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Bank of America's profit just beats the Street, and it sees good things on the horizon

Bank of America reported fourth quarter earnings Friday that topped expectations and said it expects a "significant increase" in net interest income for the current quarter. Revenue came in a touch below expectations.

The firm reported earnings per share of 40 cents on revenue $19.99 billion. Analysts polled by Reuters expected Bank of America to report a profit of 38 cents a share on revenue of $20.85 billion.

"Strong client activity and good expense discipline created solid operating leverage again this quarter," Chief Financial Officer Paul M. Donofrio said in a release. "While the recent rise in interest rates came too late to impact fourth-quarter results, we expect to see a significant increase in net interest income in the first quarter of 2017."

The bank said it expects to earn an additional $600 million in additional net interest income in the current quarter.

However, return on average common equity was 7 percent, below the 10 percent bar for cost of capital.

Shares erased earlier gains in premarket trade.

Bank of America CEO Brian Moynihan.
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Bank of America CEO Brian Moynihan.

The bank said net interest income increased 6 percent to $10.3 billion in the fourth quarter, while loan balances climbed by $19 billion to $915.9 billion.

Net charge-offs, a measure of costs for bad debt, declined to $880 million from $1.1 billion. Bank of America's net charge-off ratio improved to a historic low of 0.39 percent, the release said.

Provision for credit losses declined to $774 million from $810 million a year ago.

Marty Mosby, director of bank and equity strategies at broker-dealer Vining Sparks, said the decline in net charge-offs and provisions was "one of the reasons that Bank of America actually beat expectations on the market."

Along with the encouraging forecast for net interest income and an acceleration in capital deployment, "those are the three really primary catalysts for last year and are continuing into 2017," Mosby said on CNBC's "Squawk Box." His firm has an "outperform" rating on the stock.

Bank of America reported a 12 percent rise in fixed income trading revenue. It reported a 7 percent rise in equities trading revenue, "reflecting increased market activity post U.S. election." Excluding net debit valuation, total sales and trading revenue rose 11 percent.

The only negative Mosby gleaned from the report "is we didn't see investment banking and capital markets activity react positively in the fourth quarter," he said.

The bank also said it repurchased $5.1 billion in common stock and paid $2.6 billion in common stock dividends in 2016. Planned repurchases for the first half of this year increased from $2.5 billion to $4.3 billion.

In consumer banking, total mortgage production rose 29 percent from the same period last year to $21.9 billion. The bank said it issued more than 1.13 million U.S. consumer credit cards.

The financial sector is up 17 percent since the U.S. presidential election as the best performer in the S&P 500. Bank of America shares have climbed nearly 35 percent over that time.

Correction: The headline was corrected to reflect that analysts had forecast Bank of America's fourth-quarter earnings would be 38 cents per share.