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3 Reasons to Love the Bank of America Earnings Report

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Bank of America (NYSE: BAC  ) was the last of the too-big-to-fail banks to report earnings this quarter, and I'm betting it could have waited a little longer. Early this morning, shares have traded down as much as 6.3% on an earnings release that wasn't all too bad. While the bank missed on earnings expectations by $0.02 per share, it exceeded revenue expectations by nearly $500 million dollars. Though the market has reacted less than favorably to its results, here are three reasons Bank of America is still poised for great performance down the road.

1. Noninterest expense
Noninterest expense declined by nearly $1 billion since the first quarter of last year, primarily driven by the Project New BAC initiative to streamline processes. Savings from Project New BAC are expected to reach $1.5 billion per quarter by the end of 2013, with a stated goal of reaching $2 billion per quarter by the middle of 2015.

Whether or not these cost savings are realized remains to be seen, but making an effort is better than simply waiting for everything to work itself out. Project New BAC started in early 2011 and has seen the bank sell of non-core assets, as well as shore up its capital reserves by selling off $60 billion in poor performing loans. CEO Brian Moynihan seems sincere in his stated goals to make the bank better, and Project New BAC might be the best way to get there.

2. Reduction in employees
Part of the streamlining process under Project New BAC was a reduction in positions at the bank. Last spring, Moynihan announced that Bank of America would be shedding 30,000 employees over the life of Project New BAC, including 16,000 by the end of 2012. Moynihan appears to have met his goal, with total employees coming in around 263,000 at the end of the quarter, down from 279,000 at the end of March 2012.  

A reduction in employees is never the best, especially in light of our already high unemployment, but as my colleague John Grgurich points out, it was kind of inevitable considering the growth of the bank during the past two decades. With another 14,000 jobs to go by the middle of 2015, the pace should slow going forward, but not without helping the bank reduce costs.

3. Nonperforming assets
On the asset side of the house, Bank of America has seen a near $5 billion reduction in nonperforming assets over the past year, which has reduced its nonperforming assets ratio by 57 basis points to 2.53%. With a 57% increase in first-lien mortgage production -- assuming the bank is making good loans -- there is reason to expect that this ratio will continue to decline, further boosting the bank's performance down the road.

The Foolish bottom line
Bank of America has had well-documented struggles over the past few years, and it may never reach its once-lofty heights. Nevertheless, today's earnings are another indicator that the worst may truly be behind it, regardless of the market's reaction this morning.

Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


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9/28/2016 4:00 PM
BAC $15.38 Up +0.09 +0.59%
Bank of America CAPS Rating: ****