Shares of Bank of America (BAC 0.92%) were trading roughly 6% higher at 10:23 a.m. ET today after the bank reported earnings results for the third quarter of the year.
Bank of America reported diluted earnings per share of $0.81 on total revenue of $24.5 billion, both numbers that beat analyst estimates for the quarter.
One of the big stories in the quarter was net interest income (NII), which is the profit banks make on loans and bonds after covering the cost to fund those assets. Thanks to the higher-interest-rate environment, which is increasing the yields on many bank loans and bond holdings, NII for the quarter came in at $13.8 billion, $1.4 billion higher than the previous quarter. That blew away management's previous guidance for NII to rise by up to $1 billion from the second quarter.
The bank also took a $900 million provision for credit losses, which was composed of a $400 million reserve build and about $500 million of net charge-offs, debt unlikely to be collected and a good indicator of actual loan losses. Still, charge-offs in the quarter were lower than in the second quarter.
Investment banking continued to struggle as in the rest of the industry, with Bank of America generating roughly $1.17 billion in investment banking fees, down roughly 46% year over year. Sales and trading revenue, particularly in fixed income, continued to come in solid amid the volatility.
Like its peers, Bank of America produced a solid quarter. Credit quality is still benign (for now), investment banking continues to struggle, and NII came in quite strong.
While I haven't listened to the earnings call yet, I would expect management's NII guidance for the full year to improve, given the continuing higher-rate environment. I continue to believe the stock is a buy.