Bank of America Earnings Call Highlights Broad Strength

Bank of America ((BAC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Bank of America Leans on Broad-Based Strength Despite Interest-Rate and Regulatory Risks

The tone of Bank of America’s latest earnings call was firmly upbeat, with management emphasizing strong profit growth, solid net interest income (NII), robust loan expansion, record markets performance and sizable capital returns. While executives acknowledged headwinds such as modest deposit growth, interest-rate sensitivity, higher expenses and regulatory uncertainty, their message was that the bank’s broad earnings engines—consumer, wealth, commercial and markets—are delivering enough momentum to more than offset near-term challenges.

Strong Quarterly and Full-Year Profitability

Bank of America highlighted another strong quarter and year of profit growth. Fourth-quarter net income reached $7.6 billion, up 12% from a year earlier, translating into earnings per share (EPS) of $0.98, up 18%. For the full year, net income rose 13%, while EPS advanced 19% to $3.81, underscoring the benefits of operating leverage, share repurchases and a diversified revenue base. Management framed these results as evidence that the franchise is performing well across cycles and that the bank is generating solid returns even amid a shifting rate and regulatory environment.

Revenue and Net Interest Income Growth

Revenue growth remained a central pillar of the story. Fourth-quarter revenue increased 7% year over year, with full-year revenue reaching about $113 billion, also up 7%. Net interest income, a core driver for banks, was particularly strong at $15.9 billion on a fully taxable equivalent basis, up 10% versus the prior year. This reflects the combination of higher rates on earning assets, continued loan growth and disciplined deposit pricing. Management’s confidence in future NII growth underpins its ability to keep investing and still generate operating leverage.

Loan and Deposit Expansion Outpacing the Industry

Bank of America continued to expand its balance sheet in a measured way. Average loans were up 8% year over year, with fourth-quarter balances at $1.17 trillion, an increase of $90 billion from the prior year. Growth was broad-based, with card, mortgage, auto and home equity all higher year on year, and management noted that loan growth outpaced the industry overall. Average deposits increased a more modest ~3%, reflecting a competitive environment and customer shifts into off-balance-sheet vehicles, but still provided a stable funding base for lending.

Operating Leverage and Expense Discipline

The bank delivered meaningful operating leverage, showing that revenue is growing faster than expenses. In the fourth quarter, operating leverage was roughly 330 basis points, and about 250 basis points for the full year. Noninterest expense in the quarter rose less than 4% year over year to $17.4 billion, even as the firm continued to invest in technology and growth initiatives. Management presented this cost performance as evidence that they can fund strategic investments and higher revenue-related compensation while still driving efficiency gains.

Robust Capital Returns and Strong Shareholder Metrics

Capital return was a major highlight. Over the year, Bank of America returned more than $30 billion to shareholders, a 41% increase versus the prior year. In the fourth quarter alone, capital returned totaled $8.4 billion, including $2.1 billion in dividends and $6.3 billion in share repurchases. Tangible book value per share climbed 9% year over year to $28.73, while diluted shares outstanding fell by about 300 million, or roughly 4%. Management positioned this as a clear sign of confidence in the firm’s earnings power and capital position, even as regulatory rules evolve.

Strength in Wealth and Asset Flows

Global Wealth & Investment Management (GWIM) remained a key growth engine. The segment generated $25 billion in revenue, up 9% year over year, with net income nearing $4.7 billion, up 10%. Client balances swelled by around $500 billion to $4.8 trillion, supported by strong asset under management (AUM) flows of about $82 billion and additional inflows that brought combined firm flows to roughly $115 billion. These trends underscore the bank’s ability to capture more of clients’ investing and banking wallets, particularly among affluent and high-net-worth customers.

Record Global Markets Performance

The Global Markets business delivered a record year, underscoring the benefits of diversification. Revenue reached $24 billion, up 10% from a year earlier, while earnings climbed 8% to $6.1 billion. Sales and trading revenue (excluding valuation adjustments) rose 10%, with equities trading up roughly 23%, driven in part by strong activity in Asia. Management highlighted these results as proof that the bank’s trading and markets platform is gaining share and supporting earnings even when traditional banking margins face pressure.

Improving Asset Quality and Stable Credit Costs

Credit quality remained a relative bright spot. Net charge-offs in the fourth quarter were $1.3 billion, with a net charge-off ratio of 44 basis points—down 10 basis points from a year earlier. Provision expense of $1.3 billion essentially matched charge-offs, indicating no major build in credit reserves. Management characterized credit trends as stable and consistent with a healthy, if normalized, consumer and commercial environment, providing a cushion against other macro and regulatory uncertainties.

Digital, AI and Productivity Gains

Bank of America continued to lean into digital and artificial intelligence to drive both customer engagement and efficiency. The call highlighted strong adoption of digital channels such as Erica and Zelle, alongside expanding AI-driven initiatives across the organization. Management reported significant internal productivity improvements, including an estimated 30% reduction in coding time—equivalent to savings of about 2,000 full-time employees—enabled by new technology tools. While the firm is investing several hundred million dollars in AI-related projects, these investments are being offset in part by the efficiency gains they help unlock.

Accounting Change and Capital Metrics

The bank adopted a change in accounting for tax-related equity investments and restated prior periods, which had a modest but notable impact on reported capital ratios. The shift reduced common equity Tier 1 (CET1) capital by about $2.1 billion, or roughly 12 basis points, contributing to a decline in the CET1 ratio from 11.6% to 11.4%. Management stressed that, despite this one-time adjustment, regulatory capital remains comfortably above requirements, allowing the bank to continue returning capital while preparing for forthcoming rule changes.

Deposit Growth and Mix Headwinds

While deposits grew, management acknowledged that the backdrop is less robust than in prior years. Average deposits increased around 3% year over year, but consumer growth was described as modest or sluggish in parts of the call. Some customers are shifting balances into off-balance-sheet cash alternatives such as money market funds, affecting the mix and pricing of deposits. This dynamic creates a more competitive funding environment and reduces some of the tailwind banks previously enjoyed from low-cost, excess deposits.

Expense Headwinds and Near-Term Cost Growth

Expense pressures are emerging alongside the bank’s growth and investment agenda. Noninterest expenses rose due to revenue-related incentives, higher brokerage, clearing and exchange costs, and increased technology spending. Looking ahead, management expects first-quarter 2026 expenses to be about 4% higher than in the prior-year quarter, reflecting seasonal payroll taxes and the absence of a one-time FDIC benefit recorded in the fourth quarter. Even so, the bank reiterated its commitment to delivering positive operating leverage over time.

Capital and Regulatory Uncertainty

Management flagged ongoing uncertainty around the final shape of capital and leverage rules that are expected to take effect starting in 2026. With the details still pending, the bank is carefully calibrating how quickly to return capital through buybacks and dividends versus building buffers. The discussion underscored that Bank of America aims to maintain healthy CET1 ratios while still rewarding shareholders, but the optimal pacing will depend on how regulators finalize the rules.

Interest Rate Sensitivity and NII Risk

The call underscored that Bank of America is more sensitive to falling interest rates than to rising ones at this stage of the cycle. Management disclosed that an instantaneous 100-basis-point drop in rates from current market expectations would cut 12‑month NII growth by about $2.0 billion. By contrast, a 100-basis-point increase would add around $700 million. This asymmetry highlights a key risk: faster or deeper rate cuts than currently anticipated could pressure NII and earnings, even as the bank benefits from loan growth and fee businesses.

Policy and Regulatory Risk to the Card Franchise

A potential regulatory overhang emerged around the credit card business. Management warned that proposed policy actions, such as possible caps on credit card yields, could reduce the availability of credit and unintentionally harm consumers by limiting access to revolving credit. They noted that such caps could change the economics of card lending and influence how the bank manages card portfolios and risk, even though no final rules have been set.

One-Off Shifts and Revenue Mix Noise

The quarter’s results also included some technical noise in how revenue is classified. Management pointed to an approximate $100 million shift of Global Markets activity into NII rather than fee revenue due to geographic or booking effects. This reclassification is expected to reverse in subsequent periods, indicating that investors should focus on the underlying trends in NII and fees rather than quarter-to-quarter mix swings.

Guidance Signals Continued Growth and Discipline

Looking ahead, management guided to NII growth of 5%–7% in 2026, consistent with earlier Investor Day targets, assuming a rate path that includes two cuts. For the first quarter, NII is expected to be roughly 7% higher year on year, using the fourth quarter as the base after adjusting for the one-time markets shift and fewer interest days. The bank anticipates $12–15 billion of mortgage and MBS assets rolling off each quarter, to be reinvested at yields about 150–200 basis points higher, which should support NII. On costs, first-quarter expenses are forecast to run about 4% above the prior year, but the firm is targeting around 200 basis points of operating leverage in 2026, following 330 basis points in the latest quarter and 250 basis points for the full year. Credit guidance assumes continued stability in net charge-offs and provisions, while capital ratios remain comfortably above minimums even after accounting changes and elevated capital returns.

In sum, Bank of America’s earnings call painted a picture of a bank delivering broad-based growth—across lending, wealth, and markets—while keeping a close eye on costs and capital. Profitability and capital returns are strong, asset quality is stable, and technology investments are driving both customer engagement and productivity. At the same time, investors will need to watch how deposit trends, interest-rate movements and evolving regulations—especially around capital rules and credit cards—shape the earnings trajectory. Overall, management’s guidance and tone suggest cautious confidence that the bank can sustain growth and operating leverage into 2026, even in a more challenging macro and regulatory landscape.