of Dec 31, 2021, was $30.37 compared with $28.72 a year ago. Tangible book value per share as of fourth-quarter-end was $21.68, up from $20.60.
At the end of December 2021, common equity tier 1 capital ratio (Advanced approaches) was 12.3% compared with 12.9% as of Dec 31, 2020.
Share Repurchase Update
During the quarter, BofA repurchased shares worth $7.5 billion.
Conclusion
BofA’s focus on digitizing operations, solid IB performance, loan growth and branch expansion plans are likely to support growth, going forward. However, near-zero interest rates and a rise in expenses 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 Big Banks
Robust advisory business, reserve release and a rise in loan demand drove JPMorgan’s (JPM - Free Report) fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01. Results included net credit reserve releases. Excluding this, earnings came in at $2.86 per share.
However, disappointing trading performance, lower interest rates and an increase in operating expenses were the major headwinds for JPMorgan’s quarterly results. Also, the company’s mortgage fees and related income plunged during the quarter.
Wells Fargo’s (WFC - Free Report) fourth-quarter 2021 earnings per share of $1.38 surpassed the Zacks Consensus Estimate of 1.09. Also, the bottom line improved 86% year over year. Results included certain non-recurring items.
Improved investment banking and other asset-based fees and strong equity gains in WFC’s affiliated venture capital and private equity businesses, as well as lower costs, supported the bank’s performance. Yet, a decline in NII due to low yields from earning assets and lower loans were the undermining factors.
Citigroup (C - Free Report) delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 beat the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter.
Citigroup’s investment banking revenues jumped, driven by equity underwriting and growth in advisory revenues. The dismal consumer banking business and higher operating expenses were the major headwinds.