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.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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