Actions of Bank of America (NYSE: BAC) climbed nearly 5% on Oct. 14 after the second-largest bank in the United States by assets reported third-quarter results above expectations. Meanwhile, the shares of other major banks, such as JPMorgan Chase and Wells fargo, struggled to follow suit that day. The bank said diluted earnings per share of $ 0.85 on revenue of nearly $ 22.8 billion, two figures higher than analysts’ estimates. Here are four reasons the market appreciated Bank of America’s third quarter results.

1. Net interest income on track

Net interest income, that is, interest earned on loans and securities after deducting interest charges on deposits and other liabilities, finally showed signs of strength in the third quarter. This primary driver of banking revenue was about $ 11.2 billion in the third quarter, up about $ 1 billion from the third quarter of 2020 and about $ 900 million from the second quarter of this year. year. While there was some loan growth in the quarter, net interest income benefited from an extra day in the quarter, increased deposit growth, lower amortization charges bonuses and over $ 300 million in interest income from Paycheck Protection Program loans. CFO Paul Donofrio said on the bank’s earnings conference call that Bank of America is back on track to meet the projection it made in early 2021, when it said that fourth quarter net interest income is expected to exceed the first quarter’s $ 10.3 billion by $ 1. billion.

For the fourth quarter, Donofrio said he expects less interest income on Paycheck Protection Program loans, but that decline is expected to be offset by modest loan growth, by investing more excess cash in securities and slightly lower expenses related to amortization of premiums.

2. Lowest quarter of spending this year

For the first time in several quarters, high spending was not the focus of Bank of America’s earnings call. Sure, they were discussed, but analysts weren’t as concerned about them, in large part because Bank of America had a much better quarter. Spending in the last period was $ 14.4 billion, about $ 600 million lower than in the second quarter, and the bank had an efficiency ratio, or total spending as a percentage of total revenue, 63% (lower is better).

Image source: Bank of America investor presentation.

Investors and analysts would like to see this efficiency ratio drop below 60%, but this is certainly an improvement. Management attributed the best quarter to the absence of some one-time expenses during the quarter and lower costs related to the pandemic. And for the first time since the start of the pandemic, the bank has grown revenues faster than expenses, increasing operating leverage. Management believes there are still expenses related to COVID-19 that the bank can rule out. The goal is to limit net expense growth to 1% to 2% per year as revenues grow faster, further increasing operating leverage.

3. The credit is superb

In what appears to be an industry-wide trend, Bank of America’s credit quality continues to improve. Net write-offs (debt unlikely to be repaid and a good indicator of actual losses) of total loans fell from 0.27% in the second quarter to 0.2% in the third quarter. Donofrio said it was the lowest the bank had seen in 50 years. As credit quality improves and the economic outlook remains positive, the bank released $ 1.1 billion from previously set aside reserves for loan losses. This returned in profit, providing a net profit of $ 624 million. There could also be more reserve releases on the horizon, with the bank’s total allowance for credit losses still higher than before the pandemic.

4. The investment bank is buzzing

Bank of America’s global banking unit, which houses its investment banking business, continued to perform very well. Company-wide investment banking fees were $ 2.2 billion in the quarter, driven by increased merger and acquisition activity, a trend seen in the investment banking sector. Third-quarter investment banking fees were the second highest on record, falling just short of record fees generated by the bank in the first quarter of this year. Bank of America now has a 6.9% market share in investment banking fees, ranking fourth, the bank said. Looking ahead, CFO Donofrio said the investment banking pipeline remains strong.