Bank of America (NYSE: BAC) shares were 7% higher following the company's very strong Q3 earnings report in which Bank of America topped analysts' estimates across the board. Bank of America has also been benefiting from recent strength in short-term rates and the steepening of the yield curve.
However, the bulk of earnings growth for Bank of America came from asset management and investment banking as these divisions benefited from strong equity markets and a robust IPO market. Bank of America's more Main Street-facing operations did well but not to the same extent. This was similar to other recent bank earnings in addition to the release of loan loss reserves.
Inside the Numbers
In Q3, Bank of America posted $0.85 in earnings per share, beating expectations of $0.71 cents a share. Revenue came in at $22.87 billion vs estimates of $21.8 billion. Overall, profit grew by 58%, while revenue increased by 12%. The company had $1.1 billion come out of reserves while it wrote off $624 million.
Net interest income increased by 10% to $11.1 billion, above estimates of $10.6 billion. Another closely watched figure is loan balance which increased by 9% from the last quarter due to strength in commercial loans. This measure has lagged considerably through the recovery so investors are likely encouraged by this measure for what it means for the economy and for the bank. Bank of America's management also seems confident that loan growth will continue to improve.
However, Bank of America's earnings and revenue growth is largely due to investment banking and wealth management. Investment banking fees jumped 23% to $2.2 billion, due to a 65% surge in advisory fees to a record $654 million. Analysts were looking for $2 billion in investment banking revenue.
Trading exceeded expectations also. Bond trading revenue declined 5% to $2 billion, slightly above estimates. Equities trading surged 33% to $1.6 billion, above estimates of $1.45 billion. Wealth management saw a 17% increase in revenue to $5.3 billion.
Stock Price Outlook
Bank of America's strong results isn't surprising considering that all bank stocks are reporting strong earnings. In the short-term, Bank of America's stock is likely to track short-term rates which look ready to breakout higher given catalysts such as declining case counts, the reconciliation bill, and infrastructure package. It is also attractively priced with a P/E of 14.8 and a 1.8% dividend yield.