Bank of America: Good, Bad and Ugly on Earnings

The Good:

* Bank of America (BAC) made numbers.
* Small business lending increased, the first time I have seen this at any bank in a while.
* Not sure it is good, but interesting: Home equity lines of credit actually increased???
* Like all banks, BAC seems to be controlling expenses, which means firing people.
* NPA’s remained flat.
* Tax rate was higher than expected (not sure why this is).

The Bad:

* Margin was 3 bps lighter than consensus.
* A lot of noise, includes: MBNA transaction and $720 million gain on sale from Brazilian operations, which just happened to offset securities losses to reposition balance sheet and MBNA-related merger charge. Hmmm can anyone say managing earnings?
* Card fees were weak.

The Ugly:

Revenue trends were mixed:

* Net income was flat versus 2Q as strong consumer and commercial loan growth were offset by NIM pressure (yet another bank with high mortgage concentration showing this trend).

- Deposit costs increasing faster than loan yields.
- A modest decline in deposit balances.
- A shift in deposit towards CDs.

Charge-offs and delinquencies ticked up, which caused the card business to underperform expectations.

Bottom-line: Not a great quarter punctuated by a lot of noise. BAC is holding up better than the regionals, but had a weaker showing than both Citigroup (C) and JP Morgan (JPM). Some trends were worrisome (see Ugly).

Steve Zausner also contributed to this article.