Wide-moat Bank of America (BAC) reported better-than-expected results, with net income of $3.5 billion, or $0.37 per diluted share, beating S&P Capital IQ consensus estimates. Though the bank reported results that beat consensus, it still recorded approximately a 50% year-over-year drop in both net income and earnings per share, mainly as a result of a second large increase in provisioning of $5.1 billion; this build was mainly attributed to a weaker economic outlook. Meanwhile, pre-tax, pre-provision revenue declined 9% year over year as low interest rates weighed on net interest income. The bank did report a higher tangible book value of $19.90 for the quarter. At this point, management has not reinstated share repurchases though it is still committed to paying dividends. After incorporating these results into our forecast, and after incorporating a 50% probability of Joe Biden being elected and instituting his proposed tax hike, we are lowering our fair value estimate to $28 from $30.
Bank of America reported an 11% year-over-year decline in net interest income accompanied by a 46 basis point decline in net interest margin to 1.87%; this was mainly due to lower interest rates, partially offset by balance sheet growth. Noninterest income increased 5% year over year, mainly as a result of higher sales and trading and investment banking fees. Sales and trading revenue grew 28% year over year, though with the exclusion of debit valuation adjustments, this number grew 35% over the same period; this was mainly a result of strong performance in fixed-income markets. Meanwhile, investment banking fees recorded an excellent quarter, growing 57% year over year. We would expect these higher-than-normal issuance and trading volumes and spreads to dissipate in the second half of the year. Management exhibited good expense control, with expenses growing 1% compared with the year-ago period, as higher COVID-19-related expenses were partially offset by reductions in other areas.
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