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Bank of America Delivers Solid Q4 Earnings; Shares Up 5%

Shares of Bank of America Corp. (BAC) briefly gained 5%, after the company reported better than-expected fourth-quarter earnings driven by solid loan growth and strong merger and acquisition (M&A) activities.  

BofA Q4 earnings exceeded expectations, while revenue came in marginally lower than the estimates. Shares of the global financial institution closed almost flat at $46.44 on January 19.

Solid Q4 Earnings

BofA reported quarterly earnings of $0.82 per share, a 39% year-over-year gain and 6 cents better than analyst estimates of $0.76 per share. According to the bank, its revenue grew faster than its expenses resulting in positive operating leverage and earnings power.

Quarterly net revenue rose 10% year-over-year to $22.06 billion, but failed to meet the analysts’ estimates of $22.23 billion. Net interest income (NII) grew 11% year-over-year to $11.4 billion driven by strong growth in both loans and deposits.

Similarly, non-interest income jumped 8% year-over-year to $10.7 billion, aided by strong performance in advisory fees, asset management fees, and investment banking fees. The bank also witnessed solid growth in its equities and trading volumes.

Additionally, BofA released loan loss reserves of $851 million, improving the provision for credit losses to a benefit of $489 million.

On the non-interest expenses front, the bank said these expenses increased 6% compared to the year-ago period due to higher compensation and bonuses paid, which were partially offset by lower COVID-19-related costs.

For the full year fiscal 2021, BofA reported net revenue of $89.11 billion, growing 4.2% compared to the prior-year quarter, while earnings jumped 90.9% annually to $3.57 per share.

Strong growth in commercial loans and card balances led to record year-end loans of $979 billion. Year-end deposits also grew to $2.06 trillion on the heels of a recovering economy.

CEO Comments

Bank of America CEO, Brian Moynihan, said, “In Consumer, we added millions of new credit card accounts and nearly a million net new checking accounts as we continued to demonstrate the value we provide through our physical and digital capabilities.”

Moynihan added, “Wealth Management had record client flows and the strongest client acquisition numbers since before the pandemic. Investment Banking had its best year ever and Global Markets had its highest sales and trading revenue in a decade, led by record Equities performance as we invested in the business.”

Analysts’ Take

Responding to the earnings, Wells Fargo analyst Mike Mayo reiterated a Buy rating on the stock with a price target of $60, which implies 29.2% upside potential to current levels.

Mayo is encouraged by the positive operating leverage reported by BAC for the second time in a row. Going ahead, he believes BAC will continue to report the best positive operating leverage among banks.

Overall, the stock has a Moderate Buy consensus rating based on 10 Buys, 3 Holds, and 2 Sells. The average Bank of America price target of $53.50 implies 15.2% upside potential to current levels. Meanwhile, BAC shares have gained 49% over the past year.

Blogger Opinions

According to TipRanks data, financial blogger opinions are 89% Bullish on BAC, compared to a banks stocks sector average of 71%.

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