Bank of America (NYSE:) stock rose 4% on Tuesday as the nation’s second-largest bank delivered first quarter earnings that topped estimates.
Like the other big banks, Bank of America saw equity trading revenue surge, due in large part to the market volatility that caused investors and traders to move around their money.
But Bank of America also got a nice boost from its consumer banking arm, as net interest income jumped 3% due to higher loans, but also lower deposit costs.
Overall, revenue grew 6.2% year-over-year in Q1 to $27.4 billion, which topped estimates. Net income rose 10.4% to $7.4 billion, while earnings surged 18% year-over-year to 90 cents per share. That far exceeded estimates of 82 cents per share.
“We had a good first quarter, with earnings per share of $0.90 up from $0.76 last year. This reflected growth in net interest income and fee income, while sales and trading delivered its 12th consecutive quarter of year-over-year revenue growth,” Bank of America Chairman and CEO Brian Moynihan said.
Trading Revenue Has Lifted All Banks
A spike in trading revenue has lifted all of the big banks that have reported so far, including Citigroup (NYSE:), Morgan Stanley (NYSE:), JPMorgan Chase (NYSE:), and Goldman Sachs (NYSE:).
Bank of America is no exception, as sales and trading revenue within its Global Markets division rose 11% in the quarter to $5.7 billion. That accounted for 86% of the $6.6 billion of revenue generated in Global Markets. Fixed Income, currencies and commodities (FICC) trading climbed 8% to $3.5 billion, while equities trading revenue jumped 17% to a record $2.2 billion. Net income in this business rose 13% to $1.95 billion.
Global Markets drove the bank’s earnings increases in the quarter, as the other segments were flat or down slightly. Global Banking, which includes investment banking, saw a 4% drop in earnings, while Wealth and Investment Management was essentially flat.
And while net income in Consumer Banking was down year-over-year, there were some bright spots for Bank of America there.
Consumer Banking Revenue Jumps
While net income was lower in consumer banking due to higher provisions for credit losses and noninterest expenses, Bank of America saw a 3% revenue increase in this business to $10.5 billion.
Of all the major banks, Bank of America gets a higher percentage of its revenue from consumer banking, so the revenue increase is a welcome development.
The bank got a lift from a 2% increase in loan balances, but also lower deposit rates, which helped boost net interest income. Further, it added 250,000 new checking accounts and increased its deposit balance by 3% to nearly $2 trillion. because it is so large and dominant, it can afford to offer lower deposit rates than competitors.
Overall, the bank generated $14.4 billion in net interest income in the quarter, which accounted for about half of its total revenue. It was some 3% higher than it was in the same quarter a year ago.
“We grew average deposits for the seventh consecutive quarter to nearly $2 trillion. Asset quality remained stable reflecting years of responsible lending, while our strong capital and liquidity levels allowed us to support our clients’ growth and return $6.5 billion to shareholders. We run our business in a manner intended to withstand volatility for the long-term,” CFO Alistair Borthwick said.
Is Bank of America Stock a Buy?
Bank of America stock is now down in value stock territory, with a trailing of 11 and a forward P/E of about 9.
There are a lot of uncertainties around tariffs, so there could be some short-term impact if the economy slows. Then again, lower interest rates could spur loan activity.
The bank has also has built up its capital and liquidity to withstand a potential downturn. In addition, it has a good diversifier with its wealth management business, which may not be as impacted by an economic downturn.
Overall, Bank of America stock is down 13% YTD, but it has significant upside. Analysts have placed a median price target of $50 per share on it, which would suggest a 30% increase over the next 12 months.
At this low valuation, Bank of America stock looks like one to put on your radar.