Bank of America (BAC +1.82%) has declined almost 15% since March after Silicon Valley Bank's collapse cast a cloud of uncertainty over the financial sector.
But what might be a crisis for some could be an opportunity for others. There are signs that business is booming at Bank of America, making the stock's recent decline a dip worth buying.
Here is why you should consider adding shares of one of America's largest financial institutions today.
Depositors are flocking to safety
A bank run played a significant role in Silicon Valley Bank's collapse, with depositors rapidly withdrawing funds from the bank, rendering it insolvent in just a few days. This fear has permeated the economy; small U.S. banks reportedly lost $109 billion in deposits in one week in March, the first decline since 1986.
NYSE: BAC
Key Data Points
Where did the money go? Much of it went to larger banks like Bank of America, institutions that were seen as too big to fail after the government backstopped them during the banking crisis in 2008-2009.
Bank of America recently reported first-quarter earnings. Although consumer banking deposits declined by $4 billion year over year, a notable surge started after March 10, the day Silicon Valley Bank failed.
Investors must wait and see what second-quarter data show, but Bank of America could ride that momentum to a resurgence in deposit growth. It's an easy injection of deposits for the bank, which will only make it stronger at a time when smaller banks are hurting.
Bank of America is profiting in the current environment
The fresh influx of deposits and rising rates are greasing the wheels for tremendous profits. Without a need to compete as hard for deposits, Bank of America can pay near-zero interest on deposits and then turn around and put those funds to work at higher rates. A quick look at the bank's offerings shows depositors can get an annual percentage yield (APY) of 0.01% with a savings account.
Meanwhile, 10-year Treasury bonds are yielding 3.5%. You can see below that Bank of America's net interest income has surged since rate hikes began and should stay strong as long as rates continue holding at higher levels. Net interest income was up 25% year over year in the first quarter.
Data source: YCharts BAC net interest income (quarterly)
One could expect solid growth again in the second quarter with rates remaining high and potential fresh flows of deposits from smaller banks to those like Bank of America.
Shares are getting cheap
The stock's decline since the start of 2022 has reduced Bank of America's price-to-tangible book value (P/B) to about 1.2, below its 10-year average of 1.4. You could argue that a higher-rate environment compared to most of the past decade makes the stock more attractive because of the tailwinds to its earnings.
Data source: YCharts BAC price to tangible book value
Investors could see more turbulence if the U.S. economy enters a recession in the coming quarters, but again, it looks like a large bank is a safer spot to park your money. The good news is that you don't need to pay a high price for that safety today.
