Bank of America Corporation
) has delivered a negative earnings surprise of about 13% for the
first quarter of 2013. The banking behemoth reported earnings per
share of 20 cents, missing the Zacks Consensus Estimate of 23
cents. However, this compares favorably with the earnings of only
3 cents in the prior-year quarter.
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Results for the reported quarter were aided by an improved top
line, a substantial slowdown in the provision for credit losses
and a reduction in noninterest expenses. However, lower mortgage
banking income and reduced net gains on the sales of debt
securities faded the shine of its bottom line.
The quarter witnessed improved credit quality across major
portfolios, higher brokerage income and a compelling investment
banking performance, thanks to better capital market activities.
BofA maintained its #2 rank in Global Investment Banking fees.
Yet, consumer real estate losses increased over the year-ago
The company made significant progress in strengthening its
balance sheet as reflected by improved capital ratios. Strong
time-to-required funding and reduced long-term debt were also
among the positives.
BofA expects to start actions related to its 2013 capital plan in
the second quarter. The company received the Fed's approval for
preferred stock redemptions of $5.5 billion and common stock
repurchases of $5 billion.
Quarter in Detail
Fully taxable-equivalent revenues (net of interest expense) were
$23.7 billion, up 5% from $22.5 billion in the prior-year
quarter. Revenues also surpassed the Zacks Consensus Estimate of
Net interest income on a fully taxable-equivalent basis was $10.9
billion, down 2% from $11.1 billion in the year-ago quarter.
Reduction in consumer loan balances and lower asset yields due to
a low rate environment were primarily responsible for the
downfall, which was partially offset by a reduction in long-term
debt balance and lower rates paid on deposits. Net interest yield
deteriorated to 2.43% from 2.51% in the year-ago quarter.
Noninterest income came in at $12.8 billion, up 12% from $11.4
billion in the prior-year quarter. The improvement was aided by
the absence of negative FVO adjustments during the quarter.
Non-interest expense was $18.2 billion, down 5% from $19.1
billion in the year-ago quarter. Project New BAC initiatives and
ongoing focus to cut costs to service delinquent mortgage loans
primarily reduced the non-interest expense.
Book value per share as of Mar 31, 2013 was $20.30 compared with
$20.24 as of Dec 31, 2012 and $19.83 as of Mar 31, 2012. Tangible
book value per share as of Mar 31, 2013 was $13.46 compared with
$13.36 at the end of the prior quarter and $12.87 at the end of
the year-ago quarter.
With speedier economic recovery, credit quality continued to
improve during the quarter with net charge-offs declining across
almost all major portfolios from the prior-year quarter.
Provision for credit losses decreased 22% sequentially and 29%
year over year to $1.7 billion.
As of Mar 31, 2013, nonperforming loans, leases and foreclosed
properties ratio was 2.53%, down 9 basis points (bps)
sequentially and 57 bps year over year. Net charge-off ratio
decreased 26 bps sequentially and 66 bps year over year to 1.14%.
At the end of the reported quarter, the company's Tier 1 common
capital ratio (Basel 1) was 10.58% compared with 11.06% at the
end of the prior quarter and 10.78% at the end of the prior-year
quarter. Tangible common equity ratio was 6.94% compared with
6.74% at the end of the prior quarter and 6.58% at the end of the
prior-year quarter. As of Mar 31, 2013, the Tier 1 common capital
ratio under Basel 3 was estimated at 9.42%, up from 9.25% as of
Dec 31, 2012.
Among other banking giants,
JPMorgan Chase & Co.
Wells Fargo & Company
The Goldman Sachs Group Inc.
) have already reported better-than-expected first quarter
results and upheld the banking image.
Banks have been primarily reporting strong results on the back of
favorable macroeconomic elements, including strong capital market
activities, rising new home purchases and falling unemployment.
While the results for JPMorgan and Wells Fargos were primarily
aided by solid expense management, Goldman's results largely
benefited from an improved top line.
BofA's progress in strengthening its balance sheet is reflected
by improved capital ratios. Nevertheless, we expect continuous
litigations and various regulatory issues to impact its results
in the near to medium term.
Overall, the company is making every effort to keep itself
afloat, which is evident from its recent stress test clearance.
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.
BofA currently carries a Zacks Rank #3 (Hold).