Bank of America Earnings: No Major Surprises As Big Banks Hold Up Amid Regional Firm’s Turmoil

Bank of America Stock at a Glance

• Fair Value Estimate: $37.00
• Star Rating: 4 Stars
• Uncertainty Rating: Medium
• Economic Moat: Wide

Bank of America Earnings Update

Wide-moat-rated Bank of America BAC reported decent first-quarter results, showing that the bank’s deposit base and funding costs are tracking roughly as would have been expected, even before the Silicon Valley Bank implosion. The bank does not provide full-year net interest income, or NII, guidance, but guidance for the second quarter was roughly in line with previous expectations, with NII expected to decline by roughly 2% sequentially. If rate cuts occur during the second half of 2023, we would expect NII to grind even lower in the third and fourth quarters.

As we continue to sharpen our forecasts for the potential of upcoming rate cuts, we expect we will decrease our fair value estimate for Bank of America by a low- to mid-single-digit percentage, looking to ensure that we are not over-forecasting what NII might look like through the cycle (given that we are currently at what we view as a cyclical peak). This remains one of the more difficult aspects of forecasting future results for Bank of America. We would still view shares as being moderately undervalued.

With deposits down just 1% when compared with the fourth quarter of 2022, we think it is realistic for the bank to keep letting lower yielding securities mature, with the discount to par amortizing away. While this will take several years, it will result in several billion dollars accreting back to regulatory capital each year and rising yields (and therefore earnings) experienced on the securities book over time.

These results conclude first-quarter earnings for the big four U.S. banks, with JPMorgan showing the strongest beat, and Bank of America generally meeting expectations. We think the results we’ve seen from the big four U.S. banks support our thesis that the largest banks would be fine amid the recent turmoil in the regional banking landscape.