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BofA's (BAC) Q2 Earnings Beat on Loan Growth, Cost Control
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Loan growth and higher equity issuances drove Bank of America’s (BAC - Free Report) second-quarter 2019 earnings of 74 cents per share, which outpaced the Zacks Consensus Estimate of 70 cents. Also, the figure was up 17% from the prior-year quarter.
The results were mainly driven by strong consumer banking division performance. Net interest income growth (driven by higher rates and decent loan growth) majorly supported the top line. Further, despite taking several initiatives including technology upgrades at existing ATMs and branches, and opening new branches, the company was able to manage expenses efficiently.
As expected, investment banking performance was weak as debt underwriting revenues and advisory fees declined, while equity underwriting fees improved. Additionally, equity and fixed income trading was dismal, leading to fall in sales and trading revenues. Further, card fees and service charges decreased.
Moreover, provision for credit losses increased during the reported quarter.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments, except Global Markets and Global Banking, witnessed a rise in net income.
Loan Growth Aids Revenues, Expenses Up Slightly
Net revenues amounted to $23.1 billion, which marginally beat the Zacks Consensus Estimate of $23 billion. Also, the reported figure was up 2% on a year-over-year basis.
Net interest income, on a fully taxable-equivalent basis, grew 3% year over year to $12.3 billion, driven by higher rates, and loan and deposit growth. Further, net interest yield was up 3 basis points (bps) to 2.44%.
Non-interest income increased 2% from the year-ago quarter to $10.9 billion.
Non-interest expenses were $13.2 billion, up marginally.
Efficiency ratio was 57.11%, down from 58.25% in the year-ago quarter. Decline in efficiency ratio indicates improved profitability.
Credit Quality: A Mixed Bag
Provision for credit losses increased 4% on a year-over-year basis to $857 million.
However, net charge-offs declined 11% to $991 million, mainly due to recoveries from sales of previously charged-off non-core home equity loans, partly offset by an increase in commercial charge-offs. Further, as of Jun 30, 2019, ratio of non-performing assets ratio was 0.47%, down 19 bps.
Strong Capital Position
The company’s book value per share as of Jun 30, 2019, was $26.41 compared with $24.07 on Jun 30, 2018. Tangible book value per share as of the second-quarter end was $18.92, up from $17.07 a year ago.
At the end of June 2019, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 12.0%, up from 11.5% as of Jun 30, 2018.
Share Repurchase Update
During the reported quarter, BofA repurchased shares worth $6.5 billion.
Our Viewpoint
BofA’s efforts to realign its balance sheet, focus on core operations and loan growth will likely support bottom-line growth. Also, the bank’s efforts to digitize operations and branch expansion plans are expected to further support its Consumer Banking segment.
However, investment banking performance was disappointing. This, along with dismal trading, is expected to have an adverse impact on the company’s revenues. Further, increasing credit costs remain a concern.
Bank of America Corporation Price, Consensus and EPS Surprise
Modest loan growth and higher mortgage banking fees drove JPMorgan’s (JPM - Free Report) second-quarter 2019 adjusted earnings of $2.59 per share, which outpaced the Zacks Consensus Estimate of $2.50. Results exclude income tax benefits of $768 million or 23 cents per share. Including this, earnings were $2.82 per share.
Citigroup’s (C - Free Report) second-quarter 2019 adjusted earnings per share of $1.83 handily outpaced the Zacks Consensus Estimate of $1.78. Also, earnings climbed 12% year over year.
Driven by prudent expense management, Wells Fargo (WFC - Free Report) pulled off a positive earnings surprise of 12.1% in second-quarter 2019. Earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.16. The bottom line also came in higher than the prior-year quarter adjusted earnings of $1.08 per share.
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BofA's (BAC) Q2 Earnings Beat on Loan Growth, Cost Control
Loan growth and higher equity issuances drove Bank of America’s (BAC - Free Report) second-quarter 2019 earnings of 74 cents per share, which outpaced the Zacks Consensus Estimate of 70 cents. Also, the figure was up 17% from the prior-year quarter.
The results were mainly driven by strong consumer banking division performance. Net interest income growth (driven by higher rates and decent loan growth) majorly supported the top line. Further, despite taking several initiatives including technology upgrades at existing ATMs and branches, and opening new branches, the company was able to manage expenses efficiently.
As expected, investment banking performance was weak as debt underwriting revenues and advisory fees declined, while equity underwriting fees improved. Additionally, equity and fixed income trading was dismal, leading to fall in sales and trading revenues. Further, card fees and service charges decreased.
Moreover, provision for credit losses increased during the reported quarter.
Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments, except Global Markets and Global Banking, witnessed a rise in net income.
Loan Growth Aids Revenues, Expenses Up Slightly
Net revenues amounted to $23.1 billion, which marginally beat the Zacks Consensus Estimate of $23 billion. Also, the reported figure was up 2% on a year-over-year basis.
Net interest income, on a fully taxable-equivalent basis, grew 3% year over year to $12.3 billion, driven by higher rates, and loan and deposit growth. Further, net interest yield was up 3 basis points (bps) to 2.44%.
Non-interest income increased 2% from the year-ago quarter to $10.9 billion.
Non-interest expenses were $13.2 billion, up marginally.
Efficiency ratio was 57.11%, down from 58.25% in the year-ago quarter. Decline in efficiency ratio indicates improved profitability.
Credit Quality: A Mixed Bag
Provision for credit losses increased 4% on a year-over-year basis to $857 million.
However, net charge-offs declined 11% to $991 million, mainly due to recoveries from sales of previously charged-off non-core home equity loans, partly offset by an increase in commercial charge-offs. Further, as of Jun 30, 2019, ratio of non-performing assets ratio was 0.47%, down 19 bps.
Strong Capital Position
The company’s book value per share as of Jun 30, 2019, was $26.41 compared with $24.07 on Jun 30, 2018. Tangible book value per share as of the second-quarter end was $18.92, up from $17.07 a year ago.
At the end of June 2019, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 12.0%, up from 11.5% as of Jun 30, 2018.
Share Repurchase Update
During the reported quarter, BofA repurchased shares worth $6.5 billion.
Our Viewpoint
BofA’s efforts to realign its balance sheet, focus on core operations and loan growth will likely support bottom-line growth. Also, the bank’s efforts to digitize operations and branch expansion plans are expected to further support its Consumer Banking segment.
However, investment banking performance was disappointing. This, along with dismal trading, is expected to have an adverse impact on the company’s revenues. Further, increasing credit costs remain a concern.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation price-consensus-eps-surprise-chart | Bank of America Corporation Quote
Currently, BofA carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Big Banks
Modest loan growth and higher mortgage banking fees drove JPMorgan’s (JPM - Free Report) second-quarter 2019 adjusted earnings of $2.59 per share, which outpaced the Zacks Consensus Estimate of $2.50. Results exclude income tax benefits of $768 million or 23 cents per share. Including this, earnings were $2.82 per share.
Citigroup’s (C - Free Report) second-quarter 2019 adjusted earnings per share of $1.83 handily outpaced the Zacks Consensus Estimate of $1.78. Also, earnings climbed 12% year over year.
Driven by prudent expense management, Wells Fargo (WFC - Free Report) pulled off a positive earnings surprise of 12.1% in second-quarter 2019. Earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.16. The bottom line also came in higher than the prior-year quarter adjusted earnings of $1.08 per share.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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