Bank of America Stock Up on Q3 Earnings Beat, IB & Trading Fee Growth

Bank of America’s BAC third-quarter 2024 earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 78 cents. The bottom line compared unfavorably with 90 cents earned in the prior-year quarter.

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Shares of the company gained almost 1.5% in pre-market trading on better-than-expected results, driven by solid capital markets performance.

Behind BAC’s Headline Numbers

Total investment banking (IB) fees (in the Global Banking division) of $783 million increased 5.4% year over year, driven by growth in underwriting income (up 24.5%). Advisory services revenues witnessed an 11.4% decline in the quarter.

Similar to the previous quarters, Bank of America recorded an improvement in trading numbers in the third quarter. Sales and trading revenues (excluding net DVA) grew 11.7% to $4.94 billion. Fixed-income trading fees increased 8%, while equity trading income jumped 17.8%.

These turned out to be major revenue growth drivers. Further, Bank of America witnessed a 2.4% year-over-year increase in total deposit balances to $1.93 trillion.

On the other hand, despite decent loan growth (loan balances rose 2.6%) and high interest rates, BofA recorded a decline in net interest income (NII) because of higher deposit costs.

The company’s net income applicable to common shareholders plunged 12.2% from the prior-year quarter to $6.38 billion. Our estimate for the same was $6.12 billion.

BAC’s Revenues Improve, Expenses Rise

Net revenues were $25.35 billion, which beat the Zacks Consensus Estimate of $25.29 billion. Also, the top line increased almost 1% from the prior-year quarter.

NII (fully taxable-equivalent basis) fell 2.9% to $14.11 billion. Our estimate for NII was $14.27 billion. Net interest yield contracted 19 basis points (bps) year over year to 1.92%. 

Non-interest income increased 5.5% to $11.38 billion. The rise was driven by an increase in total fees and commissions. We had projected a non-interest income of $10.98 billion.

Non-interest expenses were $16.48 billion, up 4%. Our estimate for non-interest expenses was $16.34 billion.

The efficiency ratio was 64.64%, up from 62.55% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.

Bank of America’s Credit Quality Worsens

Provision for credit losses was $1.54 billion, up 25% from the prior-year quarter. We estimated the metric to be $1.44 billion.

Net charge-offs jumped 64.8% to $1.53 billion. As of Sept. 30, 2024, non-performing loans and leases as a percentage of total loans were 0.53%, up 7 bps.

BAC’s Capital Position Strong

Book value per share as of Sept. 30, 2024, was $35.37 compared with $32.65 a year ago. Tangible book value per share end was $26.25, up from $23.79.

At the end of September 2024, the common equity tier 1 capital ratio (advanced approach) was 13.5%, stable year over year.

BAC’s Share Repurchase Update

In the reported quarter, the company repurchased shares worth $3.5 billion.

Our Take on Bank of America

Bank of America’s focus on digitizing and expanding operations, decent loan growth and relatively high interest rates are likely to keep aiding growth. However, elevated expenses andfunding costs and a challenging operating backdrop pose major headwinds.
 

Currently, BAC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

Performance of BAC’s Peers

Wells Fargo’s WFC third-quarter 2024 adjusted earnings per share of $1.52 surpassed the Zacks Consensus Estimate of $1.27. In the prior-year quarter, the company reported earnings per share of $1.39.

WFC’s Results benefited from higher non-interest income and a decline in provisions and non-interest expenses. However, lower NII and loan balances were the undermining factors.

High interest rates and solid IB business performance drove JPMorgan’s JPM third-quarter 2024 earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $4.02.

Robust capital markets performance and a rise in NII majorly supported JPM’s quarterly performance. On the other hand, higher non-interest expenses and provisions and subdued mortgage banking performance were the headwinds

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Bank of America Corporation (BAC): Free Stock Analysis Report
 
Wells Fargo & Company (WFC): Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

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