Bank of America Beats Expectations

CHARLOTTE, N.C. – Overcoming continued low interest rates, Bank of America Corp. (BAC) on Monday posted second-quarter earnings that were 12 percent higher than the same period last year, driven by growth in card income and service charges.

The Charlotte-based bank, which recently agreed to purchase credit card company MBNA Corp. for $35 billion, said its net income rose to $4.3 billion, or $1.06 per share, from $3.85 billion, or 93 cents per share, during the year-ago period.

Revenue rose 7 percent to $14.21 billion, up from $13.22 billion last year.

The results easily surpassed Wall Street expectations for earnings of $1.01 per share on revenue of $14 billion, according to a survey of analysts by Thomson Financial. Merger and restructuring charges reduced earnings by 2 cents per share.

On a conference call with industry analysts after the results were posted, Chief Financial Officer Marc Oken listed a "number of positive things" that happened in the quarter, ranging from the bank's substantial investment in a major Chinese bank to its proposed merger with MBNA.

"We see continued momentum in several businesses with moderate and we think sustainable growth in the challenging interest rate environment we all continue to face," he said.

Shares of Bank of America fell 70 cents, or 1.52 percent, to $45.28 on the New York Stock Exchange (search).

Oken said the bank's outlook for the second half of 2006 was largely unchanged from guidance the company gave Wall Street in January. At that time, the bank said it expected revenue growth of 7 percent to 9 percent for 2005.

"We think that's still in the cards," he said, adding that the lower long-term rates that presenting a challenge to banks have been beneficial for commercial lending and consumer credit quality.

Net interest income rose to $7.65 billion from $7.58 billion last year, bolstered by growth in consumer and business loans. Total non-interest income rose to $6.37 billion from $5.47 billion, driven by gains from whole loan sales, card income, service charges and equity investments.

Bank of America said non-interest expense fell because of savings created by the merger with FleetBoston Financial Corp (search). Non-interest expense declined 3 percent to $7.02 billion compared with $7.23 billion a year ago.

"As we successfully complete the Fleet integration, and look ahead to the MBNA acquisition, we will build upon a successful customer-centric formula to provide continued long-term growth for investors from our expanded and enhanced financial services platform," said Chairman and CEO Kenneth D. Lewis in a statement.

Since snapping up Fleet Boston for $48 billion last year, Lewis has continued to aggressively expand. During the second quarter, the bank agreed to buy about 9 percent of the stock of China Construction Bank for $3 billion. It was the largest single purchase of stock in a Chinese bank by any foreign bank.

That was followed quickly by the June 30 announcement that Bank of America would acquire MBNA, the world's largest independent credit card issuer. The cash and stock deal will result in 6,000 jobs cuts but will transform Bank of America into one of the world's largest credit-card issuers.

MBNA on Monday said second-quarter results declined because of a restructuring charge. Quarterly profit declined to 50 cents per share from 51 cents per share a year-ago, although excluding the charge, MBNA would have reported earnings of $646.8 million, or 51 cents per share, 2 cents above the 49 cents expected by analysts surveyed by Thomson Financial.