Bank of America BAC is one of the most interest rate-sensitive among big banks. So, when the Federal Reserve lowered the interest rates by 100 basis points last year, the company’s net interest income (NII) benefited from it. Fixed-rate asset repricing, higher loan balance and gradual decline in deposit costs drove the sequential increase in NII since the second quarter of 2024, which was partly offset by lower interest rates.

Bank of America’s Net Interest Income
 

Image Source: $Bank of America Corp(BAC-N)$.

The central bank is now likely to pursue a cautious approach toward interest rate cuts because of stubborn inflation, which is expected to get further aggravated due to the imposition of potential tariffs. Economists and policymakers generally view tariffs as a factor that could drive up prices for U.S. businesses and consumers, at least in the short term, while potentially slowing economic growth over time. Moreover, some of Trump’s other proposed policies—including mass deportations, significant tax cuts, and deregulations—have added complexity to the Fed’s decision-making process as it considers the timing and scale of future interest rate cuts.

Bank of America is seeing an upside in NII in 2025, driven by decent loan demand, higher-for-longer interest rates, robust deposit balance and solid economic growth. The company expects a sequential rise in NII for all the quarters this year, with growth likely to accelerate in the second half of the year, and the fourth-quarter number likely to touch the $15.5-$15.7 billion level.

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 will drive NII growth over time. The company announced plans to open more than 165 new financial centers by 2026-end. This new wave of expansion follows the branch network growth plans announced by Bank of America in June 2023. The plan focused on entering nine new markets, including Omaha, Boise and Milwaukee.

The bank's strategic investment in new financial centers and push into new markets reflects 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.

Last year, digital interactions by BAC clients increased 12% year over year and reached a record 26 billion interactions “through a combination of digital logins and proactive alerts.”  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.

Resurgent Investment Banking (IB) Business: 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 45.7% in 2022 and 2.4% in 2023, the trend is reversing. In 2024, the company’s IB fees soared 31.4% year over year. 

With the operating backdrop turning favorable for deal-making activities, global mergers and acquisitions (M&As) are expected to witness impressive growth this year. Bank of America is expected to witness growth in IB fees, driven by a healthy IB pipeline and active M&A market. 

Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of Dec. 31, 2024, average global liquidity sources were $953 billion. Also, 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 allow easy access to the debt market.

BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends four times, with an annualized growth rate of 8.72%. Currently, the company's payout ratio is 32% of earnings.

In July 2024, the company authorized a $25 billion stock repurchase program, effective Aug. 1. As of Dec. 31, 2024, almost $18.9 worth of buyback authorization remained available.

Bullish Analyst Sentiments for BAC in 2025

Over the past month, the Zacks Consensus Estimate for earnings for 2025 and 2026 moved marginally upward to $3.70 and $4.36, respectively.

BAC Estimate Revision Trend
 

Image Source: Zacks Investment Research

These upward adjustments reflect a positive sentiment among analysts and suggest encouraging prospects. 

Bank of America Earnings Estimates
 

Image Source: Zacks Investment Research

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

How to Play Bank of America Stock Now

Bank of America's stock performance has been subdued this year. The stock gained just 4.9% in the first two months of 2025. In the same time, the industry it belongs to grew 8.9%, and its close peers – JPMorgan JPM and Citigroup C – were up 10.4% and 13.6%, respectively.

BAC YTD Price Performance
 

Image Source: Bigstock

Because of weakness in its share price, Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.78X, which is below the industry’s 2.92X. This shows the stock is inexpensive currently.

Price-to-Tangible Book Ratio (TTM)
 

Image Source: Zacks Investment Research

BAC stock is inexpensive compared with JPM, which has a P/TB of 2.89X. On the other hand, it is trading at a premium C’s P/TB of 0.92X.

Bank of America's global presence, diversified revenue streams, ongoing branch openings and relatively high rates for long and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Further, bullish analyst sentiments and attractive valuation make the stock a compelling option for investors.

However, BAC faces near-term challenges, such as increased regulatory capital requirements under the Basel III framework and macroeconomic uncertainty because of the imposition of tariffs and its impact on the interest rate cuts. Hence, investors must wait for clarity on several macroeconomic issues before buying the stock. 

Those who already own Bank of America stock can hold onto it for solid long-term gains. Currently, Bank of America has a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Bank of America Corporation (BAC) : Free Stock Analysis Report

JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report

$Citigroup Inc(C-N)$. (C) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research