In 2Q2016, Bank of America Corp (NYSE:BAC) efficiency ratio came at 62% after net interest income adjustment. It suggests an increase of 200 basis points measured on yearly basis. This improvement in efficiency ratio suggests that there is still enough room for expense optimization. There can be margin acceleration as the company’s NIM came above 2%, which may be suggesting the end of the damaging cycle for loan yields.

The highlights

With deposits and loans surging at the existing pace, Bank of America could record considerable core earnings growth. The loans to deposits ratio stands close to 75% which represents a supportive case for better lending growth. Higher interest income and increased adoption of mobile banking are likely to result in efficiencies for the bank. The stock is a good buy candidate with substantial upside potential.

Bank of America has outpaced its competitors over the past month as it posted gains of over 15% while the related industry ETF has been just up by 5%. Multiple factors resulted in outperformance which includes 2Q2016 results and the valuation gap narrowing compared to competitors.

The performance

There are no indications of substantial asset quality deterioration for Bank of America. Non-performing loans were 0.37% of the total outstanding loans, while they have stayed below 0.4% for more than the past ten quarters. It has witnessed some improvement in energy losses, since the prices of gas and oil were more stable in 2Q2016.

With the exception of indirect/direct consumer loans, the bank recorded average FICO scores improving in consumer banking. The company guided for provision expenses staying almost equivalent to net charge-offs. Market experts expect provisions to come around $4 billion for FY2016.

The annual EPS projection range for FY2016 is fixed in between $1.50 and $1.23 mainly due to low probability of rate hikes in coming period.