Bank of America (NYSE: BAC) recently presented at the Barclays Global Financial Services Conference, and the general theme of the company's presentation was that Bank of America has come a long way over the past several years. Specifically, here are seven pieces of information from the presentation that investors may be pleasantly surprised to learn.
1. Bank of America is the No. 1 U.S. bank in several areas
Continue Reading Below
Although it's not the biggest U.S. bank by assets -- JPMorgan Chase currently has that title -- Bank of America is the largest bank in terms of U.S. retail deposit market share. In addition, Bank of America is the top home equity lender, has the most personal trust assets under management, and has the largest U.S. wealth-management market share across client assets, deposits, and loans, just to name a few.
2. The bank has a very diverse revenue stream
Generally speaking, diversification in a company's revenue stream is a positive factor, as it can mitigate the risk related to any specific area of the business. Bank of America operates its business in four segments -- consumer banking, global wealth and investment management, global banking, and global markets -- none of which account for more than 38% of the company's revenue.
Here's an example of how this can help. If trading revenue is a weak spot in the banking industry, as it is right now, banks that rely heavily on it, such as Goldman Sachs, take a major hit. In Bank of America's case, trading revenue makes up a relatively small amount of the company's revenue stream, so it doesn't have quite as much of an impact.
3. The balance sheet is vastly improved
Bank of America has come a long way since the financial crisis. Since the end of 2009, the bank's tangible common-equity ratio has improved by 60%, and the bank's global liquidity sources have more than doubled.
Currently, the bank's capital ratios are well in excess of regulatory requirements. Bank of America has a Common Equity Tier 1 Ratio of 11.5% and a Supplementary Leverage Ratio of 7%, well in excess of the requirements of 9.5% and 5%, respectively.
4. Steady, improving performance
One of the biggest improvements in Bank of America from an investor's perspective is consistency. As you can see from this chart, the bank's financial-crisis-era expenses are behind it. As a result, earnings have become much more consistent over the past few years. Just look at how jagged the line was as compared with 2015-present.
Not only is the performance more consistent, but it's consistently improving, as well. The bank's efficiency ratio has dropped from 70% to 63% over the past two years, and is now at a level that's comparable with industry standards. Net income has grown by 28% over the past two years, and asset quality has steadily improved.
5. The bank's asset quality is solid
Speaking of asset quality, this is perhaps the most dramatic area of improvement over the past seven or so years. The bank's consumer net-charge-offs (NCOs) ratio has fallen from 4.51% in 2010 to 0.71% currently. U.S. consumer credit NCOs (credit cards) have dropped from 11.04% to 2.81%, a respectable level. For comparison, Capital One's NCO ratio is 2.67%, which is certainly in the same ballpark.
6. Expenses have dropped, while revenue has grown
I mentioned earlier that Bank of America's efficiency has shown significant improvement in recent years, and a big reason for that is good expense control. Bank of America has done an excellent job of closing underperforming branches, spending less on marketing, and generally controlling all of its operating expenses.
In addition, the bank has invested heavily in technology, which saves lots of money in terms of labor and other expenses. Simply put, a check deposited via a mobile app costs the bank much less to process than one that's deposited to a teller in a branch.
Impressively, Bank of America's expenses over the past 12 months are 25% less than its average annual expenses from 2011-2014, despite a 6% rise in annual revenue over the past three years. Because of this, the bank is getting very close to reaching its profitability targets of a 1% return on assets and a 12% return on common tangible equity.
7. Capital return is a big priority -- especially buybacks
Ever since the financial crisis, the Federal Reserve has conducted stress tests and must approve of a bank's capital plan based on the test results. The growth in the amount of capital Bank of America has been permitted to return to shareholders is further evidence that this is simply not the same bank that existed just a few years ago.
It's also worth noting that Bank of America is putting a particularly high emphasis on buybacks, using well over two-thirds of its capital return for that purpose. This might indicate that, even though the bank's stock has performed exceptionally well over the past year or so, management still thinks it's an attractive value.
The bottom line on Bank of America
The overall tone of Bank of America's most recent presentation is that the bank has come a long way over the years since the financial crisis hit. The bank is leaner, has better asset quality, is much more financially stable, and is now starting to produce respectable, consistent results. If Bank of America continues on this path, there could be significant upside potential for its investors.
10 stocks we like better than Bank of AmericaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Bank of America wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017