Bank of America profits rise 10%

Bank of America’s (BAC) third-quarter profit rose 10% from a year ago, as the second-largest U.S. bank got a boost from higher interest income and a strong performance from its Wall Street unit.

It reported profits of $7.8 billion and revenue of $25.2 billion, up 3% from last year. Net interest income, which measures the difference between what it makes on its loans and what it pays for its deposits, rose 4% year-on-year.

Its revenues from investment and commercial banking also rose, a sign that the slack in deal-making is beginning to ease.

“We did this in a healthy but slowing economy, where U.S. consumer spending remained ahead of last year but continues to slow,” CEO Brian Moynihan said.

Investors have focused on Bank of America’s performance this year 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) year-to-date.

Bank of America stock rose 2% in afternoon trading Tuesday.

Its other competitors also reported higher third-quarter profits, largely due to higher interest income.

But one concern for investors is how well Bank of America’s investment portfolio will perform during this extended period of high interest rates.

Bank of America is paying the price for the decision to pile hundreds of billions into longer-term Treasuries and mortgage bonds during the early days of the pandemic when banks were awash with new deposits.

The value of those holdings fell once the Fed started raising interest rates, meaning the bank earned less on its investments.

Read more: What a pause on federal interest rate hikes means for bank accounts, CDs, loans and credit cards

It had accumulated more than $109 billion in paper losses on those debt securities as of June 30, and that number had risen to $136 billion as of the end of the third quarter.

Analysts do not expect Bank of America to have a need to sell those properties and thus record a loss.

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There were also some signs from Bank of America that some of its clients were facing problems with rising borrowing costs. Net amounts deducted amounted to $931 million, an increase of 79% over the same period last year. The money you set aside for future loan losses has also increased.

The bank’s chief financial officer, Alistair Borthwick, also urged caution about hopes for a new boom in investment banking.

“We have not yet seen confidence return to capital markets necessarily in the same way,” he said. “This may not be the time when people decide yet to go public with their company’s IPO. There’s been more of that in the last couple of quarters, but we’re not yet fully back to that kind of confidence.”

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