Bank of America Proves It Believes in the U.S. Economy

Bank of America reported earnings per share of $0.20 on $2.5 billion in net income. Among other things, the bank signaled that it believes in the U.S. recovery, and that its business and shareholders stand to benefit greatly.

However, this quarter wasn't without its own one-timers. There was an aggregate negative impact of approximately $700 million, or $0.08 per share.

While it recognized $800 million in gains on the sale of its shares of China Construction Bank, it saw a loss of $400 million because of valuation adjustments, and a $1.1 billion tax impact due to a change in the U.K. corporate income tax.

Bank of America did see its revenue, excluding certain adjustments, fall from $22.5 billion in the third quarter of 2012, to $22.2 billion in the third quarter of this year. The reduction in revenue was largely because of an enormous reduction in its mortgage banking income -- which stood at $2.0 billion in the third quarter of last year, and a paltry $586 million in the third quarter of this year.

Its return on assets fell from 0.74% in the second quarter to 0.47% in the third quarter of this year; however, if excluding its U.K. tax charge, its third-quarter results improve to 0.68%. Bank of America also highlighted that it has seemingly put aside many of its woes related to its credit quality, as its net loss rate was at its lowest level since the middle of 2005.

In addition, Bank of America set aside a mere $296 million in its provision for credit losses, which is what it anticipates it will lose on loans, which is significantly less than what it has provided in the past. By setting aside less for a stormy day, Bank of America is clearly signaling that it believes in the strengthening U.S. economy and consumer. Despite the drama in D.C., it appears Bank of America is still betting on America. 

Source: Company Earnings Reports.

Bank of America did see its expenses tick up slightly quarter over quarter, from $16.0 billion, to $16.4 billion -- but this was largely due to an increase in its legal expenses, which grew from approximately $500 million to $1.1 billion, thanks to its review of legacy issues and an increase in reserves. However, its total expenses relative to the third quarter of last year fell by $1.1 billion.

As for its specific business lines, Bank of America saw significant gains from its consumer-focused segment, which watched its net income rise by 28% (approximately $400 million) when compared to the second quarter of this year, thanks to significantly lower expenses and provisions for credit losses, which each fell by approximately $200 million.

The wealth management business and its thundering herd of Merrill Lynch advisors did see a slight decline in net income, thanks largely to marginally lower revenue -- but the bank highlighted that it recorded record asset management fees of $1.7 billion.

In addition, its total client balances now stand at $2.3 trillion, as its assets under management now stand at $780 billion, an increase of almost $100 million over the prior year, and $35 billion over the previous quarter.

Its Global Banking Segment -- which is the lending and investment banking arm for its corporate clients -- had its provisions for credit losses and noninterest expenses come down. It also saw its investment banking fees fall to the lowest level in the last five quarters -- but that was largely due to market forces, as the bank still achieved the No. 1 ranking in the Americas, with an 11% market share.

Finally the bank's Global Markets trading business reported a loss of approximately $800 million as a result of the previously mentioned U.K. tax expense. Excluding that, and other adjustments, income still fell to $531 million, approximately $250 million less than the third quarter of 2012, and $400 million less than the second quarter of 2013.

The bank attributed this largely to a decline in its fixed-income trading revenue (which fell 20%), and higher expenses as a result of legal costs.

Source: BofA

Brian Moynihan, the CEO of Bank of America added:

This quarter, we saw good loan growth, improved credit quality and record deposit balances. Our customers and clients continue to do more business with us. The economy and business climate will improve even more quickly as conditions normalize, and we are well positioned to benefit from that.

All things considered, Bank of America had a solid quarter, and it 's encouraging to see that it continues to resolve many of the legacy issues that plagued it for so long. While it is still not entirely out of the woods yet, this quarter was further evidence that the bank is continuing to turn things around. 

Beyond earnings
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