Bank of America Corporation (NYSE: $BAC) is a multinational investment bank and a financial services company that serves individuals, small and middle-market businesses, large corporations, and governments with a full range of banking, investment management, and other financial and risk management products and services.
The Charlotte, North Carolina-based bank has a vast network of approximately 3,800 retail financial centers, 15,000 ATMs, and award-winning digital banking platforms. It has established itself as a dominant force in the industry. BAC reported its first-quarter 2024 financial results on Tuesday, April 16, 2024, showcasing a mixed performance amidst a shifting economic landscape.
Bank of America Q1 Results
Bank of America reported revenue of $25.82 billion for the first quarter of 2024, representing a year-over-year decline of 1.7%. However, the company’s adjusted EPS of $0.83 for the same period outpaced the analysts’ estimate of $0.77, representing a positive surprise of 7.79%. Net income declined 18% to $6.7 billion for a diluted EPS of $0.76.
The bank’s efficiency ratio, a key metric that measures the relationship between revenue and expenses, stood at 66.4% on a fully taxable-equivalent (FTE) basis, slightly higher than the average estimate of 64.8% from seven analysts. Net interest income, a crucial driver of the bank’s top line, was $14.19 billion, exceeding the average analyst estimate of $13.98 billion. This performance was strengthened by the bank’s ability to maintain a net interest yield of 2% on earning assets, which is in line with the average estimate.
Provisions and Asset Quality
Bank of America’s provision for credit losses increased to $1.3 billion in the first quarter of 2024, up from $1.1 billion in the previous quarter and $931 million in the same period last year. This uptick in provisions reflects the bank’s prudent approach to managing potential credit risks amid the evolving economic landscape.
The bank’s net charge-off ratio, which measures the percentage of loans written off as uncollectible, stood at 0.6%, slightly higher than the 0.5% average estimate from six analysts. Total nonperforming loans, leases, and foreclosed properties reached $6.03 billion, slightly above the $5.97 billion average estimate from five analysts.
These metrics suggest that Bank of America is navigating the challenges of the current economic environment by proactively addressing potential credit quality concerns and maintaining a cautious approach to risk management.
Business Segment Performance
The consumer banking division reported a net income of $2.65 billion in the first quarter of 2024, down from $2.76 billion in the previous quarter. However, the bank continued to demonstrate strong growth in its consumer franchise, with 36.9 million consumer checking accounts and 21 consecutive quarters of net checking account growth.
The bank’s wealth management and investment banking businesses also contributed to the overall performance. Investment banking fees grew by 35% to $1.6 billion, driven by strength in equity and debt underwriting. The wealth management division, which includes Merrill and Bank of America Private Bank, reported a record quarter with revenue increasing by 5.2% to $5.59 billion.
Mortgage and Home Equity Performance
One area of concern for Bank of America was its mortgage and home equity production, which continued to decline in the first quarter of 2024. The bank reported $3.4 billion in first mortgage production, a 12.5% decrease from the previous quarter and the same period in 2023. Similarly, home equity loan production fell by 16% to $1.8 billion, down 27% year-over-year.
This trend aligns with the broader industry, as major players like Wells Fargo and JPMorgan Chase also experienced declines in mortgage originations during the quarter. Analysts expect independent mortgage banks to continue gaining market share from large commercial banks as the housing market faces headwinds amidst high-interest rates.
Bank of America’s Outlook
Looking ahead, Bank of America’s management remains cautiously optimistic. Chief Financial Officer Alastair Borthwick expects the bank’s net interest income to approach $14 billion in the second quarter, which is expected to be the “low point” for the year. However, uncertainties remain, including the impact of persistent inflation and geopolitical tensions on the broader financial landscape.
The bank’s stock price dropped by 5% on Tuesday morning, reflecting investor concerns over the elevated expenses and higher-than-expected charge-offs for soured loans. While the bank’s trading and wealth management businesses performed well, these concerns and the challenges in the mortgage and home equity segments will likely continue to shape the bank’s performance in the coming quarters.
Bank of America’s Stock Performance
The bank’s stock price dropped by 5% on Tuesday morning, reflecting investor concerns over the elevated expenses and higher-than-expected charge-offs for soured loans. While the bank’s trading and wealth management businesses performed well, these concerns and the challenges in the mortgage and home equity segments will likely continue to shape the bank’s performance in the coming quarters. At the close of trading, the loss had narrowed to 3.50% to $34.69 per share.
The early morning drop represents the stock’s biggest intraday drop in the past 12 months. Despite the drop, BAC shares are up 17.64% in the past 52 weeks, below the 21.83% gain of the SPX in the same period. They are below the 50 DMA of $35.37 but above the 200 DMA of $31.28.
Should You Consider Investing In BAC In 2024?
Like many other banks, Bank of America has come under increasing pressure from the high Fed rates, which has caused people to hold off on mortgages and other financed purchases, with Fed officials signaling that rate cuts may be delayed after the recent CPI data. The bank’s ability to navigate these challenges and maintain its competitive edge in the evolving financial services industry should be reviewed before making any investment decision.
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