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What Could Drive Bank of America’s Net Interest Income?

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Sustained growth in loans and deposits

We expect Bank of America (BAC) to sustain the growth momentum in its revenues due to higher net interest income. Sustained growth in loans and deposits is expected to drive the net interest income in the coming quarters even in the absence of a rate hike. Bank of America’s net interest income rose 7.3% on a YoY (year-over-year) basis in the fourth quarter. The net interest income rose 6.0% in 2018.

The increased net interest income was due to healthy growth in loans and deposits. Bank of America’s average loans and leases in its business segments rose 3% to $881 billion. Bank of America’s deposits rose ~4% to $1.3 trillion.

We expect Bank of America to continue to grow its loan portfolio in 2019 due to residential mortgages and credit cards. The deposits are also expected to rise, which could drive the net interest income. However, loan spread compression and higher funding costs in global markets could remain a drag.

In comparison, Citigroup (C) and JPMorgan Chase (JPM) are expected to report a higher net interest income in 2019 due to growth in loans and deposits.

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Loans and deposits by segments

Bank of America’s Consumer Banking segment’s lending increased ~5% to $290 billion due to residential mortgages and credit cards. The average deposits rose 3% to $687 billion. The efficiency ratio improved by 500 basis points to 45% during the fourth quarter.

The bank’s Global Wealth & Investment Management segment recorded 3% growth in average deposits, while lending increased 4%. The Global Banking segment’s average loans rose 2%, while deposits rose 9%. The Global Markets segment’s loans fell ~4%.

Overall, Bank of America’s asset quality remained strong with lower charge-offs and a decline in non-performing assets.

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