Bank of America Reports Higher Earnings -- 2nd Update
April 16 2018 - 12:35PM
Dow Jones News
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 rachel.ensign@wsj.com
(END) Dow Jones Newswires
April 16, 2018 12:20 ET (16:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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