If you care about money, the economy and corporate America, earnings season matters. USA TODAY’S Matt Krantz breaks it down.
Bank of America (BAC) shares rose Monday after the nation’s second-largest lender reported that second-quarter profits jumped 33 percent from last year, driven by the federal tax overhaul and rising interest rates.
The stock was 1.3 percent higher at $28.90 before U.S. financial markets opened.
The Charlotte, North Carolina-based bank was the third major lender to issue results that topped Wall Street forecasts, after upbeat reports from JPMorgan Chase and Citigroup last week. Only Wells Fargo bucked the trend with lower than expected results.
Like other big banks, Bank of America saw its tax bill drop substantially following last year’s finalization of sweeping federal tax changes by Congress and President Donald Trump’s administration.
The bank paid $1.71 billion in income taxes during the quarter, down from $3.02 billion in the same period a year earlier.
Chairman and CEO Brian Moynihan said the financial giant used some financial benefits from the tax overhaul to invest in the company and begin an additional $500 million technology investment that will be spread over the next several quarters.
Bank of America similarly has benefitted in recent years not only from an improving balance sheet — nearly all of the toxic assets from the financial crisis are now gone — but also from rising interest rates.
The bank is among the most sensitive to changes in interest rates among the nation’s big financial institutions because it does so much consumer banking. The Federal Reserve has also pushed interest rates higher, another plus.
Net interest income across the bank rose $664 million, or 6 percent, compared with a year earlier.
While being able to charge borrowers more for loans, Bank of America has also been able to hold down the amount of money it has been paying to depositors. The bank is paying an average of 0.38 percent across all of its U.S.-deposits, up from 0.11 percent a year earlier, and from 0.30 percent during the first quarter, but still well below its competition.
However, the bank may have to start paying more for deposits in the future.
“We have been paying more for deposits, but the industry has yet to pay more on traditional bank accounts,” said Paul Donofrio, the bank’s chief financial officer, in a conference call with media reporters. “It’s a competitive world, and rates are going up, so I expect to see we will pay more down the road.”
For the April-to-June period, the banking giant reported earnings of $6.78 billion, or 63 cents per share, up from $4.75 billion, or 44 cents a share, in the same period a year earlier.
The result topped the 57 cents and nearly $5.84 billion forecast of financial analysts surveyed by Bloomberg.
Second-quarter revenue, net of interest expense, decreased 1 percent, to $22.6 billion, compared to the same period last year. However, the 2017 second-quarter result was boosted by a $793 million pre-tax gain based on the sale of the bank’s non-U.S. consumer card business.
Even with the revenue decline, the result topped the $22.0544 billion forecast in the analyst survey.
However, the upbeat results haven’t translated into a significant boost in the bank’s stock performance, Bank of America shares are 3.3 percent lower year-to-date.
Contributing: Kevin McCoy USA TODAY
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