Bank of America (NYSE: BAC) shares were 14% higher following the company's Q3 earnings in which the company exceeded analysts' estimates on the top and bottom lines. Similar to other big banks, the earnings beat was driven by a strong performance from its bond trading division and higher, while loan demand stayed strong.
Although Bank of America is a diversified bank, its traditional retail banking operations are a greater share of its overall business than banks like JPMorgan Chase (NYSE: JPM) or Goldman Sachs (NYSE: GS). And, borrowing and lending become more profitable with higher rates due to a wider spread. This was more than enough to offset the steep decline in investment banking revenue and a modest decline for equities.
Inside the Numbers
In Q3, Bank of America reported earnings per share of $0.81 which beat expectations of $0.77 per share. Revenue also topped expectations at $24.6 billion vs $23.6 billion. Compared to last year's Q3, earnings were down by 8% and revenue was slightly higher.
The company attributed its earnings and revenue beat to strong loan demand and fixed-income trading. In a statement accompanying the release, Bank of America CEO Brian Moynihan said, "Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts. Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients."
Net interest income came in at $13.9 billion well above estimates of $13.6 billion and 24% higher than last year. Net interest margin also increased to 2.06% from 1.86% in the previous quarter.
Revenue from bond trading increased by 27% to reach $2.6 billion which was above consensus estimates of $2.24 billion. On the other side of the ledger, investment banking revenue was down 46% at $1.2 billion.
Like other Wall Street banks, Bank of America didn't see a spike in defaults but it's setting aside reserves. Overall, it allocated $900 million with a combination of charge-offs and $378 million in loan loss reserves.