Bank of America’s fourth-quarter net income rose by almost $600m, driven by the release of loan loss reserves, robust equity trading activity, and net interest income that climbed for the first time in more than a year.

Loan demand remains sluggish, however, as the Covid-19 pandemic drags on, leaving the bank with limited options for deploying capital. Despite increasing average deposits by $42bn from the third quarter, average loans fell by $39bn. The increase in interest income was driven by falling interest expense and investing deposits into bonds.

The bank’s leadership expressed optimism that this pattern would reverse in 2021. “In the fourth quarter, we continued to see signs of a recovery, led by increased consumer spending, stabilising loan demand by our commercial customers, and strong markets and investing activity,” said Brian Moynihan, chief executive.

“We’re grinding out of this health crisis and so with every quarter of that comes we hope it'll be easier,” said Paul Donofrio, chief financial officer, noting the improving loan demand at quarter end. “We should be able to continue to grow net interest income because we’re adding deposits, and we’re adding loans.”

The bank’s quarterly net income rose to $5.5bn from the September quarter. Earnings per share, at 59 cents, were slightly better than the 54 cents Wall Street analysts had expected. Total revenue, at $20.1bn, fell short of expectations of $20.5bn.

Capital markets revenues rose 7 per cent, led by a 30 per cent increase in equity trading revenue, compared with the prior year’s fourth quarter. Fixed income revenue fell 5 per cent. The trading results were not as strong as JPMorgan Chase or Citigroup, which reported 32 and 57 per cent increases in equity trading revenues, respectively.

Jeff Harte of Piper Sandler said the results were “a little disappointing, if you back out the loan loss reserves . . . trading revenues were a little disappointing, and expenses were a bit higher than we expected”.

BofA released $828m of loan reserves in the fourth quarter, less than JPMorgan or Citi, which released $3bn and $1.5bn in reserves, respectively. BofA had put aside more than $10bn in additional reserves since the Covid-19 crisis began.

The company said it planned to repurchase $3.2bn in shares by the end of the first quarter, the maximum amount permitted by the Federal Reserve under new guidelines.

BofA shares fell 1.6 per cent in pre-market trading on Tuesday. Bank shares have enjoyed a strong run in recent months, as a rise in long-term rates and a steepening of the yield curve, along with expectations of higher inflation, suggest that lending margins are set to improve.

BofA shares have risen almost 40 per cent from their lows of October, and are just shy of their pre-pandemic highs.