Bank of America’s (BAC) third-quarter profits rose 10% from a year earlier, as the second-largest U.S. bank benefited from higher interest income and strong performance from its Wall Street unit.
The company reported profits of $7.8 billion and revenue of $25.2 billion, up 3% from a year ago. Its net interest income, which measures the difference between what the company earns on its loans and what it pays on its deposits, rose 4% year over year.
Commercial and investment banking revenues also rose, a sign that the slump in dealmaking is beginning to ease.
CEO Brian Moynihan said: “We did this in a healthy but slowing economy, where U.S. consumer spending was still above last year but continued to slow.”
Brian Moynihan, CEO of Bank of America. Portal/Evelyn Hockstein
Investors have been focused on Bank of America’s performance compared to its peers this year. The stock hit a three-year low in October and has trailed JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) since the start of the year.
Bank of America shares rose 2% in Tuesday afternoon trading.
The other competitors also recorded an increase in profits in the third quarter, which was primarily due to rising interest income.
However, investors are concerned about how Bank of America’s investment portfolio will fare during this extended period of elevated interest rates.
Bank of America is paying for its decision to pour hundreds of billions into longer-dated Treasury and mortgage bonds in the early days of the pandemic, when banks were flooded with new deposits.
The value of these holdings fell when the Federal Reserve began raising interest rates, meaning the bank earned less on its investments.
Read more: What the Fed’s pause on rate hikes means for bank accounts, CDs, loans and credit cards
As of June 30, the company recorded paper losses on these debt securities of more than $109 billion, and that number rose to $136 billion by the end of the third quarter.
Analysts do not expect Bank of America to need to sell these holdings and are therefore booking a loss.
The story goes on
Bank of America also showed signs that some of its customers are facing difficulties as credit costs rise. Net depreciation and amortization was $931 million, up 79% from the same period last year. Funds set aside for future loan defaults also increased.
The bank’s chief financial officer, Alastair Borthwick, also urged caution over hopes of a new boom in investment banking.
“We have not yet seen confidence in the stock market necessarily return in the same way,” he said. “It may not be the time that people have decided to take their company public yet. There’s been more of that in recent quarters, but we haven’t quite returned to that kind of confidence yet.”
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