Yahoo Finance Bank of America (BAC) Down 5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Bank of America (BAC). Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Bank of America due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Bank of America's Q1 Earnings Top Estimates on Solid Trading & NII
Bank of America’s first-quarter 2023 earnings of 94 cents per share surpassed the Zacks Consensus Estimate of 79 cents. The bottom line compared favorably with 80 cents earned in the prior-year quarter. Our estimate for earnings was 75 cents per share.
Driven by robust loan growth (loan balances up 5.4% from the prior-year period) and rising interest rates, Bank of America recorded a solid improvement in NII.
Backed by robust consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21.5%. We had projected 16.8% revenue growth for this business. Also, combined credit and debit card spending rose 6%.
Bank of America’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 9% from the prior-year quarter to $5.1 billion. Fixed-income trading fees rose 29%, while equity trading income decreased 19%.
As expected, the company’s investment banking (IB) business did not perform well. Total IB fees of $668 million tanked 24.1% in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Further, advisory fees plunged 28.7% to $313 million.
Also, during the quarter, Bank of America witnessed a 7.8% decline in deposit balances amid the banking crisis.
Overall, the company’s net income applicable to common shareholders grew 16% from the prior-year quarter to $7.66 billion. Our estimate for the same was $6.10 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $26.3 billion, which beat the Zacks Consensus Estimate of $25.07 billion. The top line grew 13% from the prior-year quarter. Our estimate for the metric was $24.62 billion.
NII (fully taxable-equivalent basis) rose 24.9% to $14.6 billion, driven by higher interest rates and loan growth. Also, the net interest yield expanded 51 basis points (bps) to 2.20%. Our estimates for NII and net interest yield were $14.44 billion and 2.23%, respectively.
Non-interest income increased 1.3% to $11.8 billion. The rise was mainly due to higher total card income and market making, and similar activities. We had projected a non-interest income of $10.3 billion.
Non-interest expenses were $16.2 billion, up 6%. The rise was due to an increase in almost all cost components except product delivery and transaction-related costs. We had projected non-interest expenses of $16.1 billion.
The efficiency ratio was 61.84%, down from 65.95% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsening
Provision for credit losses was $931 million compared with $30 million in the prior-year quarter. Our estimate for the metric was $1.14 billion. Net charge-offs rose substantially to $807 million.
As of Mar 31, 2023, non-performing loans and leases as a percentage of total loans were 0.38%, down 9 bps year over year.
Capital Position Strong
The company’s book value per share as of Mar 31, 2023, was $31.58 compared with $29.70 a year ago. Tangible book value per share as of the first-quarter end was $22.78, up from $20.99.
At the end of March 2023, the common equity tier 1 capital ratio (Advanced approach) was 12.9%, up from 12% as of Mar 31, 2022.
2023 Outlook
Management expects NII (FTE) to be around $14.3 billion in the second quarter of 2023. For the full year, the metric is projected to grow 7-8%. This guidance assumes interest rates in the forward curve materialize and takes in to consideration one more hike and then a couple of cuts later in the year. Further, funding cost is likely to keep rising.
Management plans to cut around 5,000 jobs in the second quarter. Thus, the second quarter non-interest expenses is expected to be around $15.8 billion, down sequentially. Thereafter, the metric is anticipated to decline on a sequential basis in the remaining two quarters. For the full year, non-interest expenses are expected to be nearly $62.5 billion.
Loan growth is expected to modest in 2023, while deposit balance will be lower.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
Currently, Bank of America has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Bank of America Corporation (BAC) : Free Stock Analysis Report
