Key growth drivers
On January 16, Bank of America (BAC) announced stellar fourth-quarter results. The improved net interest income, which reflected continued growth in loans and deposits and higher rates, drove the bank’s fourth-quarter revenues. Increased asset management fees and an increase in card income contributed to Bank of America’s top line, which beat analysts’ estimates.
Bank of America had lower costs, which supported the bottom-line growth. Share repurchases, a lower effective tax rate, and operating leverage drove the fourth-quarter earnings. Bank of America’s fourth-quarter earnings marked stellar YoY (year-over-year) growth and beat analysts’ estimate.
The bank’s credit quality remained strong, which reflected lower provisions for credit losses and a decline in non-performing assets on a sequential and YoY basis. Bank of America’s efficiency ratio improved from 62% to 58%, which is encouraging.
Bank of America expects its net interest income to improve in 2019 despite the absence of a rate hike, which is positive. The bank expects its loans and deposits to continue to grow. Bank of America’s operating leverage and share repurchases are expected to drive its bottom-line growth in 2019.
Investors were encouraged by Bank of America’s strong quarterly performance and healthy outlook. Bank of America shares closed 7.2% higher on January 16.
Top US banks are outperforming broader markets
So far in 2019, shares of top US banks (XLF) are outperforming the broader markets (SPX). Higher rates and growth in loans and deposits are driving banks’ revenues. Expense management, share repurchases, and a lower effective tax rate are driving the bottom line.
Including the gain on January 16, Bank of America stock has risen 15.5% in 2019. The stock has outperformed the S&P 500 Index, which has risen 4.4%. Citigroup (C) and Goldman Sachs (GS) stock have risen 19.5% and 18.0% due to their strong performance in the fourth quarter. So far, Wells Fargo (WFC) and JPMorgan Chase stock have risen 6.2% and 5.0%, respectively, in 2019.