Yesterday, Bank of America (NYSE: BAC ) reported earnings for the third quarter, making it the second and last of the banks on the Dow Jones Industrial Average (INDEX: ^DJI ) to do so. Following the announcement, both the Dow and Bank of America closed higher. However, while the latter is higher today, the blue-chip index appears to be taking a breather, down marginally in intraday trading.
In no particular order, here are the three most important takeaways from Bank of America's earnings.
1. Down but not out
At first glance, B of A's top- and bottom-line figures look disappointing. For the quarter, it reported a measly $340 million in net income on $20.7 billion in total revenue -- both of which were down markedly from last year. This is particularly disappointing when you consider that both Wells Fargo (NYSE: WFC ) and JPMorgan Chase (NYSE: JPM ) reported record quarterly earnings for the same time period. Click here for an analysis of JPMorgan's earnings, and click here for Wells Fargo's.
Upon closer examination, however, B of A recorded a number of one-time charges in both periods that artificially compounded the disparity. In the third quarter of this year, it recognized a $1.9 billion noncash charge related to fluctuations in the value of its debt. In the third quarter last year, meanwhile, the same charge amounted to positive $6.2 billion. Thus, as I noted yesterday, once these differences are normalized, the year-over-year disparity largely evaporates.
2. Credit quality improves
Of all the problems Bank of America faces, the biggest is the quality of its loan book -- thanks to the bank's 2008 purchase of Countrywide Financial, the nation's largest subprime (i.e., toxic) mortgage originator at the time. In the four calendar years since the financial crisis, it has charged off a staggering $105 billion in loans. That's more than most banks in the country made over the same time period.
The good news is that it continues to make progress on this front. Regardless of which credit metric you pick, if you exclude mid-quarter regulatory changes in the treatment of certain loans, B of A improved across the board. Among other things, its provisions for credit losses were down an impressive 48% compared with last year, "reflecting improved credit quality across most major consumer and commercial portfolios and the impact of underwriting changes implemented over the past several years," according to the bank's earnings release.
The one concerning area involves repurchase requests from investors in B of A's mortgage-backed securities. To read more about this massive albatross, click here.
3. Project New BAC roles on
Finally, B of A made progress with its plan, known as "Project New BAC," to decrease annual expenses by up to $8 billion a year, closing 175 branches over the quarter and decreasing its headcount by more than 5%.
Foolish bottom line
All things considered, while the headline figures weren't impressive, Bank of America continued to distance itself from its pre-crisis ways. This is one of the reasons that our in-house senior banking analyst, Anand Chokkavelu, believes its stock could "double or triple" in the next five years. To see why he thinks this, simply click here now.