Bank of America’s BAC fourth-quarter 2022 earnings of 85 cents per share surpassed the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 82 cents earned in the prior-year quarter. Our estimate for earnings was 80 cents per share.
Driven by robust loan growth (loan balances up 6.9% from the prior-year period) and rising interest rates, BofA recorded a solid improvement in net interest income (NII). We had projected 8.1% growth in loan balances.
Backed by improvement in consumer spending, the company’s consumer banking business acted as a tailwind, with revenues rising 21%. We had projected 17.9% revenue growth for this business. Also, combined credit and debit card spending rose 5%.
BAC’s trading numbers were also impressive. Sales and trading revenues (excluding net DVA) were up 27% from the prior-year quarter. Fixed-income trading fees rose 49% and equity trading income increased 1%.
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion tanked 54.4% year over year in the quarter, reflecting the weaker industry-wide performance of the underwriting business. Advisory fees plunged 42.8% to $486 million.
Probably because of the weak IB business performance, shares of the company lost almost 3% in pre-market trading despite reporting better-than-expected earnings.
Overall, the company’s net income applicable to common shareholders increased 1.9% from the prior-year quarter to $6.90 billion. Our estimate for the same was $6.43 billion.
For 2022, earnings of $3.19 per share surpassed the Zacks Consensus Estimate of $3.11. The bottom line compared unfavorably with $3.57 earned in the prior year. Our estimate for earnings was $3.13. Net income applicable to common shareholders declined 14.9% from the prior year to $26.02 billion. Our estimate for the same was $25.54 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $24.5 billion, which marginally beat the Zacks Consensus Estimate of $24.1 billion. The top line grew 11.2% from the prior-year quarter. Our estimate for the metric was $24.19 billion.
For 2022, revenues were $95 billion, which beat the Zacks Consensus Estimate of $94.6 billion. The top line grew 6.6% from the prior year.
Quarterly NII (fully taxable-equivalent basis) rose 28.6% year over year to $14.8 billion, driven by higher interest rates, lower premium amortization expenses and loan growth. Also, the net interest yield expanded 55 basis points (bps) to 2.22%. Our estimates for NII and net interest yield were $15.38 billion and 2.10%, respectively.
Non-interest income decreased 7.5% to $9.9 billion. The fall was mainly due to lower fees and commissions. We had projected a non-interest income of $8.92 billion.
Non-interest expenses were $15.5 billion, up 5.5%. The rise was due to an increase in almost all cost components except for product delivery and transaction-related costs. We had projected non-interest expenses of $15.87 billion.
The efficiency ratio was 63.36%, down from 66.78% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.
Credit Quality: Mixed Bag
Provision for credit losses was $1.09 billion against a benefit of $489 million in the prior-year quarter. Net charge-offs rose 90.3% year over year to $689 million.
As of Dec 31, 2022, non-performing loans and leases as a percentage of total loans were 0.37%, down 10 bps year over year.
Capital Position Strong
The company’s book value per share as of Dec 31, 2022, was $30.61 compared with $30.37 a year ago. Tangible book value per share as of the fourth-quarter end was $21.83, up from $21.68.
At the end of December 2022, the common equity tier 1 capital ratio (Advanced approach) was 12.8%, up from 12.3% as of Dec 31, 2021.
Conclusion
BofA’s focus on digitizing operations, loan growth, higher interest rates and branch expansion plans are likely to support growth. However, elevated expenses and near-term macroeconomic factors pose major headwinds.
Bank of America Corporation Price, Consensus and EPS Surprise
Bank of America Corporation price-consensus-eps-surprise-chart | Bank of America Corporation Quote
Currently, BAC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Banks
We now look forward to the earnings release of Hancock Whitney HWC and Bank OZK OZK.
HWC is slated to release fourth-quarter numbers on Jan 17 and OZK will release quarterly results on Jan 19.
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Hancock Whitney Corporation (HWC) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
