Bank of America (BAC) Banks Higher On Strong Q3 Report; BAC Not Seeing Macro Issues Impact Consumer

1:28 pm Monday, October 17th, 2022

Bank of America (BAC) reported nice upside with its Q3 results this morning. BAC followed the lead of several large banks which reported EPS beats last week. BAC also echoed positive comments on the state of the consumer and specifically spending levels. Now with several banks having made similar comments, it makes us think that the US consumer is holding up better than expected, at least in the near term.

Its standout segment was once again Consumer Banking, its largest segment. It posted solid 12% yr/yr revenue growth to $9.90 bln. Growth was fueled by increased NII (net interest income), driven by higher balances and higher interest rates. Average consumer deposit balances remain above pre-pandemic levels.

In terms of the consumer, consumer spend remained strong. BAC was pretty emphatic on the call regarding the impact of inflation and recession fears slowing spending growth. The company says it simply is not seeing it at Bank of America. Year-to-date spending of $3.1 trillion is up 12% yr/yr. However, while still strong in September at 10%, BAC did concede that spending growth slowed just a bit from the 12% YTD. However, it is still strong in the first two weeks of October at +10%.

On the credit front, beginning in 4Q20, BAC saw early stage delinquencies recede below pre-pandemic levels. Late stage (90+ days) credit card delinquencies remain near multi-year lows, resulting in 3Q22 net charge-offs 54% lower than 3Q19. Customer liquidity remains strong. Balances are still multiples of the pre-pandemic periods.

Overall, this was a good quarter for Bank of America fueled by good organic customer activity coupled with a significant increase in NII. Investors are happy to see the nice EPS and revenue beat. Also, unlike JPM, BAC has not paused its share buyback activity. Despite macro concerns, bank stocks are benefitting from higher interest rates. However, the stocks have been weak for much of 2022 on inflation/recession concerns that could result in loan defaults. As of yet, the US consumer has remained resilient and defaults are not really materializing at this point. However, that tick down in spend in Sept/Oct will be a metric to watch in Q4.