Bank of America sees 116% earnings gain, but stock drops 2%

Is this a buying opportunity?

Earnings season kicks off with banks and over the past two days, banks have posted robust earnings results, including Bank of America (NYSE:BAC).

But unlike Wednesday, when JPMorgan Chase, Goldman Sachs, BNY Mellon, Wells Fargo, and Citigroup stocks were all soaring on strong reports, on Thursday it has been a different story.

Bank of America stock, for example, was down 2% after reporting a 116% spike in earnings. M&T Bank, US Bancorp, and PNC Financial were all down about the same, or more. Only Morgan Stanley stock was rising Thursday, but it is primarily an investment bank and asset manager, and less a consumer bank.

So why was Bank of America and other bank stocks trending lower today?

Why earnings soared

Bank of America had an excellent quarter that in part looks much better by comparison to the fourth quarter of 2023. The year 2023 was a difficult one for banks, following the banking crisis that occurred in the spring of that year. But the fourth quarter was made even worse because the FDIC levied a special assessment against large banks to replenish the Deposit Insurance Fund. The assessment was necessary after the fund had been depleted to help shore up banks following the banking crisis.

So, that certainly was a factor in Bank of America’s huge earnings spike. But it was still a good quarter for the nation’s second largest bank.

The company generated net revenue of $25.3 billion, which was 15% higher than the same quarter a year ago. It also beat estimates of $25.1 billion. It grew net interest income by 3% to $14.4 billion, which also topped expectations.

The bank made $6.7 billion in net income, or 82 cents per share. This was more than double the $3.1 billion in net income in Q4 of 2023, but that was significantly impacted by the FDIC special assessment. Still, Bank of America topped estimates of 77 cents per share.

Investment banking boost

Like the other big banks, Bank of America got a boost from investment banking and institutional trading. Investment banking fees spiked 44% to $1.7 billion. Meanwhile, the Global Markets business, which includes institutional trading, saw revenue climb 18% year over year to $4.8 billion.

Its bread-and-butter, Consumer Banking, posted a modest 3% revenue gain to $10.6 billion. Loan balances increased 1%, which helped lift NII, but deposits were down 2%. Noninterest expenses rose 8% and the bank efficiency ratio – which gauges the amount of expenses to generate revenue – remained at 53%.

Also, net charge-offs increased $23 million to $1.2 billion, driven by higher credit card charge-offs.

“We finished 2024 with a strong fourth quarter,” Chair and CEO Brian Moynihan said. “Every source of revenue increased, and we saw better than industry growth in deposits and loans. We also ended with strong capital and liquidity, enabling us to return $21 billion of capital to shareholders in 2024.”

So why was Bank of America stock down?

There may be several reasons why Bank of America, and other bank stocks, were trending lower after a solid Q4. But none of them seem to be too worrying.

The pullback today may be in part to a lackluster earnings report from UnitedHealth, which missed revenue estimates and had higher than expected costs. Bank of America’s retreat may also be tied to red day for the major indexes across the board, after three straight days of gains. The market’s may have been impacted by a mixed inflation report on Wednesday or Thursday retail sales report, which was not as robust as analysts thought.

Bank of America executives are bullish, however. CFO Alistair Borthwick said the bank is “on track” to grow net interest income in 2025. The company guided for $14.5B to $14.6B in NII in Q1 and $15.5B to $15.7B by the fourth quarter.

Further, it anticipates noninterest expense to rise 2% to 3% in 2025 and a net charge off ratio of 50 bps to 60 bps. The net charge-off ratio in Q4 was 0.54%, or 54 basis points.

“Asset quality is healthy, and client spending continued to grow at a moderate pace, reflecting a solid economic environment,” Borthwick said. “Looking towards 2025, we remain focused on delivering for our shareholders while supporting our clients’ growth and driving market share.”

Is Bank of America stock a buy?

Bank of America has a median price target of $50 per share, which would be up about 8% from its current price. That sounds about right, as the valuation is reasonable.

But if the economy slows and inflation rises, that could have an impact as banks often go as the economy goes. Bank of America stock is certainly a hold if you own it, but if you are looking to add a good cheap bank stock with growth potential, you may want to weigh its upside against some others.