Bank of America profit grows, but says growth is a struggle
NEW YORK (AP) — Bank of America reported higher profits on better performance in consumer banking and lower costs, but the bank acknowledged that it is struggling to increase revenue despite an improving U.S. economy.
BofA said Tuesday it earned a profit of $3.01 billion, or 28 cents per share, after payment of dividends to preferred shareholders. That’s an improvement of nearly 10 percent over the $2.74 billion, or 25 cents per share the bank earned during the same period last year. The results beat expectations. Analysts surveyed by Factset expected earnings of 27 cents per share, on average.
For the year, Bank of America earned $14.41 billion, up from $3.38 billion a year earlier.
BofA CEO Brian Moynihan said in a prepared statement that results for the year, which were the highest earnings in a decade for the bank, were the result of “doing more business with each customer and client.”
But in a conference call with investors, the bank’s Chief Financial Officer Paul Donofrio said that growing company revenue has been difficult. Bank of America is more heavily exposed to low interest rates than other big banks because it depends so heavily on its large retail banking business, and less so on trading.
“Although the U.S. economy is improving slowly, revenue growth remains challenging,” he said.
It’s a problem shared by much of corporate America in recent quarters, and it is a major concern for investors.
For example, revenue at BofA’s consumer banking business, by far its largest business, rose by just 0.4 percent in the quarter to $7.79 billion The division was able to boost profits, though, by 9 percent. It reported net income of $1.8 billion, versus $1.65 billion a year earlier, as deposits and loans grew in the quarter.
The bank’s trading division also did well compared with last year, despite choppy and difficult markets last quarter. The division, called “global markets,” had a profit of $185 million in the quarter versus a loss of $75 million a year earlier. Revenues for the division were $3.33 billion in the quarter, up from $3.01 billion.
The bank’s cost cutting efforts were the result in part of a reduction of employees by more than 10,000 people, or 5 percent, to 213,280 from 223,715 a year ago, mostly from its Legacy Assets and Servicing division. It also closed 129 branches, leaving the bank with 4,726. It was the fourth year in a row that BofA has cut its number of branches.
“Solid result in a tough quarter,” said Keith Horowitz, an analyst with Citigroup, in a note to investors.
Like several other banks, BofA had to set aside money to cover potential problems with its portfolio of energy loans because low oil prices have stretched the ability of some oil companies to pay their debts. Donofrio said the bank had $75 million in charge-offs in energy loans in the quarter. The bank has $21.3 billion in energy loans, 2 percent of the bank’s total loans, mostly to exploration and oilfield services companies.
Donorfio told investors that so far, the troubles in the energy sector have not led to defaults or financial strains in other sectors that the bank lends to.
As it has been for several quarters, BofA has been slimming down and selling off its Legacy Assets and Servicing business, which contains the bad mortgages and other investments that poisoned the bank’s balance sheet during the financial crisis. The number of mortgages delinquent 60 days or more was down 46 percent to 103,000 units.
BofA’s revenue in the quarter was $19.53 billion compared with $18.73 billion the year before.
Bank of America shares fell 3 cents, or 0.3 percent, to $14.42 in early trading.