Bank of America’s quarterly profit increases 58% due to higher interest income

Bank of America Corp.

BAC 3.70%

said Thursday that earnings rose 58% in the third quarter, suggesting banks’ lending business is starting to improve from a pandemic slump.

The bank released $ 1.1 billion of the reserves it had earmarked for pandemic loan losses to boost its bottom line. Sales increased by 12% compared to the same period of the previous year.

Bank profits rose in large part last quarter as the U.S. economy recovered so quickly from the pandemic recession. Banks set aside billions of dollars last year to prepare for a wave of loan defaults, but now they are releasing the money they had pledged. This contributed to double-digit earnings growth at JPMorgan Chase & Co., Citigroup Inc.

and Wells Fargo & Co. Stock trading and a boom in business transactions also boosted profits.

Much of the country’s economic activity flows through Bank of America and its competitors, providing a real-time view of how consumers and businesses are recovering from the pandemic. Despite an improving economy, banks have struggled to expand their loan books this year. Total outstanding loans at Bank of America and Wells Fargo were lower than a year ago and were unchanged at Citigroup.

Still, bank managers said they are seeing signs that consumers and businesses are having an increasing appetite for debt. Bank of America said its consumer and small business customers were spending well above pre-pandemic levels.

The bank’s outstanding loans and leases at the end of the third quarter were $ 927.74 billion, a slight increase from the second quarter but a decrease of 3% year over year. Without the government loan outflow under the paycheck protection program, the bank’s loan portfolio would have grown nearly 2% since the second quarter.

Commercial lending within the US and abroad increased year over year. In addition, more people took out loans against their stock portfolios. Securities lending to wealth management clients increased by around a quarter over the past year.

The bank benefited from a rebound in net interest income, which includes the money it makes on loans and holdings of debt such as mortgage-backed securities. Net interest income increased 10% year over year to $ 11.1 billion.

“We expect further credit growth on all of our products,” said Paul Donofrio, the bank’s outgoing chief financial officer, on a call with reporters on Thursday.

Bank of America’s noninterest income, which includes fees, increased 14% year over year to $ 11.67 billion.

A boom in mergers and acquisitions helped raise investment banking fees across the industry. Consultancy fees have more than tripled at Morgan Stanley and Citigroup and more than doubled at JPMorgan. At Bank of America, they were up 65%. Wall Street giant Goldman Sachs Group Inc.

reports result Friday.

Bank of America’s deal makers have often lagged behind their peers, but Donofrio said the pipeline of deals remained robust well into the fourth quarter.

Equity trading revenues rose almost consistently for banks, while fixed income trading slowed. JPMorgan and Citigroup both reported a 5% decrease in total trading revenue; Morgan Stanley reported a 6% increase.

Bank of America had a total of $ 3.63 billion in adjusted trading revenue, up 9% year over year.

Overall, the second largest US bank earned $ 7.69 billion compared to $ 4.88 billion in the same period last year. Earnings per share of 85 cents exceeded the 71 cents expected by the analysts surveyed by FactSet.

Revenue was $ 22.77 billion, up 12% from $ 20.34 billion last year. That exceeded analysts’ expectations for sales of $ 21.68 billion.

Analysts and investors have also kept an eye on spending, which has increased over the past few quarters. Noninterest expenses were roughly unchanged from last year at $ 14.44 billion.

Bank of America’s stock was trading 3.1% higher on Thursday afternoon.

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Write to Ben Eisen at ben.eisen@wsj.com

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