Adjusted earnings of $1.08 a share and revenue of $30.0 billion both came in below forecasts as trading and dealmaking slowed, while net interest income grew 8%. The bank booked the anti-money-laundering charge regulators announced on Tuesday.
Bank of America's quarter came with an asterisk, and the asterisk was not the only problem.
The second-largest U.S. bank reported third-quarter net income of $6.9 billion, or 91 cents a share, on Wednesday, down from $8.3 billion, or $1.04, a year earlier. The results include a $1.2 billion regulatory settlement charge, worth 17 cents a share, that is not tax-deductible. Excluding it, adjusted net income was $8.1 billion and adjusted earnings were $1.08 a share.
Analysts had expected $1.10 a share and $30.69 billion of revenue, according to LSEG. Revenue came in at $30.0 billion, up 3% from a year earlier. Adjusted earnings fell 2 cents short, and revenue, which the charge does not touch, missed by about $700 million.
Where the quarter went soft
The core lending business grew. Net interest income rose 8% to $16.4 billion, driven by higher loan and deposit balances, trading-related interest income and the repricing of fixed-rate assets, and the net interest yield widened 15 basis points to 2.16%.
The fee businesses did not keep pace. Noninterest income fell 2% to $13.5 billion. Global Markets revenue dropped 6% to $5.9 billion, and investment banking fees, excluding deals the bank led for itself, fell 11% to $1.8 billion. Wealth management was the bright spot, with revenue up 13% to $7.1 billion.
Costs rose faster than revenue. Noninterest expense climbed $2.4 billion to $19.7 billion, or $18.5 billion excluding the charge. The efficiency ratio was 66%, or 62% on an adjusted basis.
Credit and capital
Credit was steady. The provision for credit losses was $1.27 billion, down from $1.37 billion in the second quarter, and net charge-offs eased to $1.35 billion, or 0.44% of loans.
Capital slipped. The common equity Tier 1 ratio fell to 10.9%, 37 basis points lower than at the end of June, while the bank returned $8.3 billion to shareholders, including $6.0 billion of buybacks and $2.2 billion of dividends.
The penalty
Federal regulators on Tuesday imposed more than $1.21 billion of penalties on the bank for anti-money-laundering and sanctions violations. The Financial Crimes Enforcement Network assessed $1.2 billion, which credits a $750 million civil penalty from the Office of the Comptroller of the Currency, the largest in that regulator's history. A separate $11.6 million settlement covers apparent violations of sanctions programs including those on Iran and Russia. Treasury called the combined action the third-largest penalty in its history. Bank of America admitted willfully violating the Bank Secrecy Act. According to Treasury, it failed to file timely reports on more than $5 billion of suspicious transactions, more than $1 billion of which involved national-security and other priority risks. "The bank's poor response to its BSA deficiencies is unacceptable," Comptroller of the Currency Jonathan V. Gould said.
The bank said it has "invested billions of dollars in technology and dedicated thousands of employees to combat financial crime." It also said remediation costs are already "in the current expense base," which suggests the ongoing compliance bill is not a new line item, though the orders add independent reviews of past activity and monitoring. Chief Executive Brian Moynihan pointed elsewhere, to technology. "With more than 200,000 teammates using AI tools and 300-plus approved use cases across the company, we are turning our scale into a competitive advantage," he said. The stock. The shares closed Tuesday at $53.96, down 1.14%, before the penalties were announced. In premarket trading on Wednesday they were near $51.60 at about 7:20 a.m. Eastern, down about 4.4%.
Market implications
One reading is that the penalty is noise around a solid balance-sheet quarter. Net interest income grew 8%, the interest margin widened, credit costs fell from the second quarter, and the bank still bought back $6 billion of stock.
A second reading is that the miss runs deeper than the charge. Adjusted earnings and revenue both fell short, trading and banking fees declined, expenses grew far faster than revenue, and the capital ratio fell while the bank remains under a 2024 consent order that regulators say it has not yet fully met.
What to watch
Management's 8:30 a.m. call should address the outlook for net interest income, the pace of buybacks with a lower capital ratio, and whether the regulatory orders bring any limits on the business beyond the charge.