Bank of America Quarterly Earnings Analysis: By the Numbers

Bank of America headquarters in Canary wharf, london, UK
Andrew Walters/Alamy
Bank of America (BAC) just reported its preliminary financial results for the quarter that ended Sept. 3-, based on which we provide a unique corporate earnings release based analysis of its performance. Our analysis focuses on the company's performance for the same quarterly period on a year-on-year basis (unless stated otherwise).

This earnings release follows the earnings announcements from the following peers of Bank of America Corporation - Citigroup (C), Wells Fargo & Company(WFC), JPMorgan Chase & Co. (JPM) and BB&T Corporation (BBT).

Highlights:
  • Summary numbers: Revenues of $21.2 billion, Net Earnings of $168 million and EPS of -1 cent. Performance focus more on top-line than bottom-line: same period year-on-year change of revenue of 5.79% vs. change in earnings of -93.27%.
  • Net Interest Income Margins now 48.20% from 51.23% compared to the same period last year, Net Interest Income After Provisions Margins now 45.20% from 49.75%
  • Net loan assets changed -4.24% compared to same period last year and -2.22% from previous period, total deposits changed 0.17% compared to same period last year and -1.97% from previous period.
  • Earnings decline from operating margin decreases as well as from unusual items
  • Lower EPS growth than earnings growth suggests a likely larger dilution in the company's shares this period.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2013-09-302013-12-312014-03-312014-06-302014-09-30
Revenues20039.0020090.0022003.0022085.0021200.00
Revenue Growth (Qtr YOY)3.7512.92-4.16-1.865.79
Earnings2496.003439.00-276.002291.00168.00
Earnings Growth (Qtr YOY)634.12369.81-118.61-42.88-93.27
Net Margin12.4617.12-1.2510.370.79
EPS0.200.29-0.050.19-0.01
Return on Equity3.835.48-0.893.47-0.12
Return on Assets0.470.65-0.050.420.03

Revenue Growth Versus Earnings Growth


Companies sometimes focus on growing their top-line (Sales or Revenues) more than their bottom-line i.e. Earnings or Net Income. Investors should look at revenue growth to understand a company's ability to grow its market share, and earnings growth to look at the company's ability to generate returns. Comparing revenue growth to earnings growth helps understand a couple of items: (1) A company's focus on gaining market share vs. generating profits and (2) How additive or dilutive the revenue performance has been to earnings.

Bank of America
Bank of America's year-on-year change in top line compared to the same period last year of 5.79% is better than its change in earnings which was -93.27% - suggesting perhaps that the company's focus is on the top-line at the expense of bottom-line earnings. However, this change in top line is better than average among the declared results thus far in its peer group - pointing to some likely market share gains and helps to look past the weaker earnings performance this period. Also, for comparison purposes, revenues changed by -4.01% and earnings by -92.67% compared to the immediate last quarter.
Earnings Growth Analysis

The company's year-on-year decline in earnings has been influenced by the following factors: (1) Decline in net interest income margins from 51.23% to 48.20% and (2) issues with loan loss provisions. As a result, net interest income after provisions margins went from 49.75% to 45.20% in this period. For comparison, net interest income margins were 46.42% and net interest income after provisions margins 44.56% in the immediate last quarter. In addition, loan loss provisions as a percentage of net interest income were 2.88% 12 months back, and 6.22% this period.


NetLoans and Total Deposits


A financial institution's core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality - but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm's equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

The firm's decline in net interest income margins is influenced by the relative drops in the levels of net loan assets and total deposits. Net loan assets as a percentage of equity went from 3.94% to 3.66% year-on-year, and total deposits as a percentage of equity went from 4.78% to 4.65%. On an absolute basis, net loan assets changed -4.24% compared to same period last year and -2.22% from previous period, total deposits changed 0.17% compared to same period last year and -1.97% from previous period.
Unusual Items

The company's decline in earnings has been influenced by the following factors: (1) Decline in EBIT margins from 23.79% to 3.88% and (2) unusual items that decreased pretax margins from 24.18% to 3.92%

EPSGrowth Versus Earnings Growth


Bank of America's year-on-year change in Earnings per Share (EPS) of -105% is less than its change in earnings of -93.27%. This lower EPS growth suggests a likely larger dilution in the company's shares this period. Moreover, the change in earnings is less than the average among the declared results thus far in its peer group suggesting that the company is losing ground in generating profits in this group.
Supporting Data

The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:
2013-09-302013-12-312014-03-312014-06-302014-09-30
Revenues20039.0020090.0022003.0022085.0021200.00
Revenue Growth (Qtr YOY)3.7512.92-4.16-1.865.79
Peer Average Revenue Growth (Qtr YOY)4.63-2.75-6.40-5.261.44
Earnings2496.003439.00-276.002291.00168.00
Earnings Growth (Qtr YOY)634.12369.81-118.61-42.88-93.27
Peer Average Earnings Growth (Qtr YOY)12.9810.221.08-17.502.71
Operating Cash Flow8227.0011994.0022723.004778.00N/A
Peer Average Operating Cash Flow10644.003589.0010657.004778.00N/A
Operating Cash Flow Growth (Qtr YOY)17.40526.43-142.4241.16N/A
Peer Average Operating Cash Flow Growth (Qtr YOY)-12.5945.9619.0919.37N/A
EBITDA Margin27.0831.5223.4732.033.88
Peer Average EBITDA Margin34.2040.9738.3534.0731.72
Net Margin12.4617.12-1.2510.370.79
Peer Average Net Margin12.4622.0022.5520.5217.62
EPS0.200.29-0.050.19-0.01
Peer Average EPS0.370.771.050.581.02
EPS Growth (Qtr YOY)6551.61866.67-150.00-40.63-105.00
Peer Average EPS Growth (Qtr YOY)12.509.890-24.687.00
Return on Equity3.835.48-0.893.47-0.12
Peer Average Return on Equity4.869.458.647.156.49
Return on Assets0.470.65-0.050.420.03
Peer Average Return on Assets0.650.840.830.940.72
Net Interest Income Margin51.2353.6945.8446.4248.20
Peer Average Net Interest Income Margin51.2353.6950.3749.1249.66
Loan Loss Provision Margin2.883.1210.004.016.22
Peer Average Loan Loss Provision Margin2.883.387.955.514.79
Loan Assets Growth Rate (Qtr YOY)5.563.071.18-0.47-4.24
Peer Average Loan Assets Growth Rate (Qtr YOY)1.512.512.373.553.64
Total Deposits Growth (Qtr YOY)4.401.273.514.950.17
Peer Average Total Deposits Growth (Qtr YOY)4.404.053.514.952.45
Company Profile

Bank of America Corp. operates as a bank holding company, which provides banking and nonbanking financial services and products through its banking and various nonbanking subsidiaries throughout the U. S. and in certain international markets. It operates through five segments: Consumer & Business Banking, Consumer Real Estate Services, Global Banking, Global Markets and Global Wealth & Investment Management. The Consumer & Business Banking segment offers a diversified range of credit, banking and investment products and services to consumers and businesses. Its products include traditional savings accounts, money market savings accounts, CDs, IRAs, noninterest- and interest-bearing checking accounts and investment accounts. The Consumer Real Estate Services segment provides an extensive line of consumer real estate products and services to customers nationwide. Its products include fixed- and adjustable-rate first-lien mortgage loans for home purchase and refinancing needs, HELOC and home equity loans. The Global Banking segment provides a range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services. The Global Markets segment offers sales and trading services, which includes research to institutional clients across fixed income, credit, currency, commodity and equity businesses. The Global Wealth & Investment Management segment provides wealth management solutions to a broad base of clients from emerging affluent to the ultra-wealthy. Its services include investment and brokerage services, estate and financial planning, fiduciary portfolio management, cash and liability management and specialty asset management. The company was founded by Amadeo Peter Giannini in 1904 is headquartered in Charlotte, NC.

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