This article, originally published at 7:13 a.m. on Monday, Oct. 17, 2016, has been updated with comments from analysts and executives.
Bank of America (BAC) - Get Report took advantage of the same surge in fixed-income trading that benefited two of its biggest rivals in the three months through September, posting a 39% gain that drove overall profit past Wall Street's projections.
Companywide earnings of 41 cents a share compared with the 35-cent average of estimates from FactSet, and net income rose 7% from a year earlier to $5 billion. Sales climbed 3% to $21.6 billion, beating estimates of $20.8 billion.
Like New York-based giants JPMorgan Chase (JPM) - Get Report and Citigroup (C) - Get Report , Bank of America benefited from speculation about the timing of interest-rate hikes in the U.S., which have been delayed repeatedly this year despite the Federal Reserve's original projections of as many as four increases, volatility after Great Britain's decision to leave the European Union and concerns about the health of European lenders.
The Charlotte, N.C.-based company's $2.8 billion in fixed-income trading revenue compared with $4.33 billion at JPMorgan, a 48% gain; and $3.47 billion at Citi, an increase of 35%.
"This quarter is another great example of our global markets business' importance to our investing and issuing clients," Bank of America CEO Brian Moynihan said on a conference call with analysts and investors.
Moynihan, who has been working to rebuild the Charlotte, N.C.-based company after its costly acquisitions of investment bank Merrill Lynch and troubled lender Countrywide Financial before the 2008 financial crisis, won approval over the summer to raise its quarterly dividend by 50% and start a $5 billion stock-buyback plan as of July 1.
During the third quarter, the company repurchased $1.4 billion of its stock and paid $800 million in dividends.
Bank of America climbed 1.2% to $16.27 in New York trading on Monday morning. The stock had previously fallen 4.9% this year.
Within the bank's global markets division, its third-largest, the benefits of fixed-income trading gains were pared by an 18% drop on the equities side due to lower client demand for cash and derivatives trades, executives said in a statement. Profit for the unit climbed 34% to $1.07 billion.
Trading results were "nearly $1 billion better than expected," said Chris Kotowski, an analyst with Oppenheimer who also pointed out strong performances in investment and mortgage banking.
"This was a capital markets quarter," agreed David Konrad of Macquarie Research, who said in a note to clients that consumer revenue trailed his projection by about $200 million.
Still, profit in that business, the bank's largest and most visible, climbed 3.2% to $1.81 billion as Bank of America issued 1.8 million new credit cards, the most in eight years, and its average loan balance widened to $249 billion.
Card revenue dipped slightly, to $1.22 billion, reflecting higher expenses for the credit-card rewards that banks use to lure users with the best credit scores and highest disposable incomes.
"We are attracting relatively higher-quality card customers that, on the one hand, have higher spending habits, but on the other hand, receive more rewards," CFO Paul Donofrio said on the earnings call.
The rewards are worthwhile, he added, because they deepen customer relationships and the clients who receive them "have lower loss rates and a reduced need to interact with call centers, thereby allowing us to lower costs."
Companywide, net interest income, a key revenue stream that reflects money earned from lending after deducting interest paid to depositors, climbed to $5.29 billion. That yielded an interest margin of 2.26%, five basis points higher than the estimate from Brian Kleinhanzl of brokerage Keefe, Bruyette & Woods.
The bank is well positioned to take advantage of an interest-rate hike, said TheStreet's Jim Cramer, who sold his Action Alerts PLUS holdings in the stock in April. Trading in interest-rate futures indicates a 66% chance the Federal Reserve will increase rates in December, as it did last year in the first such move since the 2008 financial crisis.
A 25 basis-point hike, the same size as last year's would boost Bank of America's net interest margin by 5 basis points next year, according to Credit Suisse analyst Susan Roth Katzke. That's above the 3-point median for large U.S. banks.