The Bank of America cost-cutting machine hummed along for another quarter.
The second-biggest U.S. lender said that second-quarter profit surged 33 percent to $6.8 billion, exceeding the $5.92 billion estimate of analysts surveyed by FactSet. Executives said it was the 14th straight quarter the firm posted positive operating leverage, or increased profit by turning levers including costs.
The Charlotte, North Carolina-based bank said it managed to increase revenue while cutting expenses more than analysts had expected. The lender trimmed costs by 5 percent to $13.3 billion, beating the $13.5 billion forecast of analysts surveyed by Thomson Reuters. Meanwhile, revenue rose 3 percent to $22.6 billion, compared to the $22.3 billion estimate, excluding a year ago-gain tied to a business sale. The company's earnings per share surged 43 percent to 63 cents per share, beating the 57 cent per share estimate.
Still, of all the figures on the bank's income statement for the quarter, the most stark change was a 43 percent drop in the bank's income taxes to $1.7 billion from $3 billion. That looked to be the single biggest factor in the bank's profit increase in the quarter. The administration's tax cut took effect this year.
The company's shares rose 0.9 percent in premarket trading in New York.
Chief Executive Officer Brian Moynihan has cleaned up much of the mess he inherited when a predecessor purchased subprime lender Countrywide Financial a decade ago. He has since focused on methodically reducing costs while looking for modest profit opportunities, often repeating his mantra of “responsible growth.” The firm benefited from a U.S. economy in growth mode, lower taxes after the administration's overhaul, higher interest rates and an environment in which consumers are still repaying loans.
The firm set aside $800 million for credit losses in the quarter, less than the $973.5 million expected by analysts. Non-performing loans fell half a billion dollars from the first quarter of 2018 on improvements in consumer and commercial debt.
"Responsible growth continued to deliver as a driver for every area of the company," Moynihan said in a statement. "We grew consumer and commercial loans; we grew deposits; we grew assets within our Merrill Edge business; we generated more net new households in Merrill Lynch; and we supported more institutional client activity — all of this while we continued to invest in our businesses and began an additional $500 million technology investment, which we intend to spend over the next several quarters, due to the benefits we received from tax reform.”
Still, the firm’s shares have trailed other banks and the broader stock indices this year, declining 3.3 percent before Monday. Analysts will be keen to see if the Charlotte, North Carolina-based firm is keeping pace with the industry’s loan growth and if its profit margins on loans is getting squeezed – two fears that have kept bank stocks down this year.
Here’s what Wall Street expected:
Earnings: 57 cents per share, 24 percent higher than a year earlier, forecast by Thomson Reuters
Revenue: $22.27 billion, 3.4 percent lower than a year earlier, forecast by Thomson Reuters.
Loans: $942 billion, 3.4 percent higher than a year earlier, forecast by Thomson Reuters.
This story is developing. Please check back for updates.
Bank of America CEO Brian Moynihan will appear on CNBC's "Mad Money" at 6 p.m. ET Monday, July 16.
