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Material Loan Growth May Not Be Here Yet, but Bank of America Is Seeing Promising Signs



As earnings from the big banks roll in, analysts and investors will likely have to continue to wait for material loan growth, which will result in more net interest income (NII) and therefore higher profits. It’s not a surprise, considering what bank CEOs have been saying at industry conferences throughout the second quarter.

Banks are seeing a rebound in spending, but it hasn’t yet translated into strong loan growth. Consumers are flush with cash from savings and stimulus, and businesses are still not ready to pull the trigger on new inventory spend and other investments.

Despite the delay, Bank of America (NYSE:BAC) is seeing promising signs that loan growth will pick up in the second half of the year, and management seems optimistic, as well.

What happened with loan growth in Q2

In the second quarter, Bank of America saw period-end loans grow 2% from the first quarter of 2021 to roughly $916 billion. But average loans and leases, which are more of a driver of NII, were flat from the first quarter of the year. NII was also flat from the first quarter of the year.

There were a few bright spots mixed into the lack of growth. For one, both average loan and period-end loan balances stayed flat or grew, even as Paycheck Protection Program (PPP) loans were forgiven and those balances declined in the quarter. Additionally, the bank saw commercial, credit card, and residential mortgage loans start to creep up in the second quarter.

Loan growth trends at Bank of America.

Image source: Bank of America Q2 earnings presentation.

Loans in Bank of America’s global-markets division jumped 14% from the first quarter, while loans in the bank’s global wealth and investment management division climbed 4% from the first quarter. But the bad news is that usage of commercial lines of credit remains very low, and consumers continue to prepay their loans at high rates. Long-term interest rates — like those on the 10-year Treasury bill, which many loan yields are linked to — also fell in the second quarter, cutting into NII.

Person at desk, showing two other people something on a computer screen.

Image source: Getty Images.

Promising signs

The good news is that Bank of America CEO Brian Moynihan said that even though it’s not substantial, nearly all of the bank’s various businesses have seen some loan growth. Moynihan also said he doesn’t think line usage on the commercial side can really go any lower, as it’s still running in the low 30% range, which is as much as 10% lower than line usage normally runs in some segments. In business banking, which serves companies that make between $5 million and $50 million in annual revenue, Moynihan said loans are finally growing on a net basis after being stuck for several quarters.

Another piece of good news is that Bank of America’s management team also successfully predicted that NII would reach a trough in the third quarter of 2020. And while the bank is still waiting for more material growth, it has managed to hold NII despite lots of volatility and lower long-term rates.

Bank of America net interest income.

Image source: Bank of America Q2 earnings presentation.

Lastly, despite the difficulty from long-term rates, management hasn’t abandoned its NII outlook for the full year. In the first quarter, Moynihan said that some modest loan growth and the continued improvement of long-term rates and a steepening yield curve, in which long-term interest rates increase while short-term interest rates stay low, could result in NII growing $1 billion from the $10.3 billion the bank generated in the first and now second quarters.

Bank of America’s CFO, Paul Donofrio, said that while the goal is now harder to achieve, it’s still a possibility if loans continue to grow and long-term rates don’t move lower from here. Donofrio added that the bank may decide to put some additional excess liquidity into securities to help that mission.

In contrast, JPMorgan Chase has already cut its NII guidance for the year from $55 billion to $52.5 billion, although the bank has made it clear that it’s stockpiling cash and not reinvesting in securities at these low rates.

I’m optimistic

While everyone would have loved to see more loan growth in the second quarter, I’m somewhat optimistic by what we saw with loan growth at Bank of America during the quarter and sentiment from management. Prepayment rates on loans should slow and line usage should start to move upward.

Bank of America will hopefully continue to see loans march higher, as long as the economy keeps moving in its current direction. I also think long-term rates have to be at or close to a bottom, which will be a key driver of NII for the rest of the year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Are Sallie Mae Student Loans Federal or Private?



When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances



Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit



Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.



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