Bank of America Positioned for Consumer Rebound

Market volatility in the first quarter took a toll on

Bank of America remains quite sensitive to the level of interest rates, disclosing that a 100-basis-point upward movement in the yield curve would produce an additional $6 billion in net interest income. On this front, we think credit expansion during the quarter is a welcome sign. Average consumer banking loans and leases grew 8% over the past 12 months, reflecting an industrywide increase in loan demand. We continue to believe that consumer credit expansion will be a key driver of both economic growth and the normalization of interest rates. As the largest retail deposit-taker in the United States, Bank of America is well positioned to benefit from a rebound in consumer demand and the housing market. The bank's legacy assets and servicing business produced $860 million in noninterest expense in the first quarter, down 30% over the course of the year. With delinquent mortgages serviced by this segment falling 42% over the same period, further improvements in the housing market should continue to reduce the expense burden.

Credit quality remains good overall, with nonperforming loans increasing by only $400 million over the past 12 months, driven mainly by energy. The company seems to have little exposure to the most aggressive corners of auto lending; originations in the first quarter were made at an average FICO score of 778. Other areas of consumer lending--credit card, mortgage, and home equity--seem similarly conservative. We thus see little to fear in the bank's consumer book.

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