Bank of America Corp (NYSE: BAC) reported it beat Wall Street expectations for first-quarter earnings and delivered nearly a double-digit increase in its consumer banking revenue on Monday. Although bank stocks have underperformed so far in 2018, analysts say Bank of America is well-positioned to continue to grow earnings in the long term in an extremely favorable banking environment.
Bank of America reported first-quarter earnings per share of 62 cents on revenue of $23.1 billion. Both numbers topped consensus Wall Street expectations of 59 cents and $23 billion, respectively.
[See: 9 Stocks Bank of America Loves in an Unpredictable Market.]
In addition, Bank of America reported a 9 percent increase in consumer banking revenue, which came in at $9 billion on the quarter. Loans were up 8 percent on the quarter, while deposits were up 6 percent. Merrill Edge customer assets were up 18 percent.
Average deposit balances were up 3 percent to a record $1.4 trillion. Non-interest expenses dropped 1 percent to $13.9 billion, increasing the bank’s efficiency ratio to 60 percent.
Bank of America also says tax reform lowered its effective tax rate by 9 percent.
Despite a strong performance from its consumer banking segment, there were still some shortfalls in the quarter. Net interest income of $11.6 billion came up a bit short of expectations of $11.69 billion. Fixed income trading was $2.5 billion compared to consensus estimates of $2.92 billion.
“We continue to invest in new capabilities in our mobile banking app, the expansion and renovation of our financial centers, and the hiring of additional client relationship professionals,” CEO Brian Moynihan says in a statement.
Bank of America and other U.S. banks are currently riding the tailwind of lower tax rates, higher interest rates and a climate of banking deregulation.
Morningstar analyst Jim Sinegal says the foundation is set for Bank of America to deliver solid, consistent growth numbers over the next five years.
[See: 7 of the Best Stocks to Buy for 2018.]
“We expect net loan growth to average 4.5 percent over the next five years as loan demand finally begins to rebound,” Sinegal says. “We also believe revenue will receive a huge boost from the net interest margin expanding from 2.3 percent in 2017 to 3 percent by 2022 as the 10-year Treasury rate moves back toward a long-term average of 4.5 percent, with comparable moves in other benchmark interest rates.”
Morningstar has a “fairly valued” rating and $27 fair value estimate for BAC stock.
More from U.S. News
9 Under-the-Radar Ways to Buy Financial Stocks
The 10 Best Financial ETFs You Can Buy
Consumer Banking Drives Earnings Beat for Bank of America Corp. (BAC) originally appeared on usnews.com
