Bank of America Earnings Still Battered by Legal Costs

Banking, finance, and taxes

Published: July 16, 2014 7:55 am

Last Updated: April 27, 2020 5:19 pm

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Bank of America Corp. (NYSE: BAC) shared its second-quarter results before markets opened Wednesday. The most heavily traded of the big bank stocks reported diluted earnings per share (EPS) of $0.19 on revenue of $21.96 billion. In the same period a year ago, it reported EPS of $0.32 on revenue of $22.95 billion. Second-quarter results also compare to the consensus estimates for EPS of $0.29 on revenue of $21.61 billion.

Results include $3.9 billion in litigation expenses related to the bank’s settlement with the Federal Housing Finance Agency and other reserves related legacy mortgage business. Litigation expenses totaled $6 billion in the prior quarter. Excluding litigation expenses, the bank reported non-interest expenses of $14.6 billion, down 6% from the second quarter of 2013.

The bank did not provide guidance in its earnings release. The consensus estimate for third-quarter EPS is $0.32 on revenues of $21.6 billion. For the full year, the consensus calls for EPS of $0.90 on revenues of $87.83 billion.

The bank’s net interest margin fell two basis points sequentially, from 2.28% to 2.26%, which usually indicates that a bank is paying out more in interest on deposits than it is taking in from loans it has made. This decline, combined with the EPS miss, will weigh on Bank of America’s share price.

Brian Moynihan, the bank’s CEO, said:

The economy continues to strengthen, and our customers and clients are doing more business with us. Among other positive indicators, consumers are spending more, brokerage assets are up by double digits and our corporate clients are increasingly turning to us to help finance business expansion and merger activity.

The bank reached a settlement Tuesday with American International Group Inc. (NYSE: AIG) that resolves the residential-backed mortgage securities litigation between the two companies. Bank of America will pay $950 million from its litigation reserves to close the issue.

Bank of America increased its estimated Basel III Tier 1 transition common ratio to 11% in the second quarter. Its estimated Basel III fully phased-in common capital ratio rose to 9.5%. The bank also raised its tangible book value per share by $0.43 to $14.24.

Shares traded down about 0.8% in the premarket Wednesday to $15.69. The current 52-week range is $13.60 to $18.03. Thomson Reuters had a consensus analyst price target of around $17.30 before the results were announced.

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