Even strong fish can't fight a larger current. Bank of America (NYSE: BAC) is a good case in point. While the bank continues to add customers and improve its operating efficiency, the present interest rate environment took a bite out of profits.
For the second quarter, revenue grew about 7%, while net income increased by 12%. With a flattened yield curve and the resulting compression in net interest margin, the bank saw net interest income (on a fully taxable equivalent basis) grow only 1% from the year-ago period. On a brighter note, non-interest income increased more than 16%.
Like many other companies with capital-markets businesses, Bank of America saw some rough results this quarter. Trading revenue dropped 40%, and the company's investment-banking profits also fell. All told, revenue declined 19%, though reported earnings were up 12% because of the absence of litigation expense in this quarter.
In banking, the company did see some growth in deposits and loans, plus higher revenue from service charges and credit/debit card volumes. On the other hand, the company also saw higher credit card chargeoffs and that aforementioned shrinkage in net interest margin (from 3.31% a year ago to 2.81% in this quarter).
That said, Bank of America did manage to increase its return on shareholders' equity (17.5% versus the year-ago 16.6%), and the decline in return on assets was rather mild (1.35% versus the year-ago 1.41%).
Bank of America's management certainly hasn't shied away from big acquisitions at home and abroad. As we Fools have discussed before, Bank of America is spending $35 billion to acquire MBNA (NYSE: KRB) and another $3 billion for a 9% stake in China's China Construction Bank. Both deals should certainly pay off in the long run, but they could create a little turbulence in the short term.
I made the case earlier today that Citigroup (NYSE: C) was worth a look for long-term investors, and I feel much the same about Bank of America. It might actually be the more interesting pick right now -- Bank of America offers a higher dividend yield, a lower P/E, a similar return on equity, and less controversy. While current conditions make these challenging times to own a bank stock, patient investors might want to consider picking up shares before the yield curve eventually improves.
More Bank of America takes to catch your interest:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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