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What Growth Lies Ahead for Bank of America?

The wide-moat bank's wealth-related fees are still growing, but not as fast as we expected.

Wide-moat-rated Bank of America BAC reported first-quarter earnings of $0.80 per share, beating the Factset consensus estimate of $0.75 and coming in just under our own estimate of $0.84. Top-line revenue on a reported basis came in at $23.2 billion, essentially in line with consensus. Expenses and net interest income roughly met our expectations, but fees came in a bit below our projections. This is a pattern we've seen at some of Bank of America's peers, with investment banking losing its momentum a bit faster than we had anticipated. For Bank of America, wealth-related fees missed slightly, too. They are still growing—but not quite as fast as we had originally hoped. The more interesting miss was in payments-related fees, which were down year over year. Management highlighted that payments-related fees could remain relatively flat going forward, as it prioritizes growth in balances and NII and uses competitive fee levels as a way to improve the value of the total customer relationship. This is a key concept we've highlighted in the past, as we believe that the larger players like Bank of America will continually offer "more for less," maintaining a competitive edge as they leverage their scale and other revenue sources. There were no major changes to guidance, and underlying trends were generally healthy for the bank. We thought management commentary emphasized areas of expense growth slightly more than areas of expense savings, but in the end management stuck to its guidance for expenses to remain flat in 2022, with moderate increases thereafter. As we adjust our fee projections down slightly, we expect some of the effect of this change to be offset by pulling forward our previous net interest income growth forecast as rate hikes are likely to appear earlier. We don’t anticipate a material change to our current fair value estimate of $43 per share, which could be lowered by a dollar or two in the near term. We view shares as fairly valued at April 18's prices.

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