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Stock Analyst Update

Solid 2nd-Quarter Results for Bank of America

We are maintaining our fair value estimate for the narrow-moat firm.


Narrow-moat  Bank of America (BAC) continued its solid results in the second quarter. Expense declines continued while revenue stayed fairly stable, leading to the efficiency ratio improving to 58.4% this quarter on a fully taxable-equivalent basis from 60.6% in the second quarter of 2017. Credit quality was superb with provisioning remaining range-bound, and net interest income still managed moderate growth, at 6% year over year. The bank reported a 1.17% return on average assets and a 15.2% return on tangible common equity as a result, fairly close with last quarter’s results. We are maintaining our fair value estimate of $29 per share.

Consumer Banking performance was a major contributor to the strong performance in the quarter. The segment continued its steady, upward climb as net interest income was up 11% year over year, and noninterest income was up roughly 1.7%, with card income up over 7%. The most impressive number has been the expense control, with noninterest expense down year over year, supporting a consistently improving efficiency ratio. Brokerage assets also continued to climb for the segment, and deposits and loans were up as well, although loan growth was fairly limited at only 1.6% annualized for the quarter. With the bank continuing to invest in efficiency and technology gains, we would expect this segment to continue its improved performance over the medium term.

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Eric Compton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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