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BofA (BAC) Beats Q4 Earnings on Loan Growth, Higher Rates

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Despite the trading slump,loan growth and impressive investment banking performancedrove Bank of America’s BAC fourth-quarter 2017 earnings of 47 cents per share, which outpaced the Zacks Consensus Estimate of 44 cents. Also, the figure was 21% higher than the prior-year quarter. Notably, the results exclude a one-time charge of 27 cents related to the tax act.

Impressive net interest income growth (driven by loan growth and higher interest rates), stable equity trading income and higher investment banking fees supported revenues. Operating expenses also recorded a decline.

However, a fall in fixed income trading revenues (as expected) and mortgage banking losses were the undermining factors. Also, drastic rise in provision for credit losses acted as a headwind.

Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income except Global Markets and All Others.

Loans & Higher Rates Support Revenues, Expenses Down

Adjusted net revenues amounted to $21.4 billion, marginally above the Zacks Consensus Estimate of $21.3 billion. Also, it was up nearly 7% from the prior-year quarter. The figure in the reported quarter excluded $0.9 billion of one-time charge related to the tax act.

Net interest income, on a fully taxable-equivalent basis, grew 11% year over year to $11.7 billion. Further, net interest yield rose 16 basis points (bps) year over year to 2.39%.

Non-interest income declined 7% from the year-ago quarter to $9 billion. The fallwas mainly dueto lower mortgage banking income and the impact of the tax act.

Non-interest expenses were $13.3 billion, down 1% year over year. The fall reflects reduced personnel and non-personnel expenses.

Provisions Jump

Provision for credit losses increased 29% year over year to $1 billion, mainly due to a single-name non-U.S. commercial charge-off. Also, net charge-offs jumped 41% from the year-ago quarter to $1.2 billion.

However, as of Dec 31, 2017, ratio of nonperforming loans, leases and foreclosed properties was 0.73%, down 16 bps year over year.

Strong Capital Position

The company’s book value per share as of Dec 31, 2017 was $23.80 compared with $23.97 as of Dec 31, 2016. Tangible book value per share as of Dec 31, 2017 was $16.96, up from $16.89 as of Dec 31, 2016.

As of Dec 31, 2017, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.8%, up from 11.0% as of Dec 31, 2016.

Our Take

BofA’s efforts to realign its balance sheet and focus on core operations will likely support bottom-line growth. Further, the bank is well positioned to benefit from higher interest rates.As expected, fixed income trading declined. Further, as interest rates move higher, mortgage refinancing is expected to continue falling.

Bank of America Corporation Price, Consensus and EPS Surprise

 

Bank of America Corporation Price, Consensus and EPS Surprise | Bank of America Corporation Quote

Currently, BofA sports a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Big Banks

Amid an expected trading weakness, strong investment banking results and higher rates drove JPMorgan’s JPM fourth-quarter 2017 earnings of $1.76 per share, which handily surpassed the Zacks Consensus Estimate of $1.69. Results exclude one-time tax related charge of $2.4 billion or 69 cents per share.

Wells Fargo’s (WFC - Free Report) fourth-quarter 2017 adjusted earnings of 97 cents per share improved from the prior-year quarter earnings of 96 cents. Results included $3.35 billion after-tax benefit related to the Tax Cuts & Jobs Act, $848 million pre-tax gain from the sale of Wells Fargo Insurance Services and $3.25 billion pre-tax expenses related to litigation accruals.

Though fixed income trading income slumped as expected, Citigroup’s C fourth-quarter 2017 adjusted earnings of $1.28 per share were driven by prudent expense management and strong consumer banking. The figure easily outpaced the Zacks Consensus Estimate of $1.19. Results included non-recurring non-cash charge of $22 billion related to the tax reform.

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