Bank Of America Reports Strong Earnings Results: Why This Investor Says The Firm Is Well Positioned Moving Forward

Bank Of America Corp BAC on Monday reported strong first-quarter financial results led by an increase in consumer lending activity. 

What Happened: Bank Of America said first-quarter revenue grew 2% year-over-year to $23.2 billion, which beat the average analyst estimate of $23.1 billion. The firm reported quarterly earnings of 80 cents per share, which beat the 74-cent estimate, according to data from Benzinga Pro.

Average loan and lease balances were up 8% ($70 billion) to $978 billion led by strong commercial loan growth as well as higher consumer balances.

Consumer banking income totaled $3 billion during the quarter, led by record deposit balances, which were up 14% to more than $1 trillion. Small business deposit balances climbed 21% to $172 billion and average loans and leases were up 4% to $19 billion. 

Bank Of America added approximately 228,000 net new consumer checking accounts during the first quarter.

"Going forward, and with the forward curve expectation of rising interest rates, we anticipate realizing more of the benefit of our deposit franchise," said Alastair Borthwick, CFO of Bank Of America. 

Global wealth and investment management income reached $1.1 billion in the quarter. Client balances increased 7% year-over-year, driven by net client flows and higher market valuations. Global deposits were up 18% to $385 billion.

Related Link: Bank of America: Q1 Earnings Insights

However, total banking fees dropped off significantly. Global investment banking fees totaled $1.5 billion, representing a decrease of 35% year-over-year. Bank Of America said the decrease was primarily driven by a pullback from record levels in industry-wide underwriting activity. Global banking deposits were still up 11% and advisory fees increased 18% to $473 million. 

From The Call: On the company's earnings call, CEO Brian Moynihan confirmed he doesn't expect Federal Reserve rate hikes to slow down the economy because consumers have higher cash balances in their accounts than in previous rate hike cycles.

"Right now the size of the economy is bigger than pre-pandemic levels, consumer spending remains strong, unemployment is low and wages are rising," Moynihan said.

Link's Take: "Bank Of America is very levered to interest rates, especially the Fed funds and the shorter-term rates," Hightower Advisors' Stephanie Link said Monday on CNBC's "Squawk Box."

She noted all of the banks are seeing strong consumer trends, but Bank Of America and Wells Fargo & Co WFC are particularly well positioned to benefit from rising rates, she said.

"The big question is ... are we headed into a recession?" Based on the extraordinary shape of the consumer, Link says no. "The consumer is in good shape and the question you have to ask yourself is can they stay in good shape and I would argue they can."

BAC Price Action: Bank Of America has traded between $36.51 and $50.11 over a 52-week period.

The stock was up 2.21% at $38.39 at time of publication.

Photo: Tony Webster from Flickr.