Bank of America (NYSE:BAC)
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6 Months : From Jan 2018 to Jul 2018
By Rachel Louise Ensign
Bank of America Corp. said Monday that a boost from the U.S. tax law and continued rising interest rates helped push first-quarter profit 30% higher, extending the string of better-than-expected results from the nation's biggest banks.
Quarterly profit at the Charlotte, N.C.-based bank rose to $6.92 billion from $5.34 billion a year ago. Per-share earnings were 62 cents; analysts had expected 59 cents per share. Revenue came in at $23.13 billion, up from $22.25 billion a year ago. Analysts had expected $23.06 billion.
This quarter is the first time investors have a chance to see exactly how much the recent tax law is helping the bank's bottom line. The banking industry was one of the biggest beneficiaries of the lower corporate tax rate. While it led to big one-time charges last quarter, the lower rate is starting to lift bank earnings this quarter. Much of that is already in analysts' estimates for the bank's future profits, however. And some of the expected secondary benefits of the tax bill, such as invigorated loan growth, have yet to materialize across the industry.
Bank of America said its effective tax rate fell by 9 percentage points because of the bill. In the quarter, the bank paid $1.48 billion in income taxes, compared with $1.98 billion in the year-ago quarter.
The tax benefits notwithstanding, the bank's underlying performance also was strong. Income before taxes -- a good way to look at the bank's performance without the tax boost -- increased about 15% to $8.39 billion from $7.32 billion a year earlier.
Those factors meant a key profitability metric, return on equity, reached a new milestone in the quarter. The figure rose to 10.85%, above the bank's theoretical 10% cost of capital. That only happened once before in Chief Executive Brian Moynihan eight-year tenure, in 2011 when unusual one-time factors inflated the figure. Other than that, the bank last passed 10% in 2007, right before its financial state rapidly deteriorated during the financial crisis.
The first quarter was "a solid business environment with good economic metrics. And we continue to get our fair share in that environment," Mr. Moynihan said on a call with analysts.
The results reflected the bank's years-long strategy of boosting profits by cutting expenses, focusing on lower-risk plain vanilla banking services and putting crisis-era headaches in the past. Evercore ISI analyst Glenn Schorr dubbed the bank "the new Steady Eddie" after Monday's earnings report.
Rising interest rates have helped. Higher rates are typically good for banks because they turn a profit on the difference between what they pay on deposits and the rate they collect on loans. In the quarter, the Federal Reserve raised its benchmark rate for a sixth time. Bank of America said its net interest income, or profits from interest, rose about 5% from a year earlier.
Banks have been able to pocket much of the benefit from the rate increases because customers aren't demanding more interest. The rate Bank of America paid on U.S. interest-bearing deposits was 0.30%, only a slight rise from 0.27% in the prior quarter. Still, deposits rose more than 4% from a year earlier.
Loan growth, which has slowed down across the banking industry since the 2016 presidential election, rose 3% from a year earlier at Bank of America.
In the first quarter, the bank's expenses fell about 1% to $13.90 billion from $14.09 billion a year ago. That helped push the firm's efficiency ratio, which measures expenses as a percentage of revenue, below 60%, compared with 62.8% a year ago.
The bank said recently announced plans to open new branches in cities where it previously had none wouldn't elevate overall costs. The bank's total branch count, which has been steadily dropping as more consumers turn to digital tools and the bank prunes less profitable locations, should be "relatively stable from here," Chief Financial Officer Paul Donofrio said on a call with reporters.
Also, after a number of quarters of disappointing trading revenue, wild price swings for markets in the first quarter meant Wall Street's trading desks had a better quarter. Still, results weren't much above a year ago, which also was busy following the 2016 U.S. presidential election.
Bank of America reported that trading revenue, excluding an accounting adjustment, rose less than 1% to $4.05 billion from $4.03 billion in the first quarter of last year. Equities revenue increased 38%, while revenue from fixed income, currency and commodities was down 13%.
Bank of America shares, up around 1% in 2018, were roughly flat in morning trading. After a huge run-up following the 2016 presidential election, bank stocks broadly have stalled so far in 2018.
Write to Rachel Louise Ensign at email@example.com
(END) Dow Jones Newswires
April 16, 2018 12:20 ET (16:20 GMT)
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