Shares in Bank Of America Corp (NYSE:BAC) rose by more than 1.5% in morning trading after the company released its earnings report for the three months beginning July 1. The bank showed earnings ahead of analyst estimates as fewer than projected delinquent loans were on the company’s book in the three month period.

Bank Of America BAC

There are major problems at Bank of America Corp (NYSE:BAC) that have not been represented by the market’s movements this morning. The earnings report showed that the bank’s revenue was down from last year in the quarter. Rising interest rates are causing loan books to shrink.

Bank of America analysis

Bank of America Corp (NYSE:BAC) earned 20 cents per share on revenue of $22.19 billion. Analysts were expecting earnings of 18 cents on revenue of $22 billion. Earnings were buffered by better loan performance. In this report the bank wrote down about $1.7 billion from its loan book. Last year the bank wrote down $4 billion in loans.

The bank lost out in fixed income trading as the Federal Reserve’s taper talk spooked bond traders. The company’s mortgage sales were also hit by the same policy confusion, but both trends were offset by the much better credit quality the company saw in the period.

The fact that Bank of America Corp (NYSE:BAC) has a healthier loan book is a very good sign. Taper talk hit every bank and trader in the market, so investors won’t be worried about that. The increasing glow of the loan book is the important piece of today’s earnings report.

Bank of America legal problems

Bank of America Corp (NYSE:BAC) is still fighting several legal cases related to the 2008 financial crisis. Two of its more recently acquired units, Merril Lynch and Countrywide Financial, were involved in various parts of the financial and real estate markets that precipitated the crash in asset values across the United States and the world.

Those problems have spilled over into the Bank of America Corp (NYSE:BAC) bottom line on more than one occasion. The cases are also bad for the bank’s brand and reputation, and limit its flexibility. BoA has extricated itself from most of its legal troubles, but there are still cases that the bank is involved in, and will need to resolve before it can move on.

Since January 1 Bank of America Corp (NYSE:BAC) shares have risen in value by close to 25%, if this morning’s gains are included.