What happened
Bank of America (BAC -0.21%) had a great month in October, rising 19.3%, according to S&P Global Market Intelligence. The megabank is currently trading at roughly $36 per share, down about 17% year to date.
The bank beat the Dow Jones Industrial Average, which had its best month since 1976, gaining 14%. The S&P 500 was up 8% and the Nasdaq Composite gained 3.9% in October.
So what
The major catalyst for Bank of America in October was a better-than-expected third-quarter earnings report. The big banks are the first to report every quarter and are often seen as a bellwether for the market. In this case, it was true as Bank of America, and other big banks, posted strong earnings and the market followed.
Revenue jumped 7.5% to $24.5 billion in the quarter, year over year, while earnings per share (EPS) came in at $0.81 per share, down from $0.85 per share a year ago. Both revenue and EPS came in above analysts estimates.
Bank of America benefited from higher interest rates, as its net interest income (NII) came in at $13.8 billion, 24% higher than a year ago. This was an even higher gain than management had expected in its guidance.
Loan and lease balances remained high, up 12% to $1 trillion, spurred by strong commercial loan growth and higher credit card balances. In addition, the bank added 418,000 net new consumer checking accounts in the quarter, the highest since 2008.
The gains in consumer banking offset declines in investment banking revenue and global markets, although fixed income trading revenue was up. Higher provision for credit losses, based on a dampened macroeconomic outlook, also bit into earnings.
Now what
High interest rates have been a boon for Bank of America thus far as loan growth has remained solid. But that is a balance that could shift as we head into 2023. If rates keep rising and the economy slows, that could put a damper on loan activity.
CFO Alistair Borthwick addressed this on the third-quarter earnings call, and he is bullish that the bank can continue to see gains in NII.
"Loans growth is still pretty good at this stage. So, we're anticipating that will keep growing on the loan side," Borthwick said. "We've got an opportunity to restrike our balance sheet at higher rates with every opportunity now, as things come off of our existing securities portfolio. So, look, we've got our assumptions in there to be competitive on deposit pricing in each of the various segments. But, yes, we believe we'll grow NII next year."
Bank of America is still pretty cheap and is a good buy right now, as NII should carry it until economic and market growth start to kick in.
