Keeping away from the streak of disappointing results by a few
Bank of America Corporation
) came out with a positive earnings surprise of about 11.1% for
the third quarter. The banking giant reported earnings per share
of 20 cents, beating the Zacks Consensus Estimate of 18 cents.
This also compares favorably with the break-even result in the
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Results for the reported quarter were aided by a substantial
reduction in the provision for credit losses and lower
noninterest expenses. Though interest and noninterest income
showed year-over-year improvement, these were not the major
contributing factors this quarter. In fact, excluding debit
valuation adjustments (DVA) and fair value option (FVO)
adjustments, total revenue (net of interest expense) declined on
a year-over-year basis.
As previously announced by the company, results benefited from a
$0.8 billion pre-tax gain on the sale of its remaining China
Construction Bank shares. However, negative valuation adjustments
of $0.4 billion partially offset the benefit. These items had a
2-cent per share positive impact on earnings. Otherwise, BofA
would have earned 18 cents per share during the quarter, in line
with the Zacks Consensus Estimate.
The quarter witnessed improved credit quality across major
portfolios, higher brokerage income and increased equity
investment income. However, these positives were partially offset
by reduced mortgage banking income and a negative impact from
deferred tax assets.
Investment banking performance remained decent, thanks to better
capital market activities. BofA maintained its #2 rank in Global
Investment Banking fees with a 7.7% market share. Also, it
achieved #1 rank in the Americas with 11.0% market share during
the quarter. Yet, losses in Consumer Real Estate Services and
Global Markets increased over the year-ago quarter.
The company significantly strengthened its balance sheet as
reflected by improved capital ratios. Strong time-to-required
funding and reduced long-term debt were also among the positives.
Quarter in Detail
Excluding DVA and FVO, fully taxable-equivalent revenues (net of
interest expense) were $22.2 billion, down 2% from $22.5 billion
in the prior-year quarter. However, this was in line with the
Zacks Consensus Estimate.
Net interest income on a fully taxable-equivalent basis was $10.5
billion, up 3% from $10.2 billion in the year-ago quarter.
Reduced long-term debt balances, less negative market-related
premium amortization, lower rates paid on deposits, and higher
commercial loan balances primarily supported this improvement,
which was partially offset by a reduction on consumer loan
balances as well as lower asset yields. Net interest margin
improved to 2.44% from 2.32% in the year-ago quarter.
Noninterest income came in at $11.3 billion, up 7% from $10.5
billion in the prior-year quarter. The reasons for this
improvement were lower negative FVO adjustments, higher equity
investment income and higher investment and brokerage income.
However, lower mortgage banking income partially offset the
Noninterest expense was $16.4 billion, down 7% from $17.5 billion
in the year-ago quarter. Lower litigation expense, lesser
expenses in Legacy Assets and Servicing (LAS) and reduction in
personnel expense were the main contributors to the reduction.
Book value per share as of Sep 30, 2013 was $20.50 compared with
$20.18 as of Jun 30, 2013 and $20.40 as of Sep 30, 2012. Tangible
book value per share as of Sep 30, 2013 was $13.62 compared with
$13.32 at the end of the prior quarter and $13.48 at the end of
the year-ago quarter.
Supported by the ongoing economic recovery, credit quality
continued to improve during the quarter with net charge-offs
declining across almost every major portfolio from the prior-year
quarter. Provision for credit losses decreased 83% year over year
to $296 million.
As of Sep 30, 2013, nonperforming loans, leases and foreclosed
properties ratio was 2.17%, down 16 basis points (bps)
sequentially and 64 bps year over year. Net charge-off ratio
decreased 21 bps sequentially and 113 bps year over year to
At the end of the reported quarter, the company's Tier 1 common
capital ratio including Market Risk Final Rule was 11.08%
compared with 10.83% at the end of the prior quarter. Tangible
common equity ratio was 7.08% compared with 6.98% at the end of
the prior quarter and 6.95% at the end of the prior-year quarter.
Among other banking giants that have reported so far,
JPMorgan Chase & Co.
) reported disappointing third quarter results. Massive legal
expense dampened JPMorgan's results, while Citigroup suffered
from credit and debt valuation adjustments.
Wells Fargo & Company
) has maintained its track record of beating the Zacks Consensus
Estimate with the help of disciplined expense management and
improved loans and deposits.
BofA continues to show strength in its balance sheet and
liquidity, which is reflected through improved capital ratios.
Nevertheless, we expect continuous litigation and various
regulatory issues to impact its results in the near to medium
Overall, the company has recovered significantly over the last
few quarters, as evident from its earnings streak. In addition to
realigning its balance sheet in accordance with regulatory
changes, the company has taken measures to contain cost. These
efforts vouch for better prospects going forward.