Bank of America Corp (BAC.N) posted a higher-than-expected quarterly profit on Wednesday, fueled by growth in its consumer and wealth management arms, underscoring the bank's progress in businesses it picked up during the financial crisis.
Profit at its largest unit, the consumer and business bank, soared 32 percent as revenue rose, credit costs fell, and the bank sold additional products to its existing customers. It issued more than one million credit cards during the quarter, the highest number since 2008, and nearly two-thirds went to existing customers.
"We feel like a lot of the work that we have been doing in that segment has paid off," Chief Financial Officer Bruce Thompson told reporters on a conference call.
Bank of America has been trying to improve retail banking and brokerage results ever since it acquired Merrill Lynch at the height of the financial crisis. A key part of that plan is selling more products to customers, which Chief Executive Brian Moynihan hopes to do as he tries to build revenue.
NOT ALL ROSY
There were negatives in the third quarter, including expenses that surpassed some analysts' forecasts, and weakness in three of the bank's five major businesses. Excluding gains and losses from changes in the value of the bank's debt, revenue in the quarter fell 1.5 percent to $22.19 billion.
The second-largest U.S. bank also reported a 71 percent slide in mortgage income as higher interest rates made refinancing less attractive. Many of the bank's peers have also seen declines, but Bank of America's looked particularly dramatic.
The bank made $22.6 billion in home loans in the quarter, down 11 percent from the second quarter.
Moynihan said on a conference call that the bank expects mortgage loan production to fall again in the fourth quarter. He said the bank would continue to reduce mortgage banking staff with the decline in volume.
"It'll never be a huge business for this company," given the competition and thin profit margins, Moynihan said.
Bank of America acquired mortgage lender Countrywide Financial Corp in July 2008, a disastrous deal that has cost the bank more than $40 billion in legal settlements and other charges.
Bank of America earned net income attributable to common shareholders of $2.22 billion, or 20 cents per share, in the third quarter, beating analysts' average estimate of 18 cents per share, according to Thomson Reuters I/B/E/S.
In the year-earlier quarter, the bank recorded a net loss attributable to common shareholders of $33 million due to accounting adjustments, litigation expenses and tax charges.
In the latest quarter Bank of America was helped by the improved performance of its loan portfolio. It wrote off $1.69 billion of loans, down from $4.12 billion a year earlier.
With loans performing better and delinquencies falling across all consumer portfolios, it set aside $296 million to cover bad loans, compared with $1.77 billion in the same quarter last year.
Thompson said loan losses would decline further in the fourth quarter and stabilize next year at $1.5 billion per quarter.
Sales and trading revenue for the bank's fixed income, currency and commodities business, excluding an accounting adjustment, fell by $501 million to $2.0 billion due to lower bond-trading volumes for much of the quarter.
Fixed-income traders were inactive for several weeks leading up to the Federal Reserve's meeting in mid-September in the expectation that the central bank would announce that it was starting to wind down its bond-buying stimulus program.
Bank of America sold its remaining stake in China Construction Bank Corp (601939.SS) for $1.47 billion in September, contributing $750 million pre-tax to the bottom line.
Bank of America shares have risen 23 percent this year, in line with gains in the KBW index of bank stocks .BKX. The shares were up 2.6 percent at $14.60 in midday trade.