Bank of America Corp (NYSE:BAC) reported second-quarter earnings earlier today, and the big bank showed an outstanding $0.12 earnings per share beat, while outshining expectations on revenue by $340 million. At first blush, this report seems to be a great improvement over the linked quarter, when the bank reported a loss of $0.05 per share.

As investors know, beating analysts' expectations is quite a bit easier when the previous quarter was rather sickly. When compared to the same quarter last year, however, Bank of America's second quarter showing highlighted some real cause for concern.

Year over year comparison isn't good
From the year ago quarter, B of A has experienced decreases in key areas, even as its expenses increase. Net interest income and noninterest income both dropped from the year ago quarter, while noninterest expense – which includes legal costs – rose appreciably. Overall, the bank's net income fell from more than $4 billion to $2.3 billion.


Q2 2014

Q2 2013

Net interest income, FTE basis (non-GAAP)

$10.23 billion

$10.77 billion

Noninterest income

$11.73 billion

$12.18 billion

Net Income (loss)

$2.29 billion

$4.01 billion

Diluted earnings per common share



Litigation expense always throws a monkey wrench into the works for Bank of America, and its $4 billion outlay for the second quarter was huge compared with the year ago amount of $0.5 billion. Though the bank has settled with AIG in regards to long-standing mortgage-backed securities issues, there is still a big settlement pending between Bank of America and the U.S. Department of Justice. Those talks have stalled, however, because of a difference of opinion between the parties as to how much is owed: B of A wants to pay about $12 billion to settle its outstanding MBS troubles, while the DOJ wants more in the neighborhood of $17 billion.

Other disquieting trends
The report pales from the year ago quarter in other ways, as well. While the bank saw an uptick of 29% in its net income from Consumer and Business Banking, the change stemmed more from a reduced year over year provision for credit losses, from $967 million last year, to $534 million last quarter. In addition, the bank released another $662 million from its loan loss reserves – down from $900 million last year, but still sizable.

Reserve releases have helped all banks plump their bottom lines lately, but the brightening credit quality picture will likely make that technique obsolete very soon. And, though Bank of America's CFO Bruce Thompson notes that the bank continues to control its expenses, cutting costs can only go so far, as well.

With Bank of America suffering from a 59% drop in mortgage originations year over year, investors will do well to wonder where the money will come from in future quarters. For the bank's stockholders, this most recent earnings report was a grim reminder that Bank of America still has many roadblocks ahead on its long road to recovery.

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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends American International Group and Bank of America. The Motley Fool owns shares of American International Group and Bank of America and has the following options: long January 2016 $30 calls on American International Group. 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.

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