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BofA's (BAC) Q4 Earnings Beat, Weakness in NII & IB Hurts
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Bank of America’s (BAC - Free Report) fourth-quarter 2023 adjusted earnings of 70 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line compared unfavorably with 85 cents earned in the prior-year quarter.
After considering the FDIC special assessment charge of $2.1 billion and the Bloomberg Short-Term Bank Yield Index (BSBY) cessation charge of $1.6 billion, earnings per share was 35 cents.
Shares of the company slide 2.9% in the pre-market trading due to weak top-line performance.
Despite modest loan growth (loan balances up 1% from the prior-year period) and higher interest rates, BofA recorded a lower-than-expected net interest income (NII), given the rise in funding costs.
Also, during the quarter, BofA witnessed a slight decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Further, total IB fees (in the Global Banking division) of $690 million fell 2% year over year in the quarter due to weakness in advisory fees, while solid underwriting performance offered some support.
On the other hand, similar to the second and third quarters of 2023, BofA recorded an improvement in trading numbers. Sales and trading revenues (excluding net DVA) were up 1% from the prior-year quarter to $3.8 billion. Fixed-income trading fees declined 6%, while equity trading income jumped 12%.
Overall, the company’s net income applicable to common shareholders plunged 59% from the prior-year quarter to $2.83 billion. Our estimate for the same was $5.58 billion and did not take into account non-recurring items reported in the quarter.
Revenues Decline, Expenses Rise
Quarterly net revenues were $21.96 billion, which missed the Zacks Consensus Estimate of $24.07 billion by a considerable margin. The top line declined 10% from the prior-year quarter.
NII (fully taxable-equivalent basis) fell 5% to $14.09 billion due to higher deposit costs and lower deposit balance. Our estimate for NII was $14.02 billion.
Net interest yield contracted 25 basis points (bps) to 1.97%.
Non-interest income decreased 19% to $8.01 billion. The decline was mainly due to lower market-making and similar activities, which was partially offset by a rise in asset management and IB fees. We had projected non-interest income of $10 billion.
Non-interest expenses were $17.73 billion, up 14%. Excluding the FDIC special assessment charge, expenses were $15.6 billion. Our estimate for non-interest expenses was $15.83 billion and didn’t include the above-mentioned charge.
The efficiency ratio was 80.75%, up from 63.36% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsening
Provision for credit losses was $1.1 billion, up 1% from the prior-year quarter.
Net charge-offs (NCOs) jumped 73% to $1.19 billion. As of Dec 31, 2023, non-performing loans and leases as a percentage of total loans were 0.52%, up 15 bps year over year.
Capital Position Strong
Book value per share as of Dec 31, 2023, was $33.34 compared with $30.69 a year ago. Tangible book value per share as of the fourth-quarter end was $24.46, up from $21.83.
At the end of December 2023, the common equity tier 1 capital ratio (advanced approach) was 13.4%, up from 12.8% as of Dec 31, 2022.
Capital Distribution Update
During the reported quarter, the company returned $2.7 billion to shareholders in dividends and share repurchases.
Our Take
BofA’s focus on digitizing and expanding operations, decent loan growth and high interest rates are likely to keep aiding growth. However, elevated expenses, rising funding costs and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Earnings Dates & Expectations of Other Major Banks
The PNC Financial Services Group (PNC - Free Report) is scheduled to announce fourth-quarter and full-year 2023 numbers on Jan 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved 4.7% lower to 2.82 cents. This implies a 19.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2023 numbers on Jan 18.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has remained unchanged at 88 cents. This indicates a 32.3% plunge from the prior-year quarter.
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BofA's (BAC) Q4 Earnings Beat, Weakness in NII & IB Hurts
Bank of America’s (BAC - Free Report) fourth-quarter 2023 adjusted earnings of 70 cents per share outpaced the Zacks Consensus Estimate by a penny. The bottom line compared unfavorably with 85 cents earned in the prior-year quarter.
After considering the FDIC special assessment charge of $2.1 billion and the Bloomberg Short-Term Bank Yield Index (BSBY) cessation charge of $1.6 billion, earnings per share was 35 cents.
Shares of the company slide 2.9% in the pre-market trading due to weak top-line performance.
Despite modest loan growth (loan balances up 1% from the prior-year period) and higher interest rates, BofA recorded a lower-than-expected net interest income (NII), given the rise in funding costs.
Also, during the quarter, BofA witnessed a slight decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Further, total IB fees (in the Global Banking division) of $690 million fell 2% year over year in the quarter due to weakness in advisory fees, while solid underwriting performance offered some support.
On the other hand, similar to the second and third quarters of 2023, BofA recorded an improvement in trading numbers. Sales and trading revenues (excluding net DVA) were up 1% from the prior-year quarter to $3.8 billion. Fixed-income trading fees declined 6%, while equity trading income jumped 12%.
Overall, the company’s net income applicable to common shareholders plunged 59% from the prior-year quarter to $2.83 billion. Our estimate for the same was $5.58 billion and did not take into account non-recurring items reported in the quarter.
Revenues Decline, Expenses Rise
Quarterly net revenues were $21.96 billion, which missed the Zacks Consensus Estimate of $24.07 billion by a considerable margin. The top line declined 10% from the prior-year quarter.
NII (fully taxable-equivalent basis) fell 5% to $14.09 billion due to higher deposit costs and lower deposit balance. Our estimate for NII was $14.02 billion.
Net interest yield contracted 25 basis points (bps) to 1.97%.
Non-interest income decreased 19% to $8.01 billion. The decline was mainly due to lower market-making and similar activities, which was partially offset by a rise in asset management and IB fees. We had projected non-interest income of $10 billion.
Non-interest expenses were $17.73 billion, up 14%. Excluding the FDIC special assessment charge, expenses were $15.6 billion. Our estimate for non-interest expenses was $15.83 billion and didn’t include the above-mentioned charge.
The efficiency ratio was 80.75%, up from 63.36% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsening
Provision for credit losses was $1.1 billion, up 1% from the prior-year quarter.
Net charge-offs (NCOs) jumped 73% to $1.19 billion. As of Dec 31, 2023, non-performing loans and leases as a percentage of total loans were 0.52%, up 15 bps year over year.
Capital Position Strong
Book value per share as of Dec 31, 2023, was $33.34 compared with $30.69 a year ago. Tangible book value per share as of the fourth-quarter end was $24.46, up from $21.83.
At the end of December 2023, the common equity tier 1 capital ratio (advanced approach) was 13.4%, up from 12.8% as of Dec 31, 2022.
Capital Distribution Update
During the reported quarter, the company returned $2.7 billion to shareholders in dividends and share repurchases.
Our Take
BofA’s focus on digitizing and expanding operations, decent loan growth and high interest rates are likely to keep aiding growth. However, elevated expenses, rising funding costs 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.
Earnings Dates & Expectations of Other Major Banks
The PNC Financial Services Group (PNC - Free Report) is scheduled to announce fourth-quarter and full-year 2023 numbers on Jan 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved 4.7% lower to 2.82 cents. This implies a 19.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2023 numbers on Jan 18.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has remained unchanged at 88 cents. This indicates a 32.3% plunge from the prior-year quarter.