Bank of America posts higher third-quarter profit as it cashes in on higher interest rates and strong loan demand

Bank of America posts higher third-quarter profit as it cashes in on higher interest rates and strong loan demand

Bank of America reported third-quarter earnings Monday that beat Wall Street expectations, sending its shares up as much as 3% in premarket trading.

Here are the key numbers:

  • income: $24.5 billion, versus a consensus estimate of $23.6 billion from analysts polled by Refinitiv
  • Adjusted Net Income: $7.1 billion versus an estimate of $6.3 billion
  • Adjusted EPS: $0.81 versus the estimate of $0.77

Bank of America reported an 8% rise in net income to $24.5 billion as sales increased in three of its four major divisions. However, its net income fell 8% to $7.1 billion as profits fell in its global banking and wealth management segments.

The US banking giant’s net interest income rose 24% to nearly $14 billion on higher interest rates and strong demand for loans. But its non-interest income fell 8% to less than $11 billion as lower fees from investment banking and asset management more than offset higher sales and trading revenue.

In addition, the bank added a net $378 million to its loan reserves, likely because it expects an economic downturn to trigger a spike in loan defaults. It released $1.1 billion in reserves in the third quarter of last year.

“We continued to deliver strong organic client growth across our businesses, with increased client activity helping to increase revenue by 8%,” CEO Brian Moynihan said in a statement.

“Our US consumer clients remained resilient with strong, albeit slower growing spending levels and still maintaining increased deposit amounts,” he added.

Here is a breakdown of the performance of the bank’s four key divisions:

Bank of America’s core consumer banking division grew revenue 12% to $9.9 billion as higher balances and interest rates boosted net interest income. Net income rose just 1% to $3.1 billion, reflecting business investments and a nearly $500 million increase in loan loss provisions.

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The bank’s global wealth management and investment segment reported a 2% increase in revenue to $5.4 billion as higher net interest income was partially offset by lower market valuations. Net income fell 3% to $1.2 billion due to higher non-interest expenses.

Global banking revenue jumped 7% to $5.6 billion on higher interest rates and strong loan growth, partially offset by a 46% drop in investment banking fees to $1.2 billion. The division’s net profit fell 20% to $2.8 billion, mainly because it set aside $170 million to cover expected credit losses in light of a weaker macroeconomic outlook. In contrast, it released $781 million in reserves in the same period last year.

Finally, global market revenue fell 1% to $4.5 billion as a roughly 50% drop in investment banking fees more than offset a 13% increase in revenue and trading income. Segment net income rose 15% to $1.1 billion, reflecting lower non-interest expenses.

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