NEW YORK (TheStreet) -- Today's headlines on Bank of America's (BAC) earnings report dwell on the $4 billion in legal costs that made second-quarter results miss analyst estimates.

But the real problem for the stock is Bank of America's business isn't growing the way it should in an improving economy.

At around $15.60, shares are down almost today as analyst opinion is all over the place on whether the Charlotte-based bank beat the numbers or missed them after adjustments made for litigation expenses and other charges.

But the core of the problem is two-fold: The bank hasn't gotten the improvements in loan volume that it should get as economic prospects improve, and the delay in the anticipated rise of interest rates is keeping B of A's net interest margin lower than it was in a more torpid 2013 economy.

B of A reported that average loan balances in its key consumer and business banking unit shrank over the last year, dropping $3.3 billion to $160.2 billion. Worse, net interest margins for the whole company -- the spread between what it pays for deposits and charges for loans -- actually declined, to 2.22% from 2.26% in the first quarter, Keefe Bruyette & Woods analyst Chris Mutascio says.

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The bull case for banks is that a recovery makes people borrow more, and rising interest rates that accompany expansion boost the spread between deposit and loan rates. Neither one happened for B of A this time around.

The weakness is fairly broadly spread across the bank's business. The mortgage unit, as expected, is suffering from fewer refinancing applications. The global banking business that includes the Merrill Lynch investment bank grew just 1% on the top line. Loans grew 6% in this business, but return on capital dropped sharply as rates stayed low even for loans to real-estate developers and larger businesses. B of A invested heavily in this business during the quarter but hasn't yet seen a return.

B of A's report is pretty similar to one last week by rival Wells Fargo (WFC). Wells also saw a dip in net interest margin, but from a much higher level than Bank of America's as loans grew 4%. Its shares also fell on the day the San Francisco-based bank reported.

Wells noted that one problem is that deposits are growing faster than loans, leaving it with not enough places to use the money in the short term. B of A's quarter suggests it's having a similar problem.

Analysts have been bullish on bank stocks this year, believing that a rising economy promises a two-fold push to bank profits. One push should come from more loan volume, the other from wider spreads.

For now, neither one is there for Bank of America. Until the bank convinces the market that's temporary (and many do believe that), today's drop in B of A shares reflects a skepticism that's likely to linger.

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

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 84.82%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.08% is in-line with the industry average.
  • BAC, with its decline in revenue, slightly underperformed the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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