Aided by strong growth in both the net interest income and non-interest income, on Tuesday, the Bank of America (NYSE: BAC) reported better than anticipated fiscal 2017 second-quarter results. However, the stock has not appreciated so far due to concerns over the decline in the trading income, compared to last year. Still, considering the overall impressive performance of the bank, we anticipate the stock to gain momentum in the days ahead.
The North Carolina-based bank reported Q2 2017 net income of $4.91 billion, or $0.46 per share, on revenues of $22.829 billion. In Q2 2016, the bank posted a net income of $4.422 billion, or $0.41 per share, on revenues of $21.286 billion. On average, analysts anticipated earnings of $0.43 per share on revenues of $21.781 billion.
Net interest income in the quarter ended June 2017 was $10.986 billion, compared with $10.118 billion in the same period last year. The net interest income was below StreetAccount analysts’ expectations of $11.34 billion. The Q2 2017 non-interest income increased to $11.843 billion, from $11.168 billion in the year-ago period.
During the quarter, revenue from the fixed-income trading unit declined 14% y-o-y to $2.254 billion but exceeded the Wall Street analysts’ expectations of $2.22 billion. The bank stated that a weaker performance in rates and emerging markets, relative to last year, was responsible for the decline in the fixed income trading unit’s revenue.
Provision for credit losses declined $250 million to $726 million in the recent quarter. Likewise, total net charge-offs declined $77 million to $908 million and surpassed analysts’ estimates of $975.3 million.
The return on average common shareholders’ equity was 8% in June 2017 quarter, compared to 7.40% in June 2016. At the end of 2Q17, the CET1 ratio was 11.6%, up 1% from the second quarter of 2016.
Recently, the bank raised the annual dividend to $0.48 per share or $0.12 per quarter. Additionally, the bank has started laying off its employees in the operations and technology division. The layoff is aimed at cutting costs and achieve profit goals set by CEO Brian Moynihan.
Technically, the stock has bounced off the support at 23.50 and continues to move upwards without violating the ascending trend line. The rising accumulation indicator also confirms the flow of money into the stock. Thus, we can expect the stock to rise in the days to come.
Trading a call option looks to be a wise decision at this point in time. We wish to enter when the stock trades at about $23.50 in the equity market. Additionally, an expiry time period of one week is preferred.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.
