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Bank of America (BAC) Up 0.7% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 0.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Bank of America Q4 Earnings Beat on M&A Fees, Solid Lending
Bank of America’s 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.
Driven by a solid improvement in the lending scenario (loans up 6% from the prior-year period), Bank of America 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. Bank of America’s equity underwriting fees declined 15.4%, while debt underwriting income jumped 39.6%. Total 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 Bank of America’s financials. However, higher non-interest expenses posed a headwind.
As expected, Bank of America’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 beat the Zacks Consensus Estimate. 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, Bank of America repurchased shares worth $7.5 billion.
Outlook
For 2022, management expects NII growth to be robust, driven by continued loan growth (likely to be in high single-digit) and interest rate hikes. Specifically for the first quarter, the company expects two headwinds – two less interest accrual days and less PPP fee benefit – to hurt NII by $250 million. Yet, quarterly NII will be “up about a couple of hundred million” sequentially and is projected to improve decently thereafter in 2022.
Driven by efforts taken to eliminate non-sufficient funds (NSF) fees and reduce the overdraft charge per occurrence, the company expects fees related to these to fall 75% in 2022 from nearly $1 billion earned in 2021.
For 2022, operating expenses are projected to approximate that of the 2021 level. This assumes continuing investments in technology, strong revenue performance and inflationary costs (similar to one experienced in the second half of 2021). It also indicates the company’s continued expense discipline, operational excellence improvements and digital transformation benefits.
Further, for the first quarter of 2022, expenses will include elevated personnel costs of roughly $400 million and increased costs related to seasonally higher sales and trading revenues.
For 2022, the effective tax rate (excluding any changes in the current tax laws or other unusual items) is expected to be in the range of 10-12%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Bank of America (BAC) Up 0.7% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 0.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Bank of America Q4 Earnings Beat on M&A Fees, Solid Lending
Bank of America’s 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.
Driven by a solid improvement in the lending scenario (loans up 6% from the prior-year period), Bank of America 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. Bank of America’s equity underwriting fees declined 15.4%, while debt underwriting income jumped 39.6%. Total 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 Bank of America’s financials. However, higher non-interest expenses posed a headwind.
As expected, Bank of America’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 beat the Zacks Consensus Estimate. 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, Bank of America repurchased shares worth $7.5 billion.
Outlook
For 2022, management expects NII growth to be robust, driven by continued loan growth (likely to be in high single-digit) and interest rate hikes. Specifically for the first quarter, the company expects two headwinds – two less interest accrual days and less PPP fee benefit – to hurt NII by $250 million. Yet, quarterly NII will be “up about a couple of hundred million” sequentially and is projected to improve decently thereafter in 2022.
Driven by efforts taken to eliminate non-sufficient funds (NSF) fees and reduce the overdraft charge per occurrence, the company expects fees related to these to fall 75% in 2022 from nearly $1 billion earned in 2021.
For 2022, operating expenses are projected to approximate that of the 2021 level. This assumes continuing investments in technology, strong revenue performance and inflationary costs (similar to one experienced in the second half of 2021). It also indicates the company’s continued expense discipline, operational excellence improvements and digital transformation benefits.
Further, for the first quarter of 2022, expenses will include elevated personnel costs of roughly $400 million and increased costs related to seasonally higher sales and trading revenues.
For 2022, the effective tax rate (excluding any changes in the current tax laws or other unusual items) is expected to be in the range of 10-12%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.