Thursday, October 15, 2015

Bank of America Q3 Report & Earnings

Bank of America reported earnings on October 14th before the market opened. Bank of America reported EPS of $.37 which beat estimates by $.04 and posted revenue of 20.91B which beat estimates by 140M. Net interest income was 10.3B, and non-interest income was 11.171B. The biggest reason why Bank of America was able to be very successful on EPS was due to cost cutting. Noninterest expense was 13.6B fell 4% and LAS noninterest expense excluding litigation of 900M fell 32%. Bank of America rose .8% due to the strong earnings, and is up another 1.4% today. Many analysts are very bullish on Bank of America, and the strong earnings in the reported “rough” conditions banks are dealing with due to the fall of commodity prices backs up why analysts are bullish. Bank of America is still waiting for an interest rate hike, which would greatly benefit them. The most important thing to come out of this earnings, the tangible book value continued to grow in the third quarter. This is important because Bank of America has been extremely discounted according to the price to tangible book ratio, and I believe when interest rates increase, this discount will not exist anymore and then that will increase the price of a share of Bank of America to our price target at $22.00. 85% of Bank of America’s operations occur in America and protected us from a lot of the commodity price drop, except for oil.

Over the past quarter, Bank of America dropped 5.58%, and reached highs of 18.48 in July. Bank of America has had less fines and litigations this past year and looks like they will be continuing to not have these litigations. The CEO and chairman of the Board mentioned that the commodities markets have been extremely low and it has hurt the trading revenue of Bank of America by 5-6%. This is why the latest earnings were so surprising. Bank of America grew their third quarter loan book which is prepping them for the higher interest rate environment. With the economy looking at normalizing right now, I expect interest rates to have a definite answers on being raised in December. Bank of America has also been making smart loans because once again their net charge offs declined again this quarter and this has been the trend for the past year. 

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