Bank of America Results Get Boost from Higher Rates -- 4th Update
July 18 2017 - 11:01AM
Dow Jones News
By Rachel Louise Ensign
Bank of America Corp. said its second-quarter profit climbed 10%
as the bank continued to pocket gains from Federal Reserve rate
hikes.
Quarterly profit at the Charlotte, N.C.-based bank was $5.27
billion, compared with $4.78 billion a year ago. Per share,
earnings of 46 cents beat the 43 cents a share that analysts
expected.
Second-quarter revenue was $22.83 billion, up from $21.29
billion a year ago. On an adjusted basis, revenue was $23.07
billion, compared with analysts' expectations of $21.78
billion.
Bank of America's large base of U.S. deposits and rate-sensitive
mortgage securities makes it particularly poised to benefit from an
uptick in interest rates, which recently started rising after years
of record lows. But declining long-term bond yields and other
factors meant that the second quarter was a mixed bag for net
interest income, a key measure of lending profits.
On one hand, net interest income rose 8.6% from the year-ago
period to $10.99 billion. The lender was able to keep most of the
benefit from rising short-term rates because it hasn't faced
competitive pressure to increase deposit rates for customers.
The Federal Reserve raised short-term interest rates, which
influence the rate the bank earns on loans and securities, twice so
far in 2017. But the rate the bank paid on U.S. interest-bearing
deposits has barely budged: it stood at 0.11% in the second
quarter, compared with 0.09% in the prior quarter.
The rates the bank is paying depositors are "amazingly low,"
said Glenn Schorr, a bank analyst at Evercore ISI. Analysts have
attributed depositors' reluctance to chase higher yields at other
banks to a variety of factors including the convenience of BofA's
large branch network and digital capabilities.
But when compared with the first quarter of 2017, the bank's net
interest income metric was less impressive. The metric, which Bank
of America initially said would rise about $150 million, fell by
$72 million. In May, the lender said the sale of a business and a
reversal in long-term bond yields would eliminate most of that
projected gain.
On Tuesday, bank executives said they expected net-interest
income to rise in the third quarter from the second quarter. But
they declined to specify by how much. "I think we want to get out
of the game of putting size parameters on it," said Paul Donofrio,
the bank's chief financial officer.
Shares moved 1.5% lower in morning trading, sharper than the
fall in the KBW Nasdaq Bank Index but less dramatic than the 2.4%
decline in shares of Goldman Sachs Group Inc., which also reported
earnings Tuesday.
Still, Bank of America shares are up more than 40% since the
November election. The initial share-price gains after Donald
Trump's surprise victory have been sustained as the lighter
regulatory touch investors hoped for has started to materialize. In
late June, Bank of America got Federal Reserve approval for a large
increase in its dividend and stock buybacks.
The lender, the second largest U.S. bank by assets, faced
challenges in the second quarter. Trading revenue at Bank of
America, excluding an accounting adjustment, fell 9% to $3.37
billion from $3.7 billion in the second quarter of last year. The
drop was, however, less than some analysts predicted. Similar
factors weighed on earnings reports from J.P. Morgan Chase &
Co. and other big lenders that reported their earnings on
Friday.
Loans at the bank were up 1.5% from a year earlier. Loan growth
has slowed down across the banking industry, though there's debate
about whether that has been caused by borrower reluctance or
lenders hoarding capital to meet regulatory requirements.
Quarterly expenses rose 1.7% to $13.73 billion, from $13.49
billion a year ago. Chief Executive Brian Moynihan has made cost
cutting a key tenet of his business strategy, and last year he
promised to cut another $5 billion in annual expenses by 2018.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
July 18, 2017 11:46 ET (15:46 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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