Bank of America finally got that strong quarter of loan growth it was waiting for, but fast-changing developments in the global economy made the achievement seem like old news in a hurry.
Total loans and leases expanded a modest 2.5% year over year as the company continued to streamline itself and run off legacy assets. But looking deeper, loans in its global banking unit rose 12%, to $320 billion, and loans in its consumer banking arm increased 6%, to $211 billion. Mortgage production rose 17%, to $13.5 billion. Noninterest income jumped 7%, to $9.7 billion, in a quarter when some of its peers had a hard time generating fee-income growth.
Those core-banking results help boost its fourth-quarter profits nearly 10%.
But concerns about the economy and the falling price of oil — quickly becoming the refrain in the current earnings season for all banks — weighed heavily on the outlook for B of A.
Analysts pressed Chief Executive Brian Moynihan and Chief Financial Officer Paul Donofrio for any tidbit of information that would show some spillover effect of declining oil prices on the bank's business. Moynihan estimated that cheaper gas has translated to $20 million per day in additional cash in consumers' wallets and said he sees no evidence of a pullback among nonenergy businesses.
"Right now it's an oversupply of oil driving prices down and that's impacted the [oil and gas] industry, but consumers are getting a good benefit," Moynihan said. "We're seeing no deterioration of [overall] credit."
Donofrio said the bank is spending a lot of time "blocking and tackling," essentially analyzing cash flows and parsing its energy portfolio by looking at the underlying collateral.
"Outside of energy we are not seeing asset-quality change, nor are we seeing a reduction in the appetite for [commercial] credit," Donofrio said. "We're not seeing any material decline in conversations with our [business] clients about how to help them grow."
B of A has set aside a $500 million loan loss allowance for its $21.3 billion energy portfolio. That allowance represents 6% of its exposure to its two higher-risk energy subsectors: exploration and production companies and oil-field-services firms, Donofrio said.
If oil prices held steady at $30 a barrel for nine quarters, B of A would have $700 million in total losses, Donofrio estimated.
"We could see lumpiness that could potentially drive [the] provision expense over $900 million," he said.
The bigger concern for banks is if oil falls even further and losses begin to cut into the trajectory of Basel III capital levels. Moynihan said he wants to return more capital to shareholders. The bank is expected to raise its dividend from five cents a share to 10 cents a share early this year, said Erik Oja, an equity analyst at S&P Capital IQ.
B of A, like many large banks, has relied on expense cuts to fuel profit growth over the past several years. Several analysts asked about B of A's efficiency ratio, which improved to 70.2% in the fourth quarter, from 74.9% a year earlier.
"We continue to drive it down," Moynihan said, telling analysts that he is not satisfied with the current ratio. "Don't think we're complacent on this."
Fourth-quarter expenses fell 2% to $13.9 billion from a year earlier. B of A cut the number of employees by 5% to 213,280, and closed 129 branches to end the year with 4,726.
Still, B of A's expenses far exceeds those of its competitors JPMorgan Chase and Wells Fargo. Its "New BAC" cost-cutting plan that ran from 2011 to 2014 has not been formally replaced with a new program.
Just a few months ago, Moynihan faced several major challenges to his leadership. He survived a contentious shareholder vote over whether he should retain the title of chairman and had to submit a revised capital plan to the Federal Reserve as part of the central bank's stress-testing process.
The fourth-quarter results provided a relatively strong finish to a year marked by mixed overall results.
The $2.1 trillion-asset bank's full-year 2015 profit of $15.9 billion was its best performance in a decade, though annual revenue fell 2% to $82.5 billion.
B of A reported a 9.4% jump in fourth-quarter net income to $3.3 billion, or 28 cents a share, which beat by a penny the consensus prediction of analysts surveyed by Bloomberg. Fourth-quarter revenue rose 4% to $19.8 billion.
"That's the highest net income we've had in a long time," Moynihan said on the conference call with analysts Tuesday.
Despite some of the strong numbers, it wasn't quite a turnaround in some eyes.
"People are still waiting for that breakout quarter," Oja said. "Given the worries that everybody has on what lower oil prices may do to credit quality, they turned in a good quarter."
Donofio said one of the key takeaways of the quarter was that "revenue growth remains challenging."