Bank of America posts strong Q3 earnings supported by consumer loan growth

Bank of America published positive third quarter (Q3) results, with net income up 32% to $7.2 billion, bolstered by US tax reform, while revenues increased by 4% to $22.8 billion, driven by rising rates and consumer loan growth helping to counterbalance weaker bond trading.

‘Responsible growth, backed by a solid US economy and a healthy US consumer, combined to deliver the highest quarterly pre-tax earnings in our company’s history,’ CEO Brian Moynahan said in the earnings report.

US President Donald Trump’s tax reform has helped spur income growth across the US banking sector, with Bank of America paying a rate of 20% in Q3 18, compared to the 29% it paid in the same quarter last year.

The Federal Reserve has risen rates several times in the last two years which has given US lenders the ability to increase charges on new and existing loans. This trend has helped Bank of America’s consumer loans business grew by 6% to $285 million.

Conversely, the string of rate hikes has negatively impacted the lender’s share price as investors grow concerned the bank will have to pay depositors more, resulting in shrinking profit margins.

The bank’s share price in the last month fell by 6% and currently hovering around $27.85 a share. Total deposits rose about 5% to $1.35 trillion.

Overall, the strength of its balance sheet has allowed the lender to return $19 billion to shareholders via a mix of dividends and share buybacks this year.

‘Our earnings growth year-over-year was driven by operating leverage, asset quality, and a lower tax rate,’ CFO Paul Donofrio said.

‘Responsible growth is also reflected in our asset quality where we reported a net charge-off ratio near a decade-low, complemented by virtually all other credit metrics continuing to improve across both consumer and commercial loans.’