Shares of Bank of America (NYSE:BAC) climbed 10.8% in April, according to data provided by S&P Global Market Intelligence, as investors looked past increased charge-offs in the first quarter to focus instead on the bank's solid earnings.
Bank of America during the month reported first-quarter adjusted earnings of $0.70 per share on revenue of $23 billion, beating consensus by $0.05 per share on revenue that was about $300 million light. The company's net interest yield for the quarter was 2.51%, up nine basis points, and its efficiency ratio improved to 57% from 60% the year before.
Not all the numbers were improvements. Bank of America's first-quarter provision for credit losses increased by $179 million to $1 billion and its net charge-off ratio increased by three basis points to 0.43%. It also reported weak trading revenue, with equity trading sales down 22% from a year prior and fixed-income revenue down 8%.
Officials on a post-earnings call with investors attributed the increase in charge-offs primarily to a single utility client, although they did say there was some "modest seasoning" in the credit card portfolio. The bank did see both consumer delinquencies and nonperforming loans trending lower, which is a good indicator that the overall health of the economy is holding up well.
The bank's outlook for the year was mixed. CFO Paul Donofrio warned to expect "seasonal headwinds" to weigh on net interest income in the second quarter, which will cause a sequential downturn. For the full year, however, he expects net interest income to benefit from anticipated loan and deposit growth in the last six months of 2019.
The company also repurchased $6.3 billion in stock in the first quarter, and its diluted shares are now down 7% compared to the first quarter of 2018 and down by 1.5 billion shares in the past four years.
It's buying because management thinks its shares are cheap, and at 11 times trailing earnings, I agree with them. Bank of America today trades at a discount of nearly 20% to the multiple it enjoyed for most of 2017 and 2018. As long as the economy holds up, shares have further room to run.