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BofA's (BAC) Q2 Earnings Beat on Robust Trading, IB & NII
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Bank of America’s (BAC - Free Report) second-quarter 2023 earnings of 88 cents per share surpassed the Zacks Consensus Estimate of 84 cents. The bottom line compared favorably with 73 cents earned in the prior-year quarter.
Driven by decent loan growth (loan balances up 2% from the prior-year period) and rising interest rates, BofA recorded an improvement in NII. On the other hand, the rise in funding costs weighed on NII to some extent as the company’s interest expenses increased significantly.
Backed by strong consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 15% year over year. We had projected 13% revenue growth for this business. Also, combined credit and debit card spending rose 3%.
Further, BofA bucked the trend plaguing other Wall Street biggies like JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) and came out with impressive investment banking (IB) and trading numbers.
Sales and trading revenues (excluding net DVA) were up 10% from the prior-year quarter to $4.4 billion. We had projected this metric to be relatively stable as guided by management. Fixed-income trading fees rose 7%, while equity trading income decreased 2%. Further, the company claimed it had “zero trading loss” days during the first half of 2023 and the highest first-half sales and trading revenues in more than a decade.
Total IB fees of $718 million grew 4% in the quarter on robust equity underwriting performance, which surged 154%. On the other hand, weakness in fixed income underwiring (down 7%) and advisory fees (decreasing 8%) remained.
During the quarter, BofA witnessed a 5% decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Overall, the company’s net income applicable to common shareholders grew 16% from the prior-year quarter to $7.1 billion. Our estimate for the same was $6.8 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $25.2 billion, which beat the Zacks Consensus Estimate of $25 billion. The top line grew 11% from the prior-year quarter.
NII (fully taxable-equivalent basis) rose 14% to $14.29 billion, driven by higher interest rates and loan growth. Our estimate for NII was $14.35 billion.
Net interest yield expanded 20 basis points (bps) to 2.06%. We had expected net interest yield to be 2.25% but substantially higher deposit costs led the company to post lower numbers.
Non-interest income increased 8% to $11.04 billion. The rise was mainly attributable to higher total investment banking fees. We had projected non-interest income of $10.53 billion.
Non-interest expenses were $16.04 billion, up 5%. The rise was due to an increase in almost all cost components. Our estimate for non-interest expenses was $15.79 billion.
The efficiency ratio was 63.65%, down from 67.32% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsening
Provision for credit losses was $1.13 billion, up substantially from $523 million in the prior-year quarter. Our estimate for the metric was $1.11 billion.
Net charge-offs (NCOs) jumped 52% to $869 million. We had projected NCOs of $812.9 million.
As of Jun 30, 2023, non-performing loans and leases as a percentage of total loans were 0.39%, down 3 bps year over year.
Capital Position Strong
Book value per share as of Jun 30, 2023, was $32.05 compared with $29.87 a year ago. Tangible book value per share as of the second-quarter end was $23.23, up from $21.13.
At the end of June 2023, the common equity tier 1 capital ratio (advanced approach) was 13.2%, up from 12.2% as of Jun 30, 2022.
Conclusion
BofA’s focus on digitizing and expanding operations, decent loan growth and higher interest rates are likely to keep supporting growth. However, elevated expenses and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Citigroup’s second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 outpaced the Zacks Consensus Estimate of $1.31.
C witnessed a decline in the top line due to lower revenues in the Institutional Clients Group. Also, the higher cost of credit was a spoilsport. Nonetheless, higher revenues in the Personal Banking and Wealth Management segments were a bright spot.
Support from the First Republic Bank acquisition, consumer banking business, higher rates and solid loan balance drove JPMorgan’s second-quarter 2023 adjusted earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $3.62.
The results excluded significant items related to the FRC acquisition on May 1 and net investment securities losses. After considering these, JPM’s earnings were $4.75 per share.
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BofA's (BAC) Q2 Earnings Beat on Robust Trading, IB & NII
Bank of America’s (BAC - Free Report) second-quarter 2023 earnings of 88 cents per share surpassed the Zacks Consensus Estimate of 84 cents. The bottom line compared favorably with 73 cents earned in the prior-year quarter.
Driven by decent loan growth (loan balances up 2% from the prior-year period) and rising interest rates, BofA recorded an improvement in NII. On the other hand, the rise in funding costs weighed on NII to some extent as the company’s interest expenses increased significantly.
Backed by strong consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 15% year over year. We had projected 13% revenue growth for this business. Also, combined credit and debit card spending rose 3%.
Further, BofA bucked the trend plaguing other Wall Street biggies like JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) and came out with impressive investment banking (IB) and trading numbers.
Sales and trading revenues (excluding net DVA) were up 10% from the prior-year quarter to $4.4 billion. We had projected this metric to be relatively stable as guided by management. Fixed-income trading fees rose 7%, while equity trading income decreased 2%. Further, the company claimed it had “zero trading loss” days during the first half of 2023 and the highest first-half sales and trading revenues in more than a decade.
Total IB fees of $718 million grew 4% in the quarter on robust equity underwriting performance, which surged 154%. On the other hand, weakness in fixed income underwiring (down 7%) and advisory fees (decreasing 8%) remained.
During the quarter, BofA witnessed a 5% decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Overall, the company’s net income applicable to common shareholders grew 16% from the prior-year quarter to $7.1 billion. Our estimate for the same was $6.8 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $25.2 billion, which beat the Zacks Consensus Estimate of $25 billion. The top line grew 11% from the prior-year quarter.
NII (fully taxable-equivalent basis) rose 14% to $14.29 billion, driven by higher interest rates and loan growth. Our estimate for NII was $14.35 billion.
Net interest yield expanded 20 basis points (bps) to 2.06%. We had expected net interest yield to be 2.25% but substantially higher deposit costs led the company to post lower numbers.
Non-interest income increased 8% to $11.04 billion. The rise was mainly attributable to higher total investment banking fees. We had projected non-interest income of $10.53 billion.
Non-interest expenses were $16.04 billion, up 5%. The rise was due to an increase in almost all cost components. Our estimate for non-interest expenses was $15.79 billion.
The efficiency ratio was 63.65%, down from 67.32% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsening
Provision for credit losses was $1.13 billion, up substantially from $523 million in the prior-year quarter. Our estimate for the metric was $1.11 billion.
Net charge-offs (NCOs) jumped 52% to $869 million. We had projected NCOs of $812.9 million.
As of Jun 30, 2023, non-performing loans and leases as a percentage of total loans were 0.39%, down 3 bps year over year.
Capital Position Strong
Book value per share as of Jun 30, 2023, was $32.05 compared with $29.87 a year ago. Tangible book value per share as of the second-quarter end was $23.23, up from $21.13.
At the end of June 2023, the common equity tier 1 capital ratio (advanced approach) was 13.2%, up from 12.2% as of Jun 30, 2022.
Conclusion
BofA’s focus on digitizing and expanding operations, decent loan growth and higher interest rates are likely to keep supporting growth. However, elevated expenses and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation price-consensus-eps-surprise-chart | Bank of America Corporation Quote
Currently, BAC 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
Citigroup’s second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 outpaced the Zacks Consensus Estimate of $1.31.
C witnessed a decline in the top line due to lower revenues in the Institutional Clients Group. Also, the higher cost of credit was a spoilsport. Nonetheless, higher revenues in the Personal Banking and Wealth Management segments were a bright spot.
Support from the First Republic Bank acquisition, consumer banking business, higher rates and solid loan balance drove JPMorgan’s second-quarter 2023 adjusted earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $3.62.
The results excluded significant items related to the FRC acquisition on May 1 and net investment securities losses. After considering these, JPM’s earnings were $4.75 per share.