We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
BofA's Branch Expansion, Loan Growth Offset Fee Income Woes
Read MoreHide Full Article
Bank of America’s (BAC - Free Report) consistent focus on improving loan and deposit balances along with higher interest rates will support net interest income (NII) growth. Further, the company’s branch expansion strategy bodes well for future growth. However, challenges faced by the bank in improving fee income remain a big concern.
BofA is optimistic about favorable impact of the rate hike on margins and NII with a continued rise in loan demand. The bank’s net interest yield increased from 2.19% in 2015 to 2.25% in 2016 and to 2.37% in 2017. Further, NII witnessed a three-year CAGR of 7% (till 2017 end) driven by higher rates and loan balance.
For this year, management projects solid NII growth mainly attributable to loan and deposit growth as well as net interest yield expansion. This will be partially offset by absence of NII from the U.K. card business that was sold in 2017.
Additionally, BofA continues to align its banking center network according to the customer needs. By 2022, it intends to open 500 new centers and redesign more than 1,500 centers with technology upgrades. These branches are smaller in size and utilize advance technology, with a goal to cross-sell financial products. These efforts along with launching of Zelle and Erica will enable the bank to focus more on improving its digital offerings.
BofA’s efficient capital deployment activities look impressive. The company along with several major banks including JPMorgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) and Citigroup (C - Free Report) received the Fed’s approval for their respective 2018 capital plans. BofA’s plan included 25% dividend hike and $20.6 billion share repurchase authorization. The bank is expected to sustain its capital deployment activities and continue enhancing shareholder value, driven by robust capital position.
However, BofA continues facing problems in improving fee income. Over the last five years (2013-2017), non-interest income decreased at a CAGR of 2.6%. Specifically, uncertainty related to the performance of capital markets (on which trading and investment banking businesses depend) will limit substantial non-interest income growth in the quarters ahead.
Further, mortgage banking income is witnessing a drastic downtrend due to a reduction in refinancing activities and a fall in origination volumes. A rise in interest rates is expected to further hurt mortgage fees.
Also, analysts seem to have a neutral stance on the stock. The company’s Zacks Consensus Estimate for earnings has remained stable for 2018 and 2019, respectively, over the past 30 days.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
BofA's Branch Expansion, Loan Growth Offset Fee Income Woes
Bank of America’s (BAC - Free Report) consistent focus on improving loan and deposit balances along with higher interest rates will support net interest income (NII) growth. Further, the company’s branch expansion strategy bodes well for future growth. However, challenges faced by the bank in improving fee income remain a big concern.
BofA is optimistic about favorable impact of the rate hike on margins and NII with a continued rise in loan demand. The bank’s net interest yield increased from 2.19% in 2015 to 2.25% in 2016 and to 2.37% in 2017. Further, NII witnessed a three-year CAGR of 7% (till 2017 end) driven by higher rates and loan balance.
For this year, management projects solid NII growth mainly attributable to loan and deposit growth as well as net interest yield expansion. This will be partially offset by absence of NII from the U.K. card business that was sold in 2017.
Additionally, BofA continues to align its banking center network according to the customer needs. By 2022, it intends to open 500 new centers and redesign more than 1,500 centers with technology upgrades. These branches are smaller in size and utilize advance technology, with a goal to cross-sell financial products. These efforts along with launching of Zelle and Erica will enable the bank to focus more on improving its digital offerings.
BofA’s efficient capital deployment activities look impressive. The company along with several major banks including JPMorgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) and Citigroup (C - Free Report) received the Fed’s approval for their respective 2018 capital plans. BofA’s plan included 25% dividend hike and $20.6 billion share repurchase authorization. The bank is expected to sustain its capital deployment activities and continue enhancing shareholder value, driven by robust capital position.
However, BofA continues facing problems in improving fee income. Over the last five years (2013-2017), non-interest income decreased at a CAGR of 2.6%. Specifically, uncertainty related to the performance of capital markets (on which trading and investment banking businesses depend) will limit substantial non-interest income growth in the quarters ahead.
Further, mortgage banking income is witnessing a drastic downtrend due to a reduction in refinancing activities and a fall in origination volumes. A rise in interest rates is expected to further hurt mortgage fees.
Also, analysts seem to have a neutral stance on the stock. The company’s Zacks Consensus Estimate for earnings has remained stable for 2018 and 2019, respectively, over the past 30 days.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>