Bank of America (NYSE: BAC) shares opened higher by about 5% following the company's Q4 earnings results which showed it topping expectations on the bottom-line and coming in line on the top line. However, shares gave up these gains to finish flat on the day primarily due to the broad market sell-off.
Bank of America's results were marginally better than its peers, many of whom reported higher than expected expenses with cautious commentary on the economic outlook, citing inflationary pressures. While financials have been under pressure in recent weeks, they remain one of the stronger parts of the market especially relative to tech and growth stocks. So far in 2022, the Financial Select SPDR Fund (NYSE: XLF) is down about 2%, while the S&P 500 (NYSE: SPY) is down 6%. As long as rates keep moving higher, this outperformance is likely to continue especially if this earnings growth persists.
Inside the Numbers
In Q4, Bank of America reported earnings per share of $0.82, beating expectations of $0.76 per share which was a 28% increase from last year. The EPS beat was aided by the company's release of $851 million in loan loss reserves as default rates were lower than expected.
Revenue came in just under expectations at $22.17 billion vs expectations of $22.2 billion. This was a 10% increase from last year. Bank of America performed better than many of its peers which is not surprising given that Wall Street momentum is cooling while Main Street momentum continues to pick up.
The bank cited improving credit quality, strength in real estate, and better than expected growth as major reasons for its lowest loan loss rate in more than 5 decades. It's also bullish on loan growth in the coming quarters which is a positive sign for the broader economy.
Wealth management saw a 16% jump in revenue to a new record of $5.4 billion. The major contributors were rising asset management and brokerage fees. Investment banking also hit a new record at $2.4 billion, a 26% increase from last year.
Like other Wall Street banks, trading revenue from equities underwhelmed at a $1.4 billion, a 3% increase. Bond trading revenue declined by 10% to $1.6 billion. This is to be expected given rising rates and the Federal Reserve's hawkish tilt designed to cool the overheating economy.
The company said that noninterest expenses were up 6% to $14.7 billion due to the need to retain and attract workers with higher pay. This is notably less than other companies which saw a double-digit increase in wages. It also had a smaller expectation in costs for next year than its rivals.