BAC Bank of America Corporation

By Rachel Louise Ensign 

Bank of America Corp. said Monday that second-quarter earnings rose 33%, as higher interest rates continued to lift the bank's results.

Quarterly profit at the Charlotte, N.C.-based bank, the second largest in the U.S. by assets, was $6.784 billion, compared with $5.106 billion a year ago. Per share, earnings were 63 cents. Analysts had expected 57 cents per share. Shares rose about 0.6% premarket.

The bank's second-quarter revenue fell slightly, to $22.609 billion, down from $22.829 billion a year ago, when the bank posted a one-time gain related to the sale of a business. Without that gain, revenue would have been up 3%. Analysts had expected revenue of $22.286 billion.

Earnings benefited from the recent corporate tax cut as well as interest rates. Rising rates are typically good for banks because lenders turn a profit on the difference between what they pay on deposits and the rate they collect on loans. In the quarter, the Federal Reserve raised its benchmark rate for a seventh time.

Banks have been able to pocket most of the benefits from the rate increases because customers aren't broadly demanding more interest on their deposits. The rate the bank paid on U.S. interest-bearing deposits was 0.38%, compared with 0.30% in the first quarter.

Loan growth, which has slowed across the banking industry since the 2016 presidential election, was 2% over the year-earlier period. Deposits, meanwhile, grew nearly 4% in the second quarter. The largest national banks have been able to continue growing deposits despite the fact that they are paying relatively low interest to retail customers.

Despite modest predictions during the quarter, trading revenue, excluding an accounting adjustment, rose nearly 7% to $3.596 billion from $3.369 billion in the second quarter of last year.

Quarterly expenses fell 5% to $13.284 billion, from $13.982 billion a year ago.

Bank of America's return on equity was 10.75% in the second quarter, above the bank's theoretical 10% cost of capital. The key metric has continued to improve at the bank, aided by the recent corporate tax cut. It stood at 7.75% in the second quarter of 2017.

After a huge run-up after the 2016 election, investors have shown little enthusiasm for bank stocks this year. Since the start of 2018, the KBW Nasdaq bank index is down 2%. Bank of America's shares are down 3.3% so far this year.

Investors have grown wary of bank stocks, analysts say, because of a bond-market development known as the flattening of the yield curve: a narrowing of the difference in the yields of shorter- and longer-term Treasurys.

A flatter yield curve can be bad for banks because they earn less on loans and securities tied to longer-term Treasurys. The narrowing also potentially signals problems ahead for the economy.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

July 16, 2018 08:14 ET (12:14 GMT)

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