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Bank of America’s Strong Q4 EPS Growth

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Updated

EPS beat the estimate

Bank of America (BAC) posted an EPS of $0.70 during the fourth quarter, which beat analysts’ estimate of $0.63 and rose 49% on a YoY (year-over-year) basis. The higher net interest income, operating leverage driven by lower costs, improved asset quality, and benefits from lower effective tax rates drove the bank’s fourth-quarter earnings. Share repurchases supported the bottom-line growth.

Large US banks’ (XLF) bottom lines are benefiting from the higher net interest income, operating leverage, and a considerable decline in the effective tax rate. Citigroup (C) posted its fourth-quarter adjusted EPS of $1.61, which beat analysts’ estimate of $1.55 and increased ~26% YoY. JPMorgan Chase (JPM) and Wells Fargo’s (WFC) fourth-quarter earnings also benefited from a lower outstanding share count and a decline in the tax rate. Goldman Sachs (GS), which posted its fourth-quarter results on January 16, posted an EPS of $6.04. The EPS beat analysts’ estimate of $4.45 due to the significantly lower tax rate and share repurchases.

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Bank of America’s asset quality improved with a decline in provisions for credit losses. The net charge-offs improved by $313 million. Non-performing assets declined by $1.5 billion during the fourth quarter. The efficiency ratio improved to 58%—compared to 62% during the fourth quarter of 2017, which reflected lower costs.

Outlook

Bank of America’s bottom line is expected to benefit from the higher net interest income led by continued growth in loans and deposits in 2019. The operating leverage and improved asset quality should support the bank’s bottom-line growth.

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