Bank of America Earnings: It Still Pays to Be in Banking

Bank of America

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Shares of Bank of America (NYSE:BAC) jumped as much as 3 percent in premarket trading on Wednesday, setting a fresh 52-week high near $17.30 after the bank reported strong fourth-quarter results.

Total revenue excluding accounting adjustments climbed 13.8 percent to $22.3 billion for the three months ended December 31, beating the mean analyst estimate of $21.24 billion, while net income jumped 369 percent to $3.4 billion for the same period. Earnings jumped from 3 cents to 29 cents per share, beating the mean analyst estimate of 26 cents per share.

For the year, total revenue (also excluding accounting adjustments) fell about 1 percent to $91 billion, beating the mean analyst estimate of $89 billion. Earnings increased 260 percent to 90 cents per common share, beating the mean analyst estimate of 88 cents per share.

Improving credit conditions

Headline numbers aside, there’s a lot to like about Bank of America’s fourth-quarter results. A dramatic 84.8 percent decline in provisions for credit losses to just $336 million is a load off the bank’s back. Net charge-offs also declined significantly, falling 48.4 percent on the year to $1.6 billion. The net charge-off ratio — the rate at which debt has to be purged from the bank’s books — declined from 1.4 percent to 0.68 percent.

Net interest income, or how much money Bank of America made on loans made with deposits, grew 4.2 percent on the year to about $11 billion, accounting for about 47 percent of total income.

“The improvement was driven by reductions in long-term debt balances and yields, favorable market-related adjustments from lower premium amortization, lower rates paid on deposits, and higher commercial loan balances,” the bank said. “These factors were partially offset by lower consumer loan balances and lower asset yields. Net interest margin was 2.56 percent in the fourth quarter of 2013, compared to 2.35 percent in the fourth quarter of 2012.”

It still pays to be in banking

Non-interest income — income derived from fees for services such as investment banking — increased 28.4 percent on the year to $10.7 billion. For the year, income in this segment grew 9.3 percent, outpacing net interest income growth. Meanwhile, non-interest expenses fell 5.7 percent for the quarter to $17.3 billion and 4 percent for the year to $69.22 billion.

The savings were “driven primarily by reduced expenses in Legacy Assets and Servicing [LAS] and lower personnel expense as the company continued to streamline processes and achieve cost savings. This was partially offset by higher litigation expense reflecting continued evaluation of legacy exposures largely related to residential mortgage-backed securities [RMBS] litigation,” Bank of America said.

Fourth-quarter litigation expenses rose from $1.1 billion to $2.3 billion.

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