Bank of America Earnings Get Boost From Trading

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Bank of America Corp. (NYSE: BAC) reported fiscal second-quarter results before markets opened Monday. The most heavily traded of the big bank stocks reported diluted earnings per share (EPS) of $0.36 on revenue of $20.4 billion. In the same period a year ago, the bank reported EPS of $0.45 on revenue of $22.34 billion. Second-quarter results also compare to the consensus estimates for $0.33 EPS on revenue of $20.41 billion.

Reported EPS includes $0.06 in market-related charges and quarterly revenues adjusted for certain items totaled $20.6 billion.

Credit loss provision totaled $1 billion in the quarter, up by $200 million compared with the same period in 2015. Net charge-offs declined by $83 million (8%) to $985 million. The drop in net charge-offs was attributed to lower charge-offs on nonperforming loan sales and no Department of Justice-related charge-offs in the consumer real-estate portfolio.

Non-interest expense dropped 3% to $13.5 billion. Litigation expenses increased from $175 million in the second quarter of last year to $270 million.

The bank did not provide guidance in its earnings release. The consensus estimate for third-quarter EPS is $0.34 on revenues of $20.97 billion. For the full year, the consensus calls for EPS of $1.25 on revenues of $82.06 billion.

The bank’s net interest margin slipped by 34 basis points year over year, from 2.37% to 2.03% as net interest income fell from $10.5 billion to $9.2 billion. Bank of America said a negative market-related adjustment of $1 billion is included in its reported figures.

The decline in net interest income is almost surely due to prevailing low interest rates. The bank’s sales and trading revenues rose 12% year over year and 13% sequentially, which Bank of America attributed to stronger performance globally across rates and currencies products, higher secondary trading in loans and securitized products, improved credit market conditions and strong retail demand for municipal bonds. An 8% decline in equity revenue was attributed to less Asian client activity.

Bank of America reported lower estimated Basel III Tier 1 transition common ratio of 10.6%, down from 11.2% in the second quarter of last year. The bank also raised its tangible book value per share by $1.66 to $16.68.

Shares traded higher by about 0.3% in the premarket Monday morning to $13.70. The current 52-week range is $10.99 to $18.48. Thomson Reuters had a consensus analyst price target of $17.09 before the results were announced.

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