The Hidden Value in Bank of America's Recent Earnings

NEW YORK (TheStreet) -- In light of the recent concerns surrounding financial institutions, in particular J.P. Morgan Chase (JPM), it remains unclear as to what direction Wall Street is leaning when it comes to beleaguered Bank of America (BAC) after its recent second-quarter earnings report.

What is clear to me is the company's strategy of rebuilding strong customer and client relationships is now paying off. But to some extent it seems Wall Street remains broadly unimpressed.

Based on some recent analysis, it seems many experts have latched on to the 10% sequential decline in the bank's operating revenue and 11% drop in net interest income. However, while examining Bank of America's numbers more closely, I have begun to see improvements in several key areas.

First, aside from the fact that it was not an overall good quarter for investment banks, a case can be made that Bank of America actually outperformed expectations. Not only did the company report net income of $2.5 billion, or 19 cents per share, but its Tier One common capital ratio showed a 46-basis-point improvement since the first quarter, exceeding 11%.

What this means is that patient shareholders will be rewarded much sooner rather than later. These improvements can help spur stock buybacks as well as the company's ability to issue dividends. On the downside, its loan performance was a bit weak, showing a decline of 1% due to slowness in its real credit card and real estate segments.

While it clearly has some challenges in some of its core business areas, these are consistent across the entire financial sector, affecting other names including Citigroup ( C) and, to a lesser extent, Wells Fargo ( WFC).

However, if there was one major concern for investors, it's that Bank of America deposits and loans have been shrinking and the bank is likely losing customers to regional names including SunTrust ( STI) and PNC ( PNC).

As concerning as this may be, this was offset by the bank's continued improvements in other segments including its Consumer & Business Banking division, which posted net income of $1.2 billion.

Overall, the numbers show Bank of America is executing as well as anyone can realistically expect, particularly when looking at its liquidity and its overall improved balance sheet.

Moving Forward

Bank of America has fought a long battle toward recovery. It has started to regain both investor and consumer confidence with a blueprint toward sustainable growth over the next several years, a blueprint that includes the company's CEO, Brian Moynihan, being compensated in the form of performance-based restricted stock. This means that investors have more reason to feel confident management will have their best interests at heart.

Since then, Bank of America has also announced a 10% workforce reduction. It expects to trim its headcount by as many as 30 thousand people during the course of the next several years.

As bad as things have been, it should be clear that its management has been working hard to restore some lost trust, not only with consumers but with investors by looking for meaningful way to generate value.

Bottom Line

What's more, with so much change at the company, many investors overlook that Bank of America scored extremely well on a recent stress test -- another reason to think the stock is no longer the perceived high risk that it once was.

For that matter, I think the stock is trading at a considerable discount to its tangible book value, and feel that investors should begin to take notice of the value that exists as it can become pretty rewarding for those who are patient.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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