Bank of America Profit Climbs, Driven by Higher Interests Rates -- 3rd Update

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

(END) Dow Jones Newswires

October 13, 2017 09:50 ET (13:50 GMT)