Following a decent start to the earnings season by a couple of
Bank of America Corporation
) maintained the stride with a positive earnings surprise of 7.4%
for the concluding quarter of 2013. The banking behemoth reported
earnings per share of 29 cents, beating the Zacks Consensus
Estimate of 27 cents. This also compared favorably with 3 cents
earned in the prior-year quarter.
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Results for the fourth quarter were primarily aided by a
substantial reduction in the provision for credit losses and
higher top line. A reduction in noninterest expenses was a
contributor this quarter.
Shares of BofA gained nearly 3% in the pre-trading session,
indicating that the market is encouraged with this release. The
price reaction during the trading session will give a better idea
about whether BofA has been able to meet expectations.
Results for the quarter included negative DVA/FVO adjustments of
$0.6 billion (pre-tax) and litigation expense of $2.3 billion
(pre-tax). Considering effective tax rate of 10.6%, these items
had about 22 cents per share negative impact on earnings.
Otherwise, BofA would have earned 51 cents per share.
The quarter witnessed improved credit quality across major
portfolios, higher brokerage income and growth in loan and
deposit balances. However, these positives were partially offset
by a decrease in equity investment income and lower asset yields.
Investment banking performance remained decent, thanks to
improved capital market activities. BofA Merrill Lynch gained
market share in this area and maintained its #2 rank in Global
Investment Banking fees with an 8.0% market share. Also, it
achieved #1 rank in investment banking fees in the Americas with
10.7% market share during the quarter. Losses in Consumer Real
Estate Services also decreased over the year-ago quarter.
The company significantly strengthened its balance sheet and
showed improvement in capital ratios. Improved time-to-required
funding and reduced long-term debt were also among the positives.
For the full year, earnings per share came in at 90 cents, in
line with the Zacks Consensus Estimate. Earnings for the year
improved from 25 cents reported in 2012.
Quarter in Detail
Excluding DVA and FVO, fully taxable-equivalent revenues (net of
interest expense) were $22.3 billion, up 14% from $19.6 billion
in the prior-year quarter. However, this was lower than the Zacks
Consensus Estimate of $22.8 billion.
Net interest income on a fully taxable-equivalent basis was $11.0
billion, up 4% from $10.6 billion in the year-ago quarter.
Reduced long-term debt balances and yields, favorable
market-related adjustments from lower premium amortization, lower
rates paid on deposits, and higher commercial loan balances were
the drivers. Net interest margin improved 21 basis points (bps)
year over year to 2.56%.
Noninterest income came in at $10.7 billion, up 28% from $8.3
billion in the prior-year quarter. The reasons for this
improvement were lower representations and warranties provision
and year-over-year improvement in both investment banking fees
and investment and brokerage income. However, lower equity
investment income partially offset the positives.
Noninterest expense was $17.3 billion, down 6% year over year.
Reduced expenses in Legacy Assets and Servicing (LAS) and lower
personnel expense were the main contributors to the reduction.
Higher litigation expense partially offset the improvement.
Book value per share as of Dec 31, 2013 was $20.71 compared with
$20.50 as of Sep 30, 2013 and $20.24 as of Dec 31, 2012. Tangible
book value per share as of Dec 31, 2013 was $13.79 compared with
$13.62 at the end of the prior quarter and $13.36 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 85% year over year
to $336 million.
As of Dec 31, 2013, nonperforming loans, leases and foreclosed
properties ratio was 1.93%, down 24 bps sequentially and 69 bps
year over year. Quarter end net charge-off ratio decreased 5 bps
sequentially and 72 bps year over year to 0.68%.
At the end of the reported quarter, the company's Tier 1 common
capital ratio including market risk final rule was 11.19%
compared with 11.08% at the end of the prior quarter. Tangible
common equity ratio was 7.20% compared with 7.08% at the end of
the prior quarter and 6.74% at the end of the prior-year quarter.
BofA continues to show strength in its balance sheet and
liquidity. Nevertheless, we expect continued litigation and
various regulatory issues to stain its results in the near to
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.
Earnings of Other Major Banks
Among other banking giants,
JPMorgan Chase & Co.
Wells Fargo & Company
) have come out with fourth quarter results so far. Both these
banks delivered positive earnings surprises this time, indicating
good going by the sector. It is worth mentioning that JPMorgan
remained in good shape even after resolving its legal issues.
Another mega player
) is scheduled to report earnings on Jan 16.