Bank of America Corp (NYSE:BAC) reported much-improved quarterly results today, and yet even after swinging back to profitability from a year-ago loss, BAC still looks somewhat shabby compared with the competition.
BAC’s litany of legal woes always complicate its income statement, and that can obscure any genuine good news in the bank’s operations. By the same token, the absence of special charges can also burnish otherwise mixed results.
The latest Bank of America earnings report had some of both.
BofA earnings revealed several areas enjoying solid growth — as well as solid expense reductions — but revenue failed to grow even as the bank’s competitors posted top-line gains. Indeed, investors can be excused if they look at the good news/bad news Bank of America earnings report and wonder just what the “real” BAC is.
It may be too generous to say so, but BAC is starting to become much more a story about a bank’s business getting healthier, and less a tale of multi-billion-dollar settlements and stress-test blunders.
That said, it’s probably still going to be a while before the market becomes a believer in BAC stock.
Brisker Business for Most of BAC
Total revenue, excluding adjustments, fell 6% to $21.4 billion, which was short of analysts’ average estimate, according to a survey by Thomson Reuters. On Tuesday, two of BAC’s biggest rivals — Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) — reported increases in quarterly revenue.
And as great as it looks to have BAC post a profit after a deep year-ago loss, this year’s results were given a big lift by favorable comparisons. After all, the BAC loss of a year ago was attributable to legal costs.
At the same time, however, a number of BofA’s businesses reported honest-to-goodness better results, boosted by a somewhat healthier economy and volatility in certain markets. The consumer banking division saw deposit balances grow 5% to $26.5 billion, for example. Mortgage volume increased of 55% year-over-year. Client brokerage assets rose 18%. Wealth management fees increased 10%.
There were areas of concern, of course. Low interest rates have been playing havoc with banks’ net interest margins for years, and it hurt BAC once again in the first quarter. Not only did the bank’s total loan portfolio shrink, but the interest owned on loans declined amid a drop in longer term rates.
BAC stock was off 12% heading into the Bank of America earnings report, and the market’s reaction to the news suggests it will remain a market laggard for some time.
But there are real signs of improving health in first-quarter results. It’s probably too late for it to happen this year, but with the bulk of legal headaches behind it and ongoing improvement in the business of banking, the prevailing narrative on BAC is destined to change. At that point, BAC stock might start to look pretty good.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
