Bank of America‘s (BACFree Report) third-quarter 2021 earnings of 85 cents per share beat the Zacks Consensus Estimate of 71 cents. The bottom line compared favorably with 51 cents earned in the prior-year quarter. Results in the quarter included reserve release of $1.1 billion.

The stock gained almost 2.8% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance. The top line benefited from solid equity trading, advisory and debt underwriting businesses, and a modest rise in loan demand.

BofA’s trading numbers were impressive. Sales and trading revenues (excluding DVA) grew 8.8% from the prior-year quarter. This was driven by a 32.5% improvement in equity trading income, while a 4.8% fall in fixed income trading fees was an offsetting factor.

On the back of modest improvement in the lending scenario and steepening of the yield curve, BofA recorded solid net interest income growth despite a low interest rate environment. Further, backed by improvement in consumer spending and economic rebound, the company witnessed a nearly 1% rise in total card income on a year-over-year basis. Also, combined credit and debit card spending rose 21%.

Driven by stellar global M&A activities during the third quarter, advisory fees surged 70.8%. The underwriting business also performed decently. The company’s equity underwriting fees declined 2%, while debt underwriting income rose 25.3%. Total investment banking fees, thus, surged 33.7%.

Asset management business acted as a tailwind as well. The bank posted 19.6% growth in asset management fees during the quarter.

A large reserve release, leading to provision benefits, also supported BofA’s financials.

Performance of the company’s business segments, in terms of net income generation, was strong. All segments, except All Others, witnessed an improvement in net income.

Overall, net income soared 57.6% from the prior-year quarter to $7.7 billion.

Loan Growth, Advisory Fees Aid Revenues, Expenses Rise Modestly

Net revenues amounted to $22.8 billion, which surpassed the Zacks Consensus Estimate of $21.7 billion. The top line grew 11.9% from the prior-year level.

Net interest income (fully taxable-equivalent basis) rose 9.3% year over year to $11.2 billion, driven by solid deposit growth and paycheck protection program activities. However, net interest yield contracted 4 basis points (bps) to 1.68%.

Non-interest income increased 14.4% from the year-ago quarter to $11.7 billion.

Non-interest expenses were $14.4 billion, up marginally.

Efficiency ratio was 63.43%, down from 70.81% 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 a benefit of $624 million against a provision of $1.4 billion in the prior-year quarter. This reflected a reserve release of $1.1 billion amid an improved macroeconomic outlook.

Net charge-offs plunged 52.4% to $463 million. As of Sep 30, 2021, non-performing loans and leases were 0.51%, up 3 bps.

Strong Capital Position

The company’s book value per share as of Sep 30, 2021, was $30.22 compared with $28.33 a year ago. Tangible book value per share as of third quarter-end was $21.69, up from $20.23.

At the end of September 2021, common equity tier 1 capital ratio (Advanced approaches) was 12.6%, compared with 12.7% as of Sep 30, 2020.

Share Repurchase Update

During the quarter, BofA repurchased shares worth $9.9 billion.

Conclusion

BofA’s focus on digitizing operations, solid investment banking performance and branch expansion plans are likely to support growth, going forward. However, near-zero interest rates are a near-term concern.

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

Earnings Release Date of Other Major Banks

Truist Financial (TFCFree Report) and PNC Financial (PNCFree Report) are scheduled to report quarterly numbers on Oct 15, while State Street (STTFree Report) will announce results on Oct 18.

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