No. of Recommendations: 0
Bank of America is performing reasonably well in a challenging environment. During the June quarter, total revenues, net of interest expense, increased
about 11%, year over year. Net interest income advanced nicely, reflecting strength
at the loan portfolio and higher interest
rates. In its favor, the bank has managed
to extend lending without taking on too
much credit risk. Meanwhile, noninterest
income also moved higher, as increased
sales and trading income offset softer service charges and fees.
Managing costs will be of importance.
Operating expenses climbed around 5%
during the quarter. In addition to higher
FDIC costs, the bank has been focused on
expansion initiatives. Looking ahead, further spending may be needed to upgrade
technology and roll out digital applications.
The bottom line also made some progress. For the second quarter, profits came
in at $0.88 per diluted share, which was
better than we had expected, and also
higher than last year's figure. We have left
unchanged our full year 2023 profit forecast at $3.40 per share, representing a
roughly 7% annual increase. Results may
moderate in the coming months, depending on the health of the broader economy.
Bank of America is in good financial
shape. The bank is one of the largest in
the country, and carries an A Financial
Strength rating. Regulatory capital levels
have been boosted, and there is ample liquidity from a wide variety of global
sources. It is worth mentioning that Bank
of America was among the nation's large
banks that passed the Federal Reserve's
most recent stress test. This demonstrates
a level of financial stability, and also helps
strengthen consumer confidence.
These neutrally ranked shares have
firmed up since our May report. Investors seem more positive about the banking
sector, and Bank of America, in particular.
These shares may appeal to value-oriented
investors. The stock trades at a reasonable
price-to-earnings multiple, and the board
of directors just increased the quarterly
dividend 9%, to $0.24 per share. However,
our projections suggest that this issue
holds somewhat limited appreciation
potential for the next 3 to 5 years.
Adam Rosner August 4, 2023
