Higher interest rates may be hurting the housing industry, but major banks are seeing the benefits on their balance sheets.
Bank of America, the nation’s second-largest bank by assets, reported net income of $7.1 billion, or 81 cents per diluted share, for the third quarter of 2022, beating analysts’ expectations of 78 cents per diluted share.
The third-quarter results were up 14.5% from $6.2 billion in the second quarter, but down 7.8% from net income of $7.7 billion in the third quarter of last year.
Net revenue increased 8% to $24.5 billion, the bank said, as net interest income rose $2.7 billion, or 24%, to $13.8 billion. BofA said that was driven by benefits from higher interest rates, including lower premium amortization expense, and solid loan growth.
Non-interest income was $10.7 billion, down $935 million, or 8%, as higher sales and trading revenue was more than offset by lower investment banking and asset management fees, as well as lower service charges, the bank said.
The bank also increased its net reserves by $378 billion, after releasing $1.1 billion in reserves in the third quarter of last year. Net charge-offs increased 12% to $520 million in the quarter.
BofA and other major banks that have reported third-quarter earnings, including JPMorgan Chase and Wells Fargo, have benefited from rate increases imposed by the Federal Reserve as it tries to rein in rampant inflation. The Fed raised its benchmark federal funds rate by 75 basis points in July, August, and September, which has increased what banks can charge in interest for consumers and indirectly boosted mortgage rates to their highest levels in 20 years.
The higher mortgage rates, however, have reduced loan originations. BofA reported that, during the third quarter, its residential mortgage loan originations totaled $8.7 billion, down 40% from $14.5 billion in the second quarter and down 59% from $21.2 billion in the same quarter last year.
On the flip side, home prices have continued to rise, boosting the equity homeowners can draw upon. BofA said its Home equity lending totaled $2.4 billion in the third quarter; while that was down 4% from $2.5 billion in the second quarter, it was up 60% from $1.5 billion in the third quarter of last year.
Brian Moynihan, BofA’s chairman and CEO, said the bank’s finances remain strong.
“We continued to see strong organic client growth across our businesses, with increased client activity helping to drive revenue up by 8%,” he said. “Our U.S. consumer clients remained resilient, with strong — although slower growing — spending levels, and still maintained elevated deposit amounts. Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients.”
The bank reported that its average deposits rose by $20 billion, or 1%, in the third quarter to $2 trillion.
BofA also noted that its expenses of $15.3 billion during the quarter included the settlement of its largest remaining legacy monoline insurance litigation. Chief Financial Officer Alastair Borthwick said during an earnings conference call that while the bank announced the settlement on Oct. 7 in a filing with the Securities and Exchange Commission, it recorded $354 million in litigation expenses in the third quarter related to the settlement.
