Bank of America's cost-cutting machine hummed another quarter.
The second-largest US lender said second-quarter earnings rose 33 percent to $ 6.8 billion, outperforming $ 5.22 billion in analysts surveyed by FactSet. Executives said it was the 14th consecutive quarter that the company had a positive operating leverage effect or increased profits by spinning leverage, including costs.
The Charlotte, North Carolina-based bank said it had managed to increase sales while expecting spending more than analysts. The lender reduced costs by 5 percent to $ 13.3 billion, outperforming $ 13.5 billion in forecasts by Thomson Reuters analysts. Meanwhile, revenue increased 3 percent to $ 22.6 billion, compared to an estimated $ 22.3 billion, excluding a year-over-year gain from a store sale. The company's earnings per share increased 43 percent to 63 cents per share, killing the estimate of 57 cents per share.
However, of all the bank's income statement figures for the quarter, the biggest change was a 43 percent drop in the bank's income taxes from $ 3 billion to $ 1.7 billion. This seemed to be the most important factor in the bank's profit increase in the quarter. The government's tax cut, which came into force this year, allowed the company to announce a new technology investment of $ 500 million, Bank of America said.
The shares of the company rose in pre-market trading in New York by 0.7 percent.
Chief Executive Officer Brian Moynihan has freed much of the chaos he inherited when a predecessor acquired subprime lender Countrywide Financial a decade ago. Since then, he has focused on methodically lowering costs while looking for modest odds and repeating his mantra "Responsible Growth." The company benefited from a high-growth US economy, lower taxes following the overhaul, higher interest rates and an environment in which consumers are still repaying loans.
The company provided $ 800 million for credit losses in the quarter, down from $ 973.5 million expected by analysts. Non-performing loans fell by half a billion dollars from the first quarter of 2018 on account of improved consumer and commercial debt. While the bank expanded loans and leases to $ 935.8 billion, it was below the $ 942 billion estimate.
"Responsible growth continued to be the driving force for all areas of the business," Moynihan said in a statement. "We raised consumer and commercial credit, increased deposits, built assets within our Merrill Edge business, generated more net new households in Merrill Lynch, and supported more institutional client activities."
Nonetheless, the company's stock has outperformed other banks and broader stock indices this year, dropping 3.3% before Monday. Analysts are eager to see if the Charlotte, North Carolina-based company can match the industry's credit growth and whether its credit margins will come under pressure – two fears that have curbed bank stocks this year.
What Wall Street Expects:
Earnings: 57 cents a share, 24 percent higher than a year earlier, predicts Thomson Reuters