Bank of America Profit Climbs, Driven by Higher Interests Rates -- 3rd Update
October 13 2017 - 10:05AM
Dow Jones News
By Rachel Louise Ensign
Bank of America Corp. said its third-quarter profit rose 13% as
higher interest rates helped the bank inch closer to meeting
long-held profitability goals.
Quarterly profit at the second-largest U.S. bank by assets rose
to $5.59 billion from $4.96 billion a year ago. Earnings per share
of 48 cents topped analyst expectations by 3 cents.
Third-quarter revenue also rose, moving 0.9% higher to $21.84
billion. On an adjusted basis, revenue was $22.08 billion, up from
$21.86 billion a year earlier and ahead of the $21.98 billion
expected by analysts.
The results were another step in the bank's yearslong rebuilding
from the financial crisis and its fallout. The Charlotte, N.C.,
lender inched closer to meeting performance goals it set for
itself, including a 1% return on average assets and a 12% return on
average tangible common equity. In the third quarter, those metrics
stood at 0.98% and 11.32%, respectively.
"On balance, [Bank of America's] results stack up better than
those of peers," Nomura Instinet analyst Steven Chubak said of the
quarter, citing the bank's lending profits and expenses.
It was also the second quarter in a row where the bank's
efficiency ratio fell below 60%, another performance target the
bank had previously set. Specifically, the ratio fell to 59.5% from
61.7% a year ago. It also stood at 59.5% in the second quarter. The
bank said its expenses were the lowest since the fourth quarter of
2008, the last quarter before its purchase of Merrill Lynch.
While the bank's quarterly return on equity was 8.1%, up from
the prior quarter and better than rival Citigroup Inc.'s, that
metric was below J.P. Morgan Chase & Co.'s and the bank's 10%
theoretical cost of capital.
The bank has spent the past few years cutting costs and
reorienting its business to focus on lower-risk operations, like
lending to customers with pristine credit scores. The bank also
benefits from rising interest rates. Since the election, investors
have favored the bank's stock, which is up more than 60% over the
past 12 months.
Bank of America got an important vote of confidence in August
when Warren Buffett's Berkshire Hathaway Inc. officially became the
bank's largest shareholder, a result of an investment Berkshire
initially made in 2011. Since then, Mr. Buffett has publicly
praised Bank of America chief Brian Moynihan and said his firm
plans to be a shareholder for a long time.
The bank's stock performance has nudged its market
capitalization much closer to that of rival Wells Fargo & Co.,
which has been grappling with the fallout of its sales-practices
scandal. That bank also reported earnings on Friday and said that
its third-quarter profit and revenue fell. Wells Fargo shares
slipped 3.3%, while Bank of America shares fell 1%.
During the third quarter, both cost cuts and increased profits
from lending helped Mr. Moynihan's strategy, which the bank refers
to as "responsible growth."
Expenses for the period edged down 2.5% to $13.14 billion. The
bank continued to trim branches and employees, measures that have
helped it become leaner in recent years. The bank is trying to
bring costs down to a $53 billion annual target in 2018.
Despite the branch closures in the quarter, consumer deposits
continued to grow, rising about $7 billion from the prior quarter,
a sign that consumers have flocked to larger consumer banks with
more mobile technology capabilities.
The bank's large base of U.S. deposits and rate-sensitive
mortgage securities made Bank of America particularly poised to
benefit from an uptick in interest rates. The bank's net interest
income rose to $11.16 billion, though it started to pay slightly
higher rates to depositors in the quarter. The rate the bank paid
on U.S. interest-bearing deposits was 0.24%, compared with a
rock-bottom 0.11% in the prior quarter. Savings-account holders
didn't see any change in rates, but money-market account holders
did.
Loans at the bank grew 1% from the prior quarter and 2.6% from a
year earlier. Loan-growth across the industry has been sluggish,
something some bank executives have attributed to uncertainty in
Washington.
Bank of America's chief financial officer, Paul Donofrio, said
the bank's borrowers, who tend to be those with very good credit,
don't seem to be facing strain and that the consumer broadly is
looking strong with low unemployment and a strong housing market.
"We're optimistic about the economy," he said. "There are just a
lot of positive signs out there."
Citigroup said Thursday that credit-card losses are increasing
slightly faster than it had expected. For that bank's store-branded
private-label cards, net charge-offs jumped to 4.7% from 3.9% a
year earlier. Bank of America's credit-card charge-offs were 2.65%,
compared with 2.45% a year earlier.
Like other big banks, trading revenue faced a tough environment
in the third quarter. Trading revenue at Bank of America, excluding
an accounting adjustment, fell 15% to $3.15 billion from $3.73
billion in last year's third quarter.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
October 13, 2017 09:50 ET (13:50 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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