Ever since the financial crisis, banks have worked hard to strengthen their finances and put themselves in a better position to compete against each other for the most lucrative business opportunities. For Bank of America (NYSE:BAC) in particular, that struggle has come with setbacks along the way. Episodes like the company's having to resubmit its capital plan to the Federal Reserve in each of the past two years have led some investors to question whether B of A can stand up to its rivals in the banking industry. Coming into Wednesday morning's first-quarter financial report, though, shareholders were optimistic that Bank of America would be able to return to profitability with a solid performance, and the bank delivered even more than many investors had hoped to see.
Let's take a look at Bank of America's results and what drove the company's success to begin 2015.
Bank of America is making money again
Bank of America's reversal in its bottom line was the most noteworthy aspect of the bank's report, with net income of $3.4 billion looking strong compared to last year's $276 million first-quarter loss. Adjusted earnings of $0.36 per share came in well above the $0.29 per share consensus among investors. Interestingly, B of A made much more money despite seeing relatively weak sales figures, as even after accounting for some one-time gains and other adjustments, adjusted revenue fell 1% from the previous year's quarter to $21.9 billion. On a fully phased-in basis, B of A's regulatory Tier 1 capital ratio rose sequentially to 10.3%.
Cost-cutting was a huge part of Bank of America's success during the quarter. Non-interest expenses in particular plunged by almost 30% as the company avoided a repeat of last year's $6 billion in litigation expenses. Yet even after accounting for the slowdown in settlement payments, Bank of America's Project BAC initiatives as well as other cost-cutting measures related to its Legacy Assets and Servicing division helped produce 6% savings.
From a segment-by-segment perspective, Bank of America looked solid on multiple fronts. The Consumer Banking segment showed particular strength, with deposit balances jumping 5% to $531.4 billion while brokerage assets soared 18% to $118.5 billion. Bank of America issued 1.2 million new credit cards during the quarter, and mortgage-loan origination volume and home equity loan issuance both climbed by more than half from year-ago levels.
The Global Banking business also did well, generating $1.5 billion in investment banking fees and leading to the highest quarterly advisor fee revenue since B of A merged with Merrill Lynch during the financial crisis. Moreover, even though the Global Wealth and Investment Management saw its divisional net income fall, positive asset flows of $14.7 billion marked the 23rd straight quarter of gains, and internal returns of 22% on average allocated capital continued to show the promise from building up that part of the business.
Financial conditions also improved for Bank of America's customers, reflecting themselves in a higher-quality loan portfolio. B of A reported a drop of more than 11% in provisions for credit losses, with $716 million set aside in the first quarter. The bank said the credit card business drove that improvement, offset slightly by home loans that didn't improve at the same pace. Charge-offs and nonperforming loan amounts fell considerably from year-ago levels as well.
Can Bank of America keep up the pace?
CEO Brian Moynihan celebrated the news, noting how "we saw core loan and deposit growth, higher mortgage originations, and increased wealth management client balances," while the bank "retained a top position in investment banking."
Moreover, looking forward, Bank of America sees further tailwinds helping to drive performance throughout 2015. "We see continued encouraging signs in customer and client activity," Moynihan said, "with consumer spending increasing and utilization of credit by our commercial customers rising. This should bode well for the near-term economic outlook."
The biggest hope for shareholders, though, is that the era of huge legal settlements is finally over. With the constant drain of billions of dollars in litigation expenses potentially ending, Bank of America can finally turn to identifying its best areas of strength in order to compete more effectively against its banking peers. With conditional Fed approval to use some of that found money toward stock repurchases, shareholders can look forward to some upward support for share prices, even if the company's decision not to increase the bank's dividend disappointed some investors.
Bank of America shares didn't react particularly strongly to the news, trading on either side of the unchanged mark in the first hour of pre-market trading following the announcement. After such a long struggle to get to this point, B of A still has further to go to demonstrate that it has regained its place in the financial world after surviving the fallout from the financial crisis.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. 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.