BofA beats profit estimates on higher interest income, loan growth

(Reuters) - Bank of America Corp (BAC.N) reported better-than-expected fourth-quarter profit as higher interest income and loan growth eclipsed declines in revenue from investment banking and bond trading, sending its shares up 3 percent.

The second-biggest U.S. lender’s results were underpinned by the central bank’s four rate hikes in 2018 and a strong job market that kept bad loans in check and borrowing healthy. The U.S. Federal Reserve’s forecasts indicate two more rate hikes this year.

BofA relies heavily on higher interest rates to maximize profits as it has a large deposit pool and rate-sensitive mortgage securities.

Loans to consumers rose 4 percent, while those to businesses rose 2 percent, the bank said.

Total net interest income - the difference between what a lender earns on loans and pays on deposits - rose 7.3 percent to $12.3 billion. Average deposits rose nearly 2 percent to $1.34 trillion from the preceding quarter.

Adjusted sales and trading revenue fell 6 percent as a volatile market toward the end of 2018 made investors hesitant to make trades. Bond trading revenue fell 15 percent, overshadowing an 11 percent rise in equity trading.

Rivals JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) reported double-digit declines in bond trading revenue earlier this week, citing the market downturn in December and wider credit spreads.

Net income applicable to common shareholders rose to $7.04 billion, or 70 cents per share, in the fourth quarter ended Dec. 31 from $2.08 billion, or 20 cents per share, a year earlier, when it took a nearly $3 billion charge related to changes in the U.S. tax law.

Analysts on average were expecting the bank to earn 63 cents per share, according to IBES data from Refinitiv.

Revenue, net of interest expense, rose 11 percent to $22.7 billion.

Reporting by Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty