"We still have not approached the true earnings potential of Bank of America"
- Bank of America CEO Brian Moynihan
I've been bullish on Bank of America (BAC) for all of 2013 and I've been writing about it for the better part of the last year, staking my claim that it's a great position to take in the banking sector due to great management, cost cutting, the recovering housing market and its low multiple.
Yesterday, I laid out a preview of what today's earnings could hold, stating that I continued to be bullish on the bank into today and for the long-term. I argued that "BAC is still just getting ready for another period of brilliance that will last years to come."
Anyway you look at it, CEO Brian Moynihan is a stud. He's a guy who, in the midst of a media frenzy over his coming in to head up the bank, stood his ground - defended his employees (albeit, before firing some of them), and oozed confidence about being able to turn the bank and its stock around.
In September of 2011, Bloomberg Businessweek was putting out comments like this one: "The CEO holds the fate of the U.S.'s largest bank - and the entire financial system - in his unproven hands." Today, Mr. Moynihan, on the heels of delivering another excellent quarter for the bank, chooses not to take a victory lap - but to focus on continuing to find the "true earnings potential" of the bank.
Oh, yeah - and Warren Buffett has his back.
This morning, Mr. Moynihan and the bank delivered results that beat expectations on both lines, as predicted. A day after JPMorgan (JPM) and Wells Fargo (WFC) failed to impress, Bank of America did just that.
The company reported Q4 EPS of $0.29 and revenue of $21.7B, a beat of $0.03 and $460 million, respectively. Through adjustments, analysts have pinned BAC's "core" EPS to anywhere from $0.39 to $0.41. Additionally, Seeking Alpha reported:
- Net interest income of $11B, up 4% Y/Y, with net interest margin growing to 2.56% from 2.35% a year ago.
- Non-interest income of $10.7B, up 28% Y/Y, thanks to lower provisions for reps and warranties, and improvement in investment banking and brokerage income (global wealth management income of $777M, up 35%). Credit loss provisions of $336M are $1.9B lower than a year ago. Net charge offs of $1.6B in the Q compare to $3.1B a year ago.
The company did note that its mortgage business was dissipating - but BAC isn't as mortgage intensive of a bank as others like Wells Fargo, and wasn't as negatively effected. Additionally, BAC had made cuts throughout the year to mitigate this - eliminating a portion of its mortgage division.
Importantly, the bank's cost reduction program - which has been the main catalyst for the bottom line success - remains on track, as reported by Seeking Alpha this morning:
Expense cutting remains on track: Noninterest expense of $17.3B is down 6% Y/Y, thanks to job cuts in Legacy Assets and Servicing (LAS). Full-time equivalent employees fall 9% in 2013 to 242K. This was offset by litigation expenses rising to $2.3B in Q4 from $1.1B in Q3 and $916M a year ago.
The one thing I have opined about in my articles that hasn't been addressed is the eventual reinstatement of BAC's dividend for common shareholders. Questions on the call with relation to that were politely dodged, but just like Ford - I'm convinced that BAC starts to make shareholder payouts as soon as they are able to.
I'm happy I staked my long position in Bank of America last week. I continued to hold with a long-term focus on the bank. I'm convinced the bank will top $20 this year and continue to be a great growth investment for shareholders as long as Moynihan remains at the helm.
Best of luck to all investors.