On 4/15, Bank of America (BAC) reported core Q1 EPS of $.86 well ahead of estimates of $.65. Positives for the quarter were strong deposit growth, stable net interest margin (NIM) and resumption of share buybacks with a new program of $25b.
Current Price: $38.5 Price Target: $40 (up from $36)
Position Size: 2.39% Trailing 12-month Performance: 82.7%
Highlights:
- Deposits surged 25% YOY spurring balance sheet growth of 4.4% YOY
- Strong metrics for loan quality throughout pandemic
- Return of excess capital built up over the pandemic – $25b share buyback which is worth 7.5% of outstanding shares
Concerns:
- Elevated expenses
- Negative loan growth
Deposits have grown 25% YOY
- BAC ranked #1 in deposit share
- Fiscal stimulus programs have supported consumers
- BAC pays just .03% on deposits
BAC has managed the pandemic well with strong credit performance.
- Net charge-offs only 0.37% of loans. Last year this ratio peaked at 0.46%. For comparison during 2010, the charge-off ratio peaked at 3.8% showing the relative severity of the Great Recession.
- With improving economy and outlook, BAC released $2.7b from loss reserves
Net interest income roughly flat from last quarter with margin at 1.68%
- NIM growth will remain sluggish until we see a sustained economic recovery and continued increases in interest rates.
Excess capital
- BAC announce a $25b share repurchase program which is worth 7.5% of outstanding shares.
- Current dividend yield is 1.86% for a shareholder yield over 9%.
Negative loan growth
- Loans outstanding fell 8% YOY. Corporations and consumers continue to pay down balances. Some of the YOY decreased is due to elevated loan balances at Q1 last year during the onset of the pandemic.
BAC Thesis:
- Over the years BAC has dramatically improved their Consumer Banking unit, leveraging technology and their digital platforms which has driven earning’s growth.
- BAC has a high-quality loan book which was seen during the pandemic as loan loss metrics were best among peers.
- BAC has strong earnings power, generating over $5b a quarter in earnings
- BAC continues to build capital which should lead to increased dividends and buybacks
Please let me know if you have questions.
Thanks,
John
[category Equity Earnings]
[tag BAC]
$BAC.US
John R. Ingram CFA
Chief Investment Officer
Partner
Direct: 617.226.0021
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109