Bank of America tops profit estimates on better-than-expected interest income

Bank of America topped estimates for third-quarter profit on Tuesday on stronger-than-expected interest income.

Here’s what the company reported:

• Earnings per share: 90 cents vs. expected 82 cent estimate from LSEG, formerly known as Refinitiv
• Revenue: $25.32 billion, vs. expected $25.14 billion

Profit rose 10% to $7.8 billion, or 90 cents per share, from $7.1 billion, or 81 cents a share, a year earlier, the Charlotte, North Carolina-based bank said in a release. Revenue climbed 2.9% to $25.32 billion, edging out the LSEG estimate.

Bank of America said interest income rose 4% to $14.4 billion, roughly $300 million more than analysts had anticipated, fueled by higher rates and loan growth. The bank’s provision for credit losses also came in better than expected, at $1.2 billion, under the $1.3 billion estimate.

Shares of Bank of America rose 2.4% in midday trading.

The results show Bank of America avoided major pitfalls related to loan losses and higher rates, analyst Mike Mayo of Wells Fargo wrote in a note. He called it an “okay quarter” that fell short of JPMorgan and Citigroup’s results.

CEO Brian Moynihan said the second biggest U.S. bank by assets continued to grow, despite signs of an economic slowdown.

“We added clients and accounts across all lines of business,” Moynihan said. “We did this in a healthy but slowing economy that saw U.S. consumer spending still ahead of last year but continuing to slow.”

Bank of America was supposed to be one of the biggest beneficiaries of higher interest rates this year. Instead, the company’s stock has been the worst performer among its big bank peers in 2023. That’s because, under Moynihan, the lender piled into low-yielding, long-dated securities during the Covid pandemic. Those securities lost value as interest rates climbed.

That’s made Bank of America more sensitive to the recent surge in the 10-year Treasury yield than its peers — and more similar to some regional banks that are also nursing underwater bonds.

Unrealized losses at the lender deepened in the quarter, reaching $131 billion on its portfolio of held-to-maturity bonds. Most of the losses were tied to mortgage securities.

“Clearly, this held-to-maturity portfolio has been a thorn in the side of the stock,” UBS analyst Erika Najarian said during Tuesday’s conference call as she prodded management for more details on the bank.

The situation has pressured the bank’s net interest income, or NII, which is a key metric that analysts will be watching this quarter. In July, the bank’s CFO, Alastair Borthwick, affirmed previous guidance that NII would be roughly $57 billion for 2023.

On Tuesday, Borthwick told analysts that the “good news” on net interest income is that it will trough in the fourth quarter and begin to grow again in the middle of 2024.  

Bank of America stock had fallen 18% this year through Monday, trailing the 10% gain of rival JPMorgan Chase.

Last week, JPMorgan, Wells Fargo and Citigroup each topped expectations for third-quarter profit, helped by better-than-expected credit costs. Morgan Stanley is scheduled to post results Wednesday.  

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Correction: Alastair Borthwick is CFO of Bank of America. An earlier version misspelled his name.