Bank Of America Q3 Profit Beats On Loan Growth, Lower Costs

by Ike Obudulu Posted on October 15th, 2018

New York City, USA : Charlotte, North Carolina based Bank of America (BAC) reported that its third-quarter earnings per share was up 43% year-over-year to $0.66. On average, analysts expected the company to report profit per share of $0.62 for the quarter. Analysts’ estimates typically exclude special items. Net income to shareholders increased to $6.7 billion from $5.0 billion, previous year, driven by continuing strong operating leverage and asset quality, as well as the benefit of tax reform. Pretax income was up 18% to $9.0 billion.

On a fully taxable-equivalent (FTE) basis, total revenue, net of interest expense, was $22.93 billion compared to $22.08 billion, last year. Analysts expected revenue of $22.7 billion for the quarter.

Third-quarter revenue, net of interest expense, increased 4% to $22.78 billion. Net interest income increased 6%, to $11.9 billion, reflecting benefits from higher interest rates, as well as loan and deposit growth; net interest yield of 2.42%, up 6 bps. Non-interest income increased 2%, to $10.9 billion.

Bank of America Corp reported a better-than-expected rise in quarterly profit on Monday as the second-largest U.S. lender benefited from cost cuts, while higher interest rates and loan growth helped offset weaker bond trading revenue.

In his near-decade long tenure as chief executive officer, Brian Moynihan has tried to streamline the lender’s sprawling operations by cutting jobs, digitizing retail operations and getting rid of crisis-era mortgages, which he inherited as part of its acquisition of Countrywide Financial.

Two years ago, Moynihan pledged to cut expenses to $53 billion by the end of this year and stick to that level until 2020.

Non-interest expense fell 2.4 percent to $13.07 billion in the third quarter, in part due to a 2 percent cut in headcount across businesses.

“Responsible growth, backed by a solid U.S. economy and a healthy U.S. consumer, combined to deliver the highest quarterly pre-tax earnings in our company’s history,” Moynihan said in a statement.

Net income applicable to common shareholders rose 35 percent to $6.7 billion in the third quarter ended Sept. 30.

Excluding items, the bank earned 67 cents per share, beating the average analyst estimate of 62 cents per share, according to I/B/E/S data from Refinitiv.

Loans in its consumer banking business grew 6 percent to $285 billion. Total deposits rose about 5 percent to $1.35 trillion.

BofA relies heavily on higher interest rates to maximize profits as it has a large deposit pool and rate-sensitive mortgage securities.

Total interest income – the difference between what a lender earns on loans and pays on deposits – rose 6.4 percent to $11.87 billion.

Bank of America said overall credit quality remained strong across both the consumer and commercial portfolios during the quarter. The provision for credit losses decreased $118 million to $716 million. Nonperforming assets declined $1.4 billion to $5.4 billion, driven by improvements in both consumer and commercial portfolios. Average loan and lease balances in business segments rose $29 billion, or 3%, to $871 billion. Average deposit balances rose $45 billion, or 4%, to $1.3 trillion.

“Our earnings growth year-over-year was driven by operating leverage, asset quality, and a lower tax rate. For 12 straight quarters, our average deposits have grown year-over year by more than $40 billion, reflecting the value to customers of our deposit capabilities and franchise – and driving both growth of net interest income and improvement in net interest yield,” said Paul Donofrio, CFO.

For Consumer Banking segment, third-quarter net income rose 49% to $3.1 billion. Revenue increased 7%, to $9.4 billion. Deposits were up 4% to $688 billion. Loans were up 6% to $285 billion.

Shares of the company were up 0.7 pct at $28.66 in early trading.

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