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Yamil Berard
Yamil Berard
Articles (171) 

Bank of America Strengthens Financial Indicators

Thought no one could profit from market volatility? Bank of America saw sales and trading exceed $4 billion in the quarter

April 16, 2018 | About:

Bank of America Corp. (NYSE:BAC) beat Wall Street’s expectations as a confluence of factors bumped up its profit to one of the best in a long time.

The second-largest bank in the U.S. said it made a record profit of $6.9 billion by capitalizing on its ability to charge higher interest rates.

It also reaped the benefits of a 9% reduction in the effective tax rate as a result of the U.S. Tax Cuts and Jobs Act.

And, if you thought no one could benefit from market volatility, think again. In the first quarter, angst-ridden investors gave Bank of America a boost of 6% as sales and trading revenue rose to over $4 billion in the first quarter.

But, most importantly, it was a pivotal quarter for the bank’s key financial health indicators, such as return on shareholder equity, all of which rose significantly after a challenging previous quarter.

The North Carolina-based financial institution also reduced its share of non-performing loans by slightly more than 1%.

Earnings per share

Estimates showed diluted earnings rose 38% to 62 cents per share on revenue of $23.1 billion, compared to 20 cents per share on revenue of $20.4 billion in the previous quarter.

In net interest income, which explains how and how much money the bank makes, Bank of America rose by $550 million, or 5%, to $11.6 billion.

The jump was directly tied to the bank’s ability to charge borrowers with higher interest rates, as well as growth in loans and deposits.

For example, average deposits grew by $39 billion, or 6%, while average loans increased to $22 billion, or 8%, the bank’s filings show.

In debt obligations, the bank showed an interest expense of under $13 billion a year, which is higher than the $9.9 billion it reported in 2016, but a lot lower than the $52 billion it was paying in 2007, GuruFocus data shows.

Share price

Shares seemed to be on a seesaw of sorts throughout the trading day.

After earnings were released, investors drove up the bank's shares nearly 1% to pennies over $30 a share. A few hours later, however, the momentum reversed so that, by late morning, the stock was down almost 1%. By the afternoon, shares were trading up slightly to $29.86 a share.

The swings echoed some of the unpredictable trading activity that occurred last Friday when big banks JPMorgan Chase (NYSE:JPM), Wells Fargo & Co. (NYSE:WFC) and Citibank (NYSE:C) released strong earnings, only to have their shares hurl into a selloff by the end of the day.

Highs and lows

The 52-week range for Bank of America's stock is $22.07 to $33.05 per share. Year to date, the stock price for Bank of America is up roughly 2%.

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The Peter Lynch chart shows the bank’s stock price, which is just under $30 a share, is above fair market value. The median is $23.40 a share.

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Performance ratios

The first quarter included the time period from Dec. 31, 2017 to March 31.

The bank saw its major performance indicators rise significantly compared to the fourth quarter of 2017.

In the fourth quarter, for example, it reported a return on average assets of 0.41%. Its first-quarter results were 1.21%.

In the fourth quarter, its return on shareholder equity was 3.29% compared to 10.85% in the first quarter.

The bank has a book value of $23.74 per share and a tangible book value of $16.84 a share. In the fourth quarter, its book value per share was $23.80 a share and tangible book value was $16.96 a share.

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The bank’s equity to asset ratio was 12% in December 2017, according to GuruFocus. It has been steadily increasing since 2003, when it was 7%.

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By sector

The bank has a market cap of $304.7 billion.

In consumer banking, it saw revenue rise by 9% to $9 billion. Loans were up 8%. Deposits were up 6%. Merrill Edge brokerage assets were up 18%. Combined credit and debit spend was up 9%.

Active mobile banking users increased to over 24.6 million users, or up 12%.

In global wealth management, it saw revenue rise to $4.9 billion, or 6%. Total client balances increased $140 billion to $2.7 trillion. Loans increased 7% to $159 billion. The pretax margin set a record of 29%.

In global banking, revenue was $4.9 billion with loans increasing by 3% to $352 billion. The increases were driven by international and domestic commercial and industrial lending. Deposits increased by 6% to $324 billion.

In global markets, sales and trading revenue was at $4.1 billion. Equities were up 38% to $1.5 billion.

Bank of America serves about 47 million consumers and small businesses. It has about 4,400 retail financial centers and approximately 16,000 automatice teller machines.

More than 36 million active users take part in its mobile banking device.

It does business in more than 35 countries.

Goldman Sachs Group (NYSE:GS) is expected to release its earnings report on Tuesday.


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