Bank of America’s Quarterly Results Beat Expectations; Shares Drop 3%

Bank of America reported better-than-expected first-quarter results. A rise in fee income was partly offset by lower net interest income and elevated non-interest expenses. Shares of the American multinational investment bank and financial services holding company declined 2.9% to close at $38.74 on April 15.

Bank of America’s (BAC) 1Q earnings more than doubled to $0.86 per share on a year-over-year basis and topped the Street estimates of $0.66 per share. Total revenue inched up marginally to $22.8 billion and outpaced the consensus estimate of $22.13 billion.

Net interest income came in at $10.2 billion, down 16% year-over-year due to low interest rates, while non-interest income rose 19% to $12.6 billion, which reflects the impact of strong capital markets and elevated investment and brokerage income. Net interest yield was 1.68% in the quarter, down 65 basis points.

The provision for credit losses was a net benefit of $1.9 billion in the quarter, reflecting a net reserve release of $2.7 billion. Non-interest expenses surged 15% year-over-year to $15.5 billion.

Bank of America’s consumer banking segment recorded revenues of $8.1 billion, down 12% year-over-year, while revenues at the global wealth and investment management segment rose 1% to $5 billion. Additionally, the global banking division reported revenues of $4.6 billion, up 1% year-over-year, while revenues of $6.2 billion increased 19% at the global markets unit.

The company reported total loans and leases of $903.1 billion, down 14% from the prior-year quarter. Meanwhile, total deposits grew 19% to $1.88 trillion. (See Bank of America stock analysis on TipRanks)

Bank of America CEO Brian Moynihan commented, “While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery. The strength of our balance sheet, our complementary and diverse set of businesses, and our talented teammates position us to perform well in that environment.”

Additionally, the company announced a share repurchase program of up to $25 billion of common stock.

Following the 1Q results, Oppenheimer analyst Chris Kotowski increased the stock’s price target to $49 (26.5% upside potential) from $45 and maintained a Buy rating.

Kotowski said, “We tweaked up the ramp in NII in our model and increased 2Q21E market sensitive revenues to a level roughly in between ‘normalized’ 2Q19 and ‘elevated’ 2Q20…We also shaved 2021E NCO assumptions, though we left 2022E unchanged at ‘normalized’ levels, and boosted stock repurchase assumptions modestly. We continue to like the stock.”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 10 Buys, 3 Holds, and 1 Sell. The average analyst price target of $39.89 implies 3% upside potential to current levels. Shares have increased 80.9% over the past year.

Bank of America scores a 9 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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