Bank of America Corporation earnings

Management highlights

### Overall Firm Financial Performance - Total company revenue grew 15% YoY to $31.6 billion; net income was $9.1 billion, up 27% YoY; EPS increased 34% YoY to $1.21 per share - Achieved 6.6% operating leverage for the quarter, improved the firm-wide efficiency ratio to 59%, and generated a 17% return on tangible common equity (ROTCE) - Returned $8 billion to shareholders via dividends and share repurchases in the quarter; ended the quarter with a common equity Tier 1 ratio of 11.2%, well above the 10% regulatory minimum ### Balance Sheet, Deposits, and Lending - Ending total assets remained steady at $3.5 trillion QoQ; average total deposits grew 2.5% YoY to $2.02 trillion, marking the 12th consecutive quarter of average deposit growth, with non-interest-bearing deposits up 4% YoY - Average loans and leases increased 8% YoY to $1.2 trillion, marking the ninth consecutive quarter of both average and ending loan growth; average commercial loans grew 11% YoY to $733 billion, while consumer loans grew 3% YoY led by credit card and securities-based lending growth ### Net Interest Income and Non-Interest Income - Net interest income (NII) on an FTE basis was $16.2 billion, up 9% YoY, driven by higher loan/deposit balances, fixed-rate asset repricing, and global markets activity - Non-interest income grew 22% YoY, led by 18% growth in investment brokerage fees, 50% growth in investment banking fees, and 33% growth in sales and trading revenue ### AI Adoption and Operational Productivity - The firm now has over 300 approved AI use cases, 114 live generative AI use cases, and 34 fully implemented AI capabilities, with over 400,000 daily AI prompts generated by teammates - AI tools are deployed across client-facing teams, research, software development, and internal operations to improve productivity, accelerate workflows, and enhance client service - AI-enabled efficiency is helping reduce manual work and support sustained operating leverage, while the firm continues to reorient existing technology spending toward AI initiatives without a material near-term surge in total spending ### Credit Quality - Provision expense and net charge-offs both came in at ~$1.4 billion, largely unchanged from Q1; consumer credit card charge-offs and delinquencies improved both YoY and QoQ - Reservable criticized commercial exposures declined $2.3 billion QoQ to ~$22 billion, driven primarily by improvement in commercial real estate (CRE) exposures; overall credit quality remains stable consistent with longstanding underwriting discipline

Guidance

- **Full-year 2026 NII growth**: Management initially guided for 5-7% growth, revised the range upward to 6-8% in April, and now expects full-year 2026 NII growth to land at the upper end of the 6-8% range, based on the current forward curve including one 25 basis point rate hike in September, and assuming modest loan and deposit growth in the second half of the year. - **Full-year 2026 operating leverage**: Management previously guided for more than 200 basis points of full-year operating leverage. With first-half 2026 operating leverage already exceeding 450 basis points, management now expects full-year 2026 operating leverage to land in the 300-400 basis point range, accounting for tougher year-over-year comparables in the second half of 2026. - Long-term net interest yield (NIM) target remains 2.3%, with management still on track to hit this target within the original 2-3 year timeline; intentional growth of the lower-yield global markets business has modestly suppressed overall firm NIM in the near term, which was a conscious strategic choice.

Segment performance

1. **Consumer Banking**: Revenue grew 5% year-over-year to $11.3 billion, net income increased 10% YoY to $3.3 billion. It generated positive operating leverage for the fifth consecutive quarter, held a 51% efficiency ratio, and delivered a 29% return on allocated capital. This segment contributes 35.8% of total company revenue. 2. **Global Wealth and Investment Management (GWIM)**: Revenue grew 16% YoY to a record $6.9 billion, net income increased 42% YoY to $1.4 billion. It generated positive operating leverage, with pre-tax margins expanding to over 27%. This segment contributes 21.8% of total company revenue. 3. **Global Banking**: Revenue increased 10% YoY to $6.2 billion, net income grew 20% YoY to over $2 billion. Investment banking fees increased 50% YoY to more than $2.1 billion, with strength across debt underwriting, advisory, and equity underwriting. Return on allocated capital was 15%. This segment contributes 19.6% of total company revenue. 4. **Global Markets**: Excluding debt valuation adjustment (DVA), net income was $2.7 billion, up 70% YoY; sales and trading revenue (excluding DVA) increased 33% YoY to $7.2 billion. Equities delivered a record $3.6 billion in revenue (up 70% YoY), while FIC generated $3.5 billion (its strongest quarter in over a decade). It generated 16% operating leverage and delivered a 20% return on allocated capital. This segment contributes 22.8% of total company revenue. 5. **All Other**: Recorded a $292 million net loss for the quarter, wider than the year-ago period with no significant one-time drivers.

Risks & headwinds

- Inflation and tighter monetary policy remain key macroeconomic risks that could impact consumer and commercial activity. - Competitive pressure for lending has eased modestly, but price pressure persists in liquid consumer lending products such as auto loans, leading the firm to pull back modestly in these segments where pricing becomes too tight. - While the broader economic backdrop has been more durable than expected, a sudden economic downturn or rise in unemployment could negatively impact credit quality across the loan portfolio. - While AI-driven investment and data center buildout is currently a source of growth, the long-term second-order credit risks of a potential AI-driven slowdown or sector correction require ongoing monitoring as part of standard underwriting. - Excess leverage from non-bank private lending has been a broader market risk, though most of this risk has not accumulated within Bank of America's portfolio, and competitive pressure from non-bank lenders has eased as market terms have normalized.

Analyst Q&A

• Q: Analyst asks about Bank of America's outperforming deposit pricing and the near-term deposit pricing outlook in a higher-for-longer rate environment. /

  A: Management notes NII guidance has been gradually nudged higher to reflect momentum, driven by the firm's strategy of prioritizing high-quality operating account and client growth rather than chasing rate-sensitive deposits. The 4% YoY growth in non-interest-bearing deposits has created a favorable balance mix that keeps overall deposit costs low, enabled by value-added services like digital tools, security, and rewards rather than just rate competition. The firm holds $800 billion in excess cash and securities, so it does not need to overpay for deposit growth.

• Q: Analyst asks how the firm is balancing strong revenue growth with operating leverage, and whether there is a risk of under-investing in AI and growth initiatives. /

  A: Management confirms the firm is already spending heavily on AI and technology, with shifting of existing spending toward AI projects rather than a large unexpected surge in total expenditure. AI tools have improved coding and workflow efficiency, meaning the same spending delivers more output over time. The firm continues to invest in high-return growth initiatives like consumer financial center expansion in new markets, marketing, and rewards programs, and is not holding back spending to hit operating leverage targets; the higher operating leverage guidance reflects stronger-than-expected performance, not cost-cutting.

• Q: Analyst asks what is driving the large upward revision to full-year operating leverage guidance beyond just higher NII and equities trading revenue. /

  A: Management explains the firm's long-term target from Investor Day was 200-300 basis points of annual operating leverage, based on organic growth and expense discipline. Stronger-than-expected performance in the first half of 2026, with 450 basis points of operating leverage already logged, driven by faster NII growth and very strong fee-based performance across wealth management, sales and trading, and investment banking, makes it clear full-year results will land above the original long-term range. Management maintains headcount discipline has been excellent, with flat to slightly down headcount over the past six quarters, supporting core expense control.

• Q: Analyst asks about current credit underwriting trends and where management sees ongoing credit risks. /

  A: Management confirms the firm maintains consistent, disciplined long-term underwriting standards, and current credit quality across the portfolio is very strong. Competitive pressure from non-bank lenders has eased modestly, as more leveraged lending done outside the banking system has come back to banks on more standard terms. There is ongoing price pressure in liquid consumer products like auto loans, so the firm has pulled back modestly where pricing is too tight. Overall, macroeconomic conditions remain constructive with low unemployment and steady consumer spending, and previously expected risks in CRE and private lending have not materialized at the scale forecasted.