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Bank of America Shows an Optimistic Outlook on 4th-Quarter Results

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GuruFocus.com
·4 min read
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- By Margaret Moran

Before the markets opened on Jan. 19, Bank of America Corp. (NYSE:BAC) reported earnings results for the fourth quarter of 2020.

The U.S. bank major beat analyst estimates in terms of earnings, but fell short on revenue, which the company primarily attributed to lower interest rates.

Shares were mostly flat throughout the day's trading following the news, losing 0.73% to close at $32.77.


Bank of America Shows an Optimistic Outlook on 4th-Quarter Results
Bank of America Shows an Optimistic Outlook on 4th-Quarter Results

Earnings highlights

The bank major reported diluted earnings per share of 59 cents, which beat the 55 cents that analysts had been expecting but decreased from 74 cents per share in the prior-year quarter. Revenue came in at $20.2 billion, which fell short of estimates of $22.7 billion and last year's $22.3 billion.

Net interest income was the biggest detractor to earnings, falling 16% year over year to $10.3 billion, driven by lower interest rates. However, the company noted improvements compared to the rest of 2020. Noninterest income fell 4% to $9.8 billion, with every area except trading and investment banking showing decreases compared to last year.

For full-year 2020, revenue was $85.5 billion compared to $91.2 in 2019, while earnings per share totaled $1.87 compared to the previous year's $2.75.

The company issued approximately 343,000 Paycheck Protection Program loans to small businesses in 2020, with around $23 billion in outstanding balances as of the year's end.

Chairman and CEO Brian Moynihan had the following to say:


"During 2020, we witnessed the dramatic effects of the health crisis on the economy and our company's operations. In the fourth quarter, we continued to see signs of a recovery, led by increased consumer spending, stabilizing loan demand by our commercial customers, and strong markets and investing activity."



According to Chief Financial Officer Paul Donofrio, Bank of America "grew deposits by $361 billion, improved our capital ratios and increased liquidity to record levels, exceeding loans." Due to this, the company felt comfortable decreasing its credit loss reserves from $828 million to $53 million.

Segment results

In the consumer banking segment, net income was $2.6 billion for the quarter. Deposits were up 23% year over year to $885 billion, while loans were down 2% to $305 billion. The segment processed 2 million payment deferrals in 2020, of which 77,000 were still in place as of Dec. 31.

Global wealth and investment management posted net income of $836 million. Client balances of more than $3.3 trillion were up 10% on higher market valuations and more clients. Deposits increased 20% to $306 billion, with loans up 7% to $187 billion.

In global banking, net income was $1.7 billion, driven by investment banking fees, which were up 26% to $1.9 billion for the quarter and reached $7.2 billion for the full year. Deposits were up 26% to $478 billion and loans were down 8% to $346 billion.

Global markets saw net income of $791 million on sales and trading revenue of $3.0 billion, including net debit valuation adjustment losses of $56 million.

Looking forward

The bank's executives seem fairly confident on the strength of the U.S. economy and its own business fundamentals going into 2021, having already resumed share repurchases during the first quarter, as Donofrio noted:


"Because of the responsible way we have operated the company over many years, we were able to support the economy by raising $772 billion in capital on behalf of clients, invest in our franchise and still be in a position to return $4.8 billion in capital to our shareholders in the first quarter of 2021 in the form of common stock repurchases and dividends."



The dividend will remain 18 cents per share in the first quarter. The board authorized $2.9 billion in common stock repurchases through March 31, plus an additional $300 million to recoup losses from equity-based compensation issued to company executives.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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This article first appeared on GuruFocus.