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BofA (BAC) Tops Q1 Earnings on Higher Rates, Equity Trading

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Halliburton's (HAL) Earnings Streak Comes to a Halt in Q1

Meanwhile, Halliburton (HAL) affirmed increased activity in the U.S. shale, driven by strong oil and gas production in response to an improving crude environment.

Despite dismal investment banking performance, higher interest rates, trading rebound and tax cuts drove Bank of America’s BAC first-quarter 2018 earnings of 62 cents per share, which outpaced the Zacks Consensus Estimate of 59 cents. Also, the figure was 38% higher than the prior-year quarter.

Shares of BofA rose more than 1% in the pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Net interest income growth (driven by higher interest rates), higher card income, impressive equity trading income (up 38%) supported revenues. Operating expenses recorded a decline. Additionally, provision for credit losses remain stable.

As expected, investment banking fees declined. Further, fixed income trading revenues fell 13% while mortgage banking fees were lower on decrease in loan production.

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

Loans & Higher Rates Aid Revenues, Expenses Down

Net revenues amounted to $23.1 billion, beating the Zacks Consensus Estimate of $22.9 billion. Also, it was up nearly 4% from the prior-year quarter.

Net interest income, on a fully taxable-equivalent basis, grew 4% year over year to $11.8 billion. Further, net interest yield was stable at 2.39%.

Non-interest income increased 3% from the year-ago quarter to $11.5 billion. The rise was mainly driven by improvement in trading income, partially offset by lower mortgage banking income and investment banking fees.

Non-interest expenses were $13.9 billion, down 1% year over year.

Credit Quality Improves

Provision for credit losses was relatively stable on a year-over-year basis at $834 million. Also, net charge-offs declined 2% from the year-ago quarter to $911 million.

Further, as of Mar 31, 2018, ratio of nonperforming loans, leases and foreclosed properties was 0.72%, down 12 basis points year over year.

Strong Capital Position

The company’s book value per share as of Mar 31, 2018 was $23.74 compared with $24.74 as of Mar 31, 2017. Tangible book value per share as of Mar 31, 2018 was $16.84, down from $17.22 as of Mar 31, 2017.

As of Mar 31, 2018, the company’s common equity tier 1 capital ratio (Basel 3 Fully Phased-in) (Advanced approaches) was 11.3%, up from 11.0% as of Mar 31, 2017.

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.

However, mortgage banking income continued to decline due to lower volumes and a fall in refinancing activity. Also, investment banking performance was disappointing. These are expected to have an adverse impact on revenues.

Bank of America Corporation Price, Consensus and EPS Surprise

 

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

BofA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Big Banks

Amid an expected weakness in investment banking, strong trading results, higher rates and lower tax rate drove JPMorgan’s JPM first-quarter 2018 earnings of $2.37 per share, which handily outpaced the Zacks Consensus Estimate of $2.28. The reported figure was up 44% from the prior-year quarter.

Wells Fargo’s WFC first-quarter 2018 earnings of $1.12 per share surpassed the Zacks Consensus Estimate of $1.07. Moreover, results improved from the prior-year quarter earnings of $1.03.

Top-line strength drove Citigroup’s C first-quarter 2018 earnings per share of $1.68, which easily outpaced the Zacks Consensus Estimate of $1.61. Also, earnings compared favorably with the year-ago figure of $1.35 per share.

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