Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Bank of America: Has It Become the Best-in-Breed U.S. Big Bank?

By Matthew Frankel, CFP® - Updated Apr 24, 2019 at 9:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This isn't the same bank we knew just a few years ago.

Check out the latest Bank of America earnings call transcript.

Earnings season is now underway, and as usual, the big banks are among the first companies to report their latest results. Bank of America's ( BAC -2.27% ) fourth-quarter and 2018 year-end results have been among the strongest we've seen from the industry's largest players.

Not only did the bank surpass expectations on both the top and bottom lines, but it has also made great strides in efficiency and profitability. Here's a rundown of what investors need to know about Bank of America's excellent fourth quarter:

Inside of a Bank of America branch lobby.

Image source: Bank of America.

The headline numbers

Bank of America beat expectations on both the top and bottom lines. Revenue came in at $22.7 billion, over $300 million more than analysts had been calling for. Adjusting for tax reform, this is a 6% year-over-year increase.

What's more, it earned a profit of $7.3 billion for the quarter -- a record for the banking giant -- which translates to $0.73 per share, $0.10 greater than the consensus.

Impressive results

While the headline revenue and earnings numbers were certainly impressive, it's always smart to dig a little deeper to get a sense of how a business is doing. In the case of Bank of America's fourth-quarter and year-end results, there are a lot of good things worth mentioning:

  • Consumer banking was especially strong in the quarter. Deposits and loans grew by 3% and 5%, respectively, and Merrill Edge brokerage assets actually grew by 5%, despite the stock market decline in the fourth quarter. This is because $25 billion of net assets flowed into accounts, indicating an excellent growth rate. Plus, mobile banking usage was up 16%, a big contributor to increased efficiency, as we'll get to in a bit.
  • Interest margins have increased. The bank's net interest yield is up by nine basis points to 2.48% from the same quarter a year ago.
  • Bank of America generated a 11.6% return on equity and a 1.24% return on assets. Both are well in excess of the 10% and 1% industry benchmarks, respectively.
  • The bank continues to become more efficient. Its fourth-quarter efficiency ratio dropped to 58% from an adjusted 62% a year ago (lower is better). In other words, it costs Bank of America four cents less to generate each dollar of revenue now than at the same time last year. Higher revenue plus improved efficiency equals excellent earnings growth. Even adjusting for the benefits of the Tax Cuts and Jobs Act, Bank of America's earnings per share increased by 49% year over year.
  • During 2018, Bank of America spent $20.1 billion on share repurchases and reduced its share count from 10.29 billion to 9.67 billion, or approximately 6%.

It wasn't all good news though

As per usual, Bank of America's earnings report wasn't 100% positive. As we've seen with the bank's peers that have already reported, trading revenue was a disappointment, particularly on the fixed-income side.

However, equities trading rose by 11% and helped to offset the decline. In all, trading revenue was up by 1% -- consistent with its peers.

The takeaway

This quarter's earnings report really shows just how far Bank of America has come since the dark days of the financial crisis. The bank is putting up numbers that are on par with higher-valued peers such as JPMorgan Chase and Wells Fargo, and trades at a far lower price-to-book multiple.

To sum it up, Bank of America currently looks like the best value among the big banks and isn't far from being a clear best-in-breed.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
$43.87 (-2.27%) $-1.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.