Third quarter profits at Bank of America (BAC) were up 10% from a year ago, as the second-largest US bank got a boost from higher interest income and a strong performance from its Wall Street unit.
It reported earnings of $7.8 billion and revenue of $25.2 billion, which was up 3% from a year ago. Its net interest income, which measures the difference between what it makes on its loans and pays for its deposits, rose 4% year over year.
Its trading and investment banking revenues were also up, a sign that a slump in dealmaking is starting to thaw.
CEO Brian Moynihan said: "We did this in a healthy but slowing economy that saw US consumer spending still ahead of last year but continuing to slow."
Investors have been focused on Bank of America’s performance this year as compared to its peers. Its stock hit a three-year low in October and is trailing JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) since the beginning of the year.
Bank of America's stock rose 2.3% Tuesday.
Its other rivals also reported rises in third quarter profit due largely to rising interest income.
But one concern from investors is how Bank of America's investment portfolio is faring during this extended period of elevated interest rates.
Bank of America is paying for a decision to pile hundreds of billions into longer-dated Treasurys and mortgage bonds during the early days of the pandemic when banks were awash in new deposits.
The value of those holdings went down once the Federal Reserve began raising rates, meaning the bank is earning less from its investments.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
It amassed more than $109 billion in paper losses on those debt securities as of June 30, and that number rose to $136 billion as of the end of the third quarter.
Analysts don’t expect Bank of America to have a need to sell those holdings, and therefore book a loss.
There were also some signs from Bank of America that some of its customers are running into problems as borrowing costs rise. Its net charge-offs were $931 million, up 79% from the year-ago period. The money it set aside for future loan losses also rose.
The bank's CFO, Alastair Borthwick, also urged caution about hopes for a new boom in investment banking.
"We haven't yet seen that confidence return to the equity capital markets necessarily in the same way," he said. "It may not be the time when people have decided yet to do their IPO for their company. There's been more of that in the past couple of quarters, but we haven't yet fully returned to that kind of confidence."
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