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How to Approach Bank of America Stock as Interest Rates Decline?
Read MoreHide Full Article
Key Takeaways
Fed rate cuts may slow BAC's NII growth, but lending and lower funding costs should offer support.
Branch expansion, tech upgrades and a $40B buyback plan strengthen BAC's growth foundation.
Rising provisions and charge-offs weigh on asset quality, but BAC trades at a discount to peers.
Bank of America (BAC - Free Report) is one of the most interest rate-sensitive U.S. banks. As the Federal Reserve lowered interest rates by 25 basis points (bps) in September on the softening labor market and hinted at two more cuts by the end of the year, the company’s net interest income (NII) is likely to witness a slower pace of growth in 2026. For this year, management's NII guidance indicates resilience, with the metric expected to rise 6-7% on the assumption of two 25 bps cuts in interest rates.
When the central bank lowered rates last year by 100 basis points, Bank of America’s NII greatly benefited from it. The company’s NII has been rising sequentially since the second quarter of 2024, driven by fixed-rate asset repricing, higher loan and deposit balances, and a gradual fall in funding costs. The momentum is likely to continue this year.
BAC’s NII Quarterly Trend
Image Source: Bank of America Corp.
As rates come down, it will boost lending activity. Also, easing regulatory capital requirements will help channel excess capital into loan growth, particularly within resilient commercial and consumer segments. Hence, Bank of America will likely witness a decent demand for loans, which will support NII expansion.
Similar to BAC, its peers, JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) , are demonstrating resilience and steady growth in NII. For 2025, Citigroup expects NII (excluding Markets) to grow 4%. In 2024, Citigroup’s NII was $54.9 billion. JPMorgan anticipates 2025 NII to be $95.5 billion, up more than 3% year over year. Nonetheless, as the Fed begins cutting rates, both are likely to face some headwinds into next year.
Other Factors at Play for Bank of America
Branch Expansion & Digital Initiatives: Bank of America’s aggressive branch expansion across the United States, as part of a broader strategy to solidify customer relationships and tap into new markets, should drive NII growth over time. By 2027, it plans to expand its financial center network and open more than 150 centers. Of these, 40 are expected to be opened this year, and another 70 in 2026.
Likewise, JPMorgan is doubling down on physical expansion to strengthen its competitive edge in relationship banking. In 2024, the company opened more than 150 new branches and remains on track to add another 500 by 2027.
Over the past few years, BAC has been renovating and updating its existing financial centers across the country for clients to engage with financial specialists and ensure a consistent and modern experience across all centers. The bank's strategic investment in new financial centers and expansion into new markets reflect a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.
The company plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities.
Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of June 30, 2025, average global liquidity sources totaled $938 billion. The company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook facilitate easy access to the debt market.
BAC continues to reward shareholders handsomely. The company cleared this year’s stress test conducted by the Fed and raised the dividend by 8% to 28 cents per share. In the past five years, it has raised dividends five times, with an annualized growth rate of 8.83%.
Similarly, JPMorgan and Citigroup cleared their stress test and announced plans to increase quarterly dividends. JPMorgan declared a quarterly dividend of $1.50 per share, representing a rise of 7% from the prior payout. Citigroup announced an increase in its quarterly dividend by 7% to 60 cents per share.
Additionally, Bank of America has announced a new share repurchase plan under which it is authorized to buy back $40 billion worth of shares, effective Aug. 1.
Investment Banking (IB) Business Set to Perform Well: As global deal-making came to a grinding halt at the beginning of 2022, it weighed substantially on Bank of America’s IB business. Though the company’s total IB fees plunged in 2022 and 2023, the trend reversed in 2024. This year has had its share of hiccups. It began on an optimistic note, although the market sentiment cooled after the launch of Trump’s tariff policies on 'Liberation Day.' Given the headwinds in the first half, Bank of America’s IB fees declined.
However, after the initial setback, deal-making activities have regained momentum. Many deals that were put on hold are resuming as there is more clarity about the direction of the economy and tariff plans, with capital remaining available. This will act as a tailwind for Bank of America, JPMorgan and Citigroup, which generate billions in revenues from advisory fees.
Deteriorating Asset Quality: Bank of America’s asset quality has been weakening. While the company recorded negative provisions in 2021, a substantial jump in provisions occurred in the following years due to a worsening macroeconomic outlook. The metric surged 115.4% in 2022, 72.8% in 2023 and 32.5% in 2024. Similarly, net charge-offs grew 74.9% in 2023 and 58.8% in 2024. The uptrend for both continued in the first half of 2025.
As interest rates are less likely to decline substantially in the near term, it is expected to hurt the borrowers’ credit profile. The company remains vigilant about the effects of continuous high rates on its loan portfolio. The impact of tariffs on inflation is now clearly visible, with numbers trending higher. Hence, the company’s asset quality is expected to remain subdued.
Bank of America’s Price Performance & Valuation Analysis
Bank of America’s shares have gained 13.2% this year, underperforming the broader market and trailing key peers, Citigroup and JPMorgan.
YTD Price Performance
Image Source: Zacks Investment Research
Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.84X, which is below the industry’s 2.98X. This shows the stock is trading at a discount.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
BAC stock is inexpensive compared with JPMorgan, which has a P/TB of 3.13X. On the other hand, it is trading at a premium compared with Citigroup’s P/TB of 1.05X.
Is Bank of America Stock a Compelling Investment?
Over the past week, the Zacks Consensus Estimate for 2025 and 2026 earnings per share has remained unchanged at $3.68 and $4.26, respectively. The consensus estimate for earnings indicates 12.2% and 15.8% growth for 2025 and 2026, respectively.
Bank of America Earnings Estimates
Image Source: Zacks Investment Research
Bank of America's global presence, diversified revenue streams, ongoing branch expansion, a solid revival of the IB business and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Also, attractive valuation makes the stock a compelling option for investors.
However, BAC faces near-term challenges, including weak asset quality. While the company doesn’t expect the relatively lower rates to hurt NII in the near term, the actual impact needs to be seen. So, investors must wait for clarity on these issues before buying the stock.
Image: Bigstock
How to Approach Bank of America Stock as Interest Rates Decline?
Key Takeaways
Bank of America (BAC - Free Report) is one of the most interest rate-sensitive U.S. banks. As the Federal Reserve lowered interest rates by 25 basis points (bps) in September on the softening labor market and hinted at two more cuts by the end of the year, the company’s net interest income (NII) is likely to witness a slower pace of growth in 2026. For this year, management's NII guidance indicates resilience, with the metric expected to rise 6-7% on the assumption of two 25 bps cuts in interest rates.
When the central bank lowered rates last year by 100 basis points, Bank of America’s NII greatly benefited from it. The company’s NII has been rising sequentially since the second quarter of 2024, driven by fixed-rate asset repricing, higher loan and deposit balances, and a gradual fall in funding costs. The momentum is likely to continue this year.
BAC’s NII Quarterly Trend
Image Source: Bank of America Corp.
As rates come down, it will boost lending activity. Also, easing regulatory capital requirements will help channel excess capital into loan growth, particularly within resilient commercial and consumer segments. Hence, Bank of America will likely witness a decent demand for loans, which will support NII expansion.
Similar to BAC, its peers, JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) , are demonstrating resilience and steady growth in NII. For 2025, Citigroup expects NII (excluding Markets) to grow 4%. In 2024, Citigroup’s NII was $54.9 billion. JPMorgan anticipates 2025 NII to be $95.5 billion, up more than 3% year over year. Nonetheless, as the Fed begins cutting rates, both are likely to face some headwinds into next year.
Other Factors at Play for Bank of America
Branch Expansion & Digital Initiatives: Bank of America’s aggressive branch expansion across the United States, as part of a broader strategy to solidify customer relationships and tap into new markets, should drive NII growth over time. By 2027, it plans to expand its financial center network and open more than 150 centers. Of these, 40 are expected to be opened this year, and another 70 in 2026.
Likewise, JPMorgan is doubling down on physical expansion to strengthen its competitive edge in relationship banking. In 2024, the company opened more than 150 new branches and remains on track to add another 500 by 2027.
Over the past few years, BAC has been renovating and updating its existing financial centers across the country for clients to engage with financial specialists and ensure a consistent and modern experience across all centers. The bank's strategic investment in new financial centers and expansion into new markets reflect a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.
The company plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities.
Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of June 30, 2025, average global liquidity sources totaled $938 billion. The company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook facilitate easy access to the debt market.
BAC continues to reward shareholders handsomely. The company cleared this year’s stress test conducted by the Fed and raised the dividend by 8% to 28 cents per share. In the past five years, it has raised dividends five times, with an annualized growth rate of 8.83%.
Similarly, JPMorgan and Citigroup cleared their stress test and announced plans to increase quarterly dividends. JPMorgan declared a quarterly dividend of $1.50 per share, representing a rise of 7% from the prior payout. Citigroup announced an increase in its quarterly dividend by 7% to 60 cents per share.
Additionally, Bank of America has announced a new share repurchase plan under which it is authorized to buy back $40 billion worth of shares, effective Aug. 1.
Investment Banking (IB) Business Set to Perform Well: As global deal-making came to a grinding halt at the beginning of 2022, it weighed substantially on Bank of America’s IB business. Though the company’s total IB fees plunged in 2022 and 2023, the trend reversed in 2024. This year has had its share of hiccups. It began on an optimistic note, although the market sentiment cooled after the launch of Trump’s tariff policies on 'Liberation Day.' Given the headwinds in the first half, Bank of America’s IB fees declined.
However, after the initial setback, deal-making activities have regained momentum. Many deals that were put on hold are resuming as there is more clarity about the direction of the economy and tariff plans, with capital remaining available. This will act as a tailwind for Bank of America, JPMorgan and Citigroup, which generate billions in revenues from advisory fees.
Deteriorating Asset Quality: Bank of America’s asset quality has been weakening. While the company recorded negative provisions in 2021, a substantial jump in provisions occurred in the following years due to a worsening macroeconomic outlook. The metric surged 115.4% in 2022, 72.8% in 2023 and 32.5% in 2024. Similarly, net charge-offs grew 74.9% in 2023 and 58.8% in 2024. The uptrend for both continued in the first half of 2025.
As interest rates are less likely to decline substantially in the near term, it is expected to hurt the borrowers’ credit profile. The company remains vigilant about the effects of continuous high rates on its loan portfolio. The impact of tariffs on inflation is now clearly visible, with numbers trending higher. Hence, the company’s asset quality is expected to remain subdued.
Bank of America’s Price Performance & Valuation Analysis
Bank of America’s shares have gained 13.2% this year, underperforming the broader market and trailing key peers, Citigroup and JPMorgan.
YTD Price Performance
Image Source: Zacks Investment Research
Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.84X, which is below the industry’s 2.98X. This shows the stock is trading at a discount.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
BAC stock is inexpensive compared with JPMorgan, which has a P/TB of 3.13X. On the other hand, it is trading at a premium compared with Citigroup’s P/TB of 1.05X.
Is Bank of America Stock a Compelling Investment?
Over the past week, the Zacks Consensus Estimate for 2025 and 2026 earnings per share has remained unchanged at $3.68 and $4.26, respectively. The consensus estimate for earnings indicates 12.2% and 15.8% growth for 2025 and 2026, respectively.
Bank of America Earnings Estimates
Image Source: Zacks Investment Research
Bank of America's global presence, diversified revenue streams, ongoing branch expansion, a solid revival of the IB business and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Also, attractive valuation makes the stock a compelling option for investors.
However, BAC faces near-term challenges, including weak asset quality. While the company doesn’t expect the relatively lower rates to hurt NII in the near term, the actual impact needs to be seen. So, investors must wait for clarity on these issues before buying the stock.
Those who own Bank of America stock can retain it for long-term gains. At present, it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.