Bank of America Q4 results

On 1/19, Bank of America (BAC) reported strong Q4 EPS of $.82 ahead of estimates of $.76.  Highlights for the quarter were 12% Net Interest Income growth, deposit growth of 15% and ROTE of 17.0%. BAC’s earnings remain levered to rising interest rates – a 100 basis point increase in yields would increase NII $6.5b. 

 

Current Price: $44.5                         Price Target: $52 (raised from $50)

Position Size:   3.5%                         Trailing 12-month Performance: 43.9%

 

Highlights:

  • Revenue growth of +10% to $22.1b  
  • Deposits continued their strong growth  +15% YOY
  • Strong metrics for loan quality throughout pandemic. BAC had a historically low loss ratio of 15 basis points.
  • For the year, repurchased $25.1b of shares and dividends of $6.6b for a shareholder yield of 8.4%.
  • Good expense control

Outlook:

  • Set expectations for flat expense growth for 2022.
  • Expects strong loan growth, and balances should return to pre-pandemic levels
  • Net Interest Margin (NIM) fell slightly to 1.67% and should begin to recover with rate hikes. 
  • 100 basis point shift in yield curve will increase NII by $6.5b over next 12 months

 

  • Deposits have grown 16% YOY
    • Grew deposits by $270b in 2021!
    • BAC ranked #1 in deposit share
    • BAC pays just .05% on deposits

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  • BAC has managed the pandemic well with strong credit performance.
    • Net charge-offs only 0.15% of loans, which is a 50-year low.  Last year this ratio peaked at 0.45%.  For comparison during 2010, the charge-off ratio peaked at 3.8% showing the relative severity of the Great Recession and the current strength of the U.S. banking system.

BAC Thesis:

 

  • Over the years BAC has dramatically improved their Consumer Banking unit, leveraging technology and their digital platforms which has improved margins and 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
  1. BAC continues to build capital which should lead to increased dividends and buybacks
  2. BAC’s earnings are sensitive to rate increases. 

 

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

www.crestwoodadvisors.com