The Critical Number You Missed When Looking Through Bank of America Corp’s Latest Results

Bank of America has executed on quite a turnaround over the years, but investors may have missed one essential number when comparing it to Wells Fargo and Citigroup.

Jun 16, 2014 at 2:24PM


Bank of America (NYSE:BAC) gets endless media coverage. But one number may have gone unnoticed from far too many.

The impressive rebound
Over the last few years banks have dealt with their fair share of headaches. Bank of America had all the trouble related to its acquisition of Countrywide. Citigroup (NYSE:C) had questions about its future, and even more recently has had to restate its 2013 results thanks to fraud from its unit in Mexico.

While Wells Fargo (NYSE:WFC) has avoided most of the troubles facing Bank of America and Citigroup, remember it too shelled out more than $8 billion in settlements between 2010 and 2012. 

But everyone knows of the legal issues. Yet one of the least discussed realities is the provision for credit losses, which is what a bank expects it will lose from loans it has issued that is written as an expense on its income statement. And the banks have seen a remarkable rebound in these over the last three years:

Source: Company Investor Relations

As you can see, Bank of America -- somewhat astoundingly -- expected to lose nearly $10 billion less from its loans last year than it did in 2011. And it shouldn't come as a surprise Wells Fargo faced the fewest losses, at $17 billion, versus $25 billion for Bank of America and $32 billion for Citigroup.

But it's critical to know this rebound translates straight to the bottom line of the banks. And while the improvement is encouraging and is essential to monitor, it often can obscure the true performance of the underlying businesses.

The bright spot for Bank of America
With all that in mind, consider the most recent results from the banks mentioned earlier. A simple glance at the results reveals all three banks had impressive year over year growth:

Source: Company Investor Relations

Yet a simple exclusion of the gains from their provision for credit losses tells a much different story:

Source: Company Investor Relations

As you can see, both Citigroup and Wells Fargo only saw improvement because they expected to write off fewer loans, whereas Bank of America managed to actually grow the results from its businesses over the last year. But it must too be noted part of the reason for the dip at Wells Fargo resulted from the fact its mortgage banking income plummeted by $1.3 billion as a result of less mortgage refinancing.

The key takeaway
With this in mind, it's critical to know Bank of America is continuing to execute on its efforts to grow its businesses and also slash unnecessary expenses. While there is still much to be done at the bank, the slow and steady progress is another sign of encouragement.

Improvement in one number relative to peers isn't enough to warrant an investment decision in Bank of America. But this reality is one more thing to add to the long list of reasons why Bank of America presents a compelling investment consideration.

Will this stock be your next big winner?
It isn't just that Bank of America's businesses have been on a rebound, but also its stock price, rising nearly 200% since it bottomed out in December 2011. Yet there's another stock poised to do the same. If you give us five minutes, we'll show how you could own the best stock for 2014. And it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo and has the following options: short June 2014 $48 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information