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BofA (BAC) Q2 Earnings Slide on Higher Provisions

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Higher provisions and decline in revenues led Bank of America Corporation’s (BAC - Free Report) second-quarter 2016 earnings of 36 cents per share, which was 16% below the prior-year quarter figure. However, the earnings surpassed the Zacks Consensus Estimate of 34 cents.
The results in the reported quarter included 5 cents per share of negative market-related net interest income adjustments and 1 cent per share of negative net debit valuation adjustments. Excluding these, the company would have earned 42 cents per share.

BofA’s shares rose nearly 1% in pre-market trading, which perhaps reflects improved fixed income trading revenues and efficient cost control. Notably, the price reaction during the full trading session will provide a better idea about how investors accepted the results.


Bank of America Corporation (BAC - Free Report) EPS BNRI - Last 5 Quarters | FindTheCompany

Weaknesses in equity trading revenues, investment banking fees and mortgage banking revenue were the headwinds. Further, a jump in provisions added to the concerns.

Though BofA was able to mitigate these undermining factors (to some extent) through expense control, impressive growth in fixed income trading revenues and absence of legal costs, these were not enough to support the bottom line.

Nonetheless, overall performance of the company’s business segments, in terms of net income generation was decent. All segments, except Others, witnessed improvement in net income.

Revenue Slip Dampened Results

Net revenue amounted to $20.4 billion, a decrease of 7% from $22 billion recorded in the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $20.5 billion.

Net interest income, on a fully taxable-equivalent basis, fell 12% year over year to $9.2 billion. Further, net interest yield declined 34 basis points (bps) year over year to 2.03%. Moreover, non-interest income fell 3% year over year to $11.2 billion.

Non-interest expense was $13.5 billion, decreasing 3% year over year.

Strong Capital Position

The company’s book value per share as of Jun 30, 2016 was $23.67, compared with $21.91 as of Jun 30, 2015. Tangible book value per share as of Jun 30, 2016 was $16.68, up from $15.02 as of Jun 30, 2015.

As of Jun 30, 2016, the company’s common equity tier 1 capital ratio (Basel 3 Transition) was 10.6%.

Credit Quality: A Mixed Bag

As of Jun 30, 2016, ratio of nonperforming loans, leases and foreclosed properties was 0.98%, down 34 bps year over year. Further, net charge-offs decreased 7% from the year-ago quarter to $985 million.

However, provision for credit losses jumped 25% year over year to $976 million, given a slow pace of improvement in the consumer portfolio.

Our Take

The year had begun on a pessimistic note for BofA. Though the just concluded quarter reflected improvement in fixed income trading activities, overall performance of the company was disappointing.

However, BofA’s efforts to realign its balance sheet, focus on core operations and prudent cost management will likely support bottom line growth.


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Currently, BofA carries a Zacks Rank #3 (Hold).

Among other Wall Street banks, JPMorgan Chase & Co. (JPM - Free Report) , Citigroup Inc. (C - Free Report) and Wells Fargo & Co. (WFC - Free Report) have already come out with its results.

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