Bank of America (NYSE: BAC) has billed itself "the bank of opportunity" for years. Now, amid a wretched year of massive write-offs, plummeting net income, and a Hail Mary attempt to save struggling mortgage bank Countrywide Financial (NYSE: CFC) from a complete demise, investors themselves are overdue for a bit of opportunity from the Charlotte, N.C.-based bank. With a little patience, they just might get it.
For the time being, results are still pretty glum. First-quarter net income fell 77% to $1.21 billion, or $0.23 per share -- a painful crash from the $5.26 billion, or $1.16 per share, that B of A earned in the same period last year. Revenue for the period dipped 6% to $17 billion. The current results include a one-time gain of $776 million from Visa's (NYSE: V) recent IPO. Analysts had been looking for $0.45 per share in earnings, but estimates fell between a wide range, from a loss of $0.15 per share to a gain of $0.95 per share. Shares slid 2.5% Monday on the news.
Reflecting the sour state of the banking industry, B of A set aside $6.01 billion for credit losses, a fivefold increase year over year. The bank reserved $3.29 billion for future credit losses and wrote $2.72 billion off its books. Meanwhile, nonperforming assets -- those currently delinquent on payments -- swelled to $7.83 billion. After selling nearly $13 billion in preferred stock, B of A strengthened its Tier-1 capital ratio, a good measure of a bank's ability to withstand credit losses, to 7.51%.
The results weren't surprising to anyone following bank earnings over the past week. Nearly every financial institution has been beaten silly recently, with rivals Wachovia (NYSE: WB), Washington Mutual (NYSE: WM), and Citigroup (NYSE: C) all reporting ugly first-quarter results.
But there just might be a ray of hope for those who make it out of the banking crisis alive. Monday's earnings release showed that Bank of America's retail deposits -- the amount of cash customers keep in checking and savings accounts, certificates of deposit, etc. -- swelled 11% in the first quarter. That's an incredibly important number during these tough times, because Ben Bernanke's interest rate-slashing campaign has dramatically cut the interest banks pay on customers' accounts. The 11% increase in bank deposits not only provides cheap funding for B of A to keep its head above water while the credit storm subsides, but it could also leave the company with ample ammunition to resume normal lending once the economy gets back on its feet.
It's a small token of hope amid a downpour of negativity, but having a steady flow of deposits could define B of A's ability to regain composure and get the metric that really matters for investors -- cash flow -- humming again.
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