BofA tops loan-revenue estimates with interest rates increasing

BofA-branch-Bloomberg-101722
Higher loan revenue combined with an increase in trading revenue helped Bank of America beat analysts' earnings expectations.

Bank of America reported its highest quarterly net interest income in at least a decade as the lender reaps the benefits of the Federal Reserve's interest rate hikes, and debt traders beat analysts' estimates.

NII, a key source of revenue for the bank, rose 24% to $13.8 billion in the third quarter on higher rates and loan growth. Analysts had expected a roughly 23% increase for NII, the revenue the bank collects from loan payments minus what it pays depositors. Higher loan revenue combined with an increase in trading revenue helped earnings beat analysts' expectations.

"We continued to see strong organic client growth across our businesses, with increased client activity helping to drive revenue up by 8%," Chief Executive Brian Moynihan said in a statement Monday. "Our U.S. consumer clients remained resilient with strong, although slower-growing, spending levels and still maintained elevated deposit amounts."

The results offer another look at how Wall Street fared through a choppy quarter marked by consumer strength, capital-markets weakness and a gloomy economic outlook. Last week, JPMorgan Chase, Morgan Stanley, Citigroup and Wells Fargo all posted gains in net interest income, with some raising their NII forecasts for the rest of the year.

The lender's noninterest expenses rose 6% from a year earlier to $15.3 billion. Costs have been a focal point for investors this year after executives said they expect them to drop in future quarters.

The bank's traders beat estimates, with bond-trading revenue rising 27% to $2.55 billion and equity trading down 4% to $1.54 billion. The third quarter saw dramatic market swings tied to interest rate hikes, surging inflation, recession fears and Russia's war in Ukraine.

Investment-banking revenue fell 46%, better than the 47% drop analysts were expecting, as the same market tumult that drove trading up also led to muted dealmaking. Fees for advising on mergers and acquisitions declined 34%, and revenue from equity and debt issuance dropped 76% and 34%, respectively.

The company's loan balances rose to $1.03 trillion at the end of the third quarter, up 12% from a year earlier and slightly less than analysts' estimates of roughly $1.04 trillion. Lending has been a key focus for investors, with government-stimulus payments undercutting borrowing by companies and consumers during the pandemic, and rising interest rates making loans costlier.

Also in Bank of America's third-quarter results:

  • Net income fell 7.9% to $7.08 billion, or 81 cents a share. Analysts expected 78 cents a share, the average analyst estimate in a Bloomberg survey.
  • Companywide revenue rose 7.6% to $24.5 billion, more than analysts' estimates of $23.6 billion.
  • Bank of America increased provisions for credit losses by $898 million. That follows a $523 million buildup in the previous three months.
  • Client balances in the Merrill Lynch Wealth Management business fell 13% to $2.71 trillion.
Bloomberg News
Consumer banking Earnings Interest rates
MORE FROM AMERICAN BANKER