$BAC Bank of America Q2 2026 Earnings Conference Call

Good morning and thank you for joining us. Once again, our team delivered strong second quarter results, extending our momentum of the past several quarters. Our revenue grew 15% year-over-year to 31.6 billion. Our net income was 9.1 billion, up 27% from last year. Our EPS increased 34% to $1.21 a share. Our results show organic growth, operating leverage and efficiency ratio improvement in every business segment. Along the bottom of slide two, you can see the progress against several of our key financial metrics for the firm. For the quarter, we delivered 6.6% operating leverage and our efficiency ratio improved to 59%. We generated return on tangible common equity of 17%. In short, organic growth was broad-based and coupled with operating leverage, which translated into stronger returns on both equity and assets. Slide three shows the contributions and growth of each business segment. Every business segment contributed to our year-over-year growth. Average deposits and loan balances continued to grow, supported by healthy client engagement. Revenue and net income increased in every business segment. Each segment generated operating leverage. Each segment improved its efficiency ratio and each segment demonstrated the benefits of its scale. Together, those results drive stronger returns across the company. Let me touch on a few earnings highlights from slide four. Starting with revenue. Revenue growth was broad-based led by NII, investment banking, wealth management fees, and sales and trading revenue. First, net interest income. It continued to perform well on an FTE basis. NII was approximately $16.2 billion, up 9% over last year's second quarter. This is driven by the strength of our core lending and deposit gathering franchises. It also includes our lending in our global markets business and the impact thereof. We also have added the benefit of ongoing pricing with lower yielding assets and a repayment of higher cost funding. Second, our fee-based businesses delivered exceptional results translating into 22% non-interest income growth. Wealth management, investment banking, and markets all benefited from healthy client activity and favorable capital markets conditions. Merrill and the private bank advisor drove the 18% growth in investment brokerage fees. Investment banking fees increased 50% year-over-year to more than $2.1 billion while sales and trading generated $7.2 billion in revenue up 33%. Third, we managed cost while we continue to invest in the franchise. Our brand, our people, our technology, and our AI enabled productivity. Asset quality also remains stable and consistent with the strong underwriting discipline that has characterized our company for many years. Finally, capital generation and capital returns to investors remain strong. We returned $8 billion to you through dividends and share repurchases this quarter. We ended the quarter with common equity tier 1 capital of nearly 202 billion and a common equity tier 1 ratio of 11.2%. The economic backdrop remains very constructive as slide five illustrates. Last week, our research team raised its 2026 US GDP growth forecast to 2.2%. They also have global growth expected to remain steady at 3.2% in 26 and grow to 3.5% in 27. As noted on the slide, consumer spending has recently expanded and continues to outperform our expectations. While the slide reflects 5% growth in year-over-year spending for the first half, the spending picked up during the second quarter and now is running at 6% plus year-over-year comparison. So overall the US economy has proved more durable than expected supported by the strong consumer, ongoing AI-driven investments across the board, and easing energy costs though inflation and tighter monetary policy remain key risks. Before I turn it over to Alistair, I want to bring your attention to a couple slides. First we have our digital slides in the appendix. In addition we added a slide on AI. It's slide 20, which shows how our over 200,000 teammates are actively using AI enabled capabilities across our company. These range from productivity tools to more advanced agentic workflows and coding support. Our associates are generating more than 400,000 prompts a day and as of last week, we had over 300 AI use cases approved, all of which have good economics, of which around 114 are live generative AI use cases. 34 of those cases are fully implemented and we see new capabilities coming on every week. These tools are designed to help our customer relationship managers prepare more thoroughly for client meetings, our bankers automate the research and presentation materials, our developers code more efficiently, and all our teammates improve productivity, consistency, and client service while creating significant opportunities ahead of us. I'm going to turn it over to Alistair.

Yeah. So, I'd say we kind of just kept nudging NII a little bit higher as we've gone through the year. First from that 5 to 7 up to the six to eight and then more recently saying we're probably going to be at the top end of that range. So we've tried to express our confidence in the momentum of NII and some of that comes from the deposit gathering. I think you know we've got a lot of liquidity. We're not loaned up at this point. So we've got 800 billion of excess between our cash and securities over our loans. And that really allows us to concentrate on our strategy. Our strategy is very clear. We're trying to grow clients and operating accounts. That's the highest quality growth. It's the highest quality clients because when you get that operating account, it's key to the financial lives. So when consumer puts up 162,000 of net new checking accounts or when we grow non-interest bearing for seven consecutive quarters, that's what helps us to drive the non-interest bearing up 4%. So the lower rate paid is really about mix. Chris, we're competing out there for deposits like everyone else. We compete tooth and nail to get deposits where we can, but at the end of the day, our strategy is about relationship value. All the things around digital and security and rewards that we talk about and it's that favorable mix of growing the non-interest bearing that makes a difference.

Morning, Glen.

Banking this year, up 50%. If you kind of sustain that relative to what we did in third quarter of last year, which was 2 billion or so, you just don't get the same kind of uplift in the second half. So, that's what we've got our minds on. Otherwise, as you can imagine, the business conditions are very good and we're trying to maximize operating leverage where we can.

Well, there are really two places I think that you'll see it. The first one is we've talked about the fact that we believe we can improve net interest yield over time. We've done that. You can see we're at 208 now. We're up from 194 a year ago. So that's been a contributor to some of the NII gains. But we've talked about on prior calls, we still feel like we carry some repo, some institutional CDs that over time we're just continuing to pay down. If those are invested at the Fed, we're not capturing a lot of spread. It doesn't do anything for NII, it actually hurts NIY, but it also ties up a little bit of capital. So, as we continue to pay that down, and I think you'll see more of that happening in the second half of this year, that'll free up more capital. It'll help us on the return on tangible common equity as well. So, we're sticking to that program. We'll have a pretty good opportunity in the second half. We're looking forward to that. Just note there there's no constraint on the growth of loans or core deposits, etc. So that can all grow because it's all going to get good returns and things like that. It's really a question of sort of the centralized security portfolio and the repo, as Alistair said. A lot of the buildup that came because of the rules getting flipped around is now we're through that on the other side of it.

Well, first welcome to coverage. Nice to have you on the call. Thank you. Second, yeah, I mean if rates, if we've got one rate hike in the curve, it's in September. So its impact this year is pretty modest because you're really only capturing anything in October, November, and December. We will obviously adjust pricing in each of our segments for any rate hike. But net net we expect that to be a positive. So that's in our guide right now where we're saying it was 5 to 7, then it was 6 to 8, now we're saying it's going to be at the top end of that range. And that's with that hike. Now, I think generally speaking, because the banking book is liability insensitive, that's the predominant benefit, but the market's business is slightly liability sensitive, so that's a slight offset, but net net net it's a positive for us and that's what we're trying to communicate.

Yeah. So if we look at the middle market, we're sort of growing kind of like commercial loans overall. They're growing around 8% or so. Middle market's kind of in there. Larger cap corporates are in there. So the growth looks pretty good we would say on the commercial side. And if you go back now, I think it's over 9 or 10 quarters we've been growing loans at 20 billion or so per quarter, 7% last year full year, 8% this year. So the commercial growth there, we don't necessarily see that changing. Feels to us like we're in a good environment for loan growth. And then just keep half an eye also on card, where you know Holly laid out a plan to say we want to get back towards 5% type card growth. We were at 1%, then two, then three. You can see this quarter we're at 4%. So some good news on the consumer side. And then things like securities based lending have been pretty positive as well, just with the way the markets have performed and what our wealth management clients want to do. So we remain pretty constructive on loan growth in the second half. No changes there.

Thank you.

Yeah. So, Ben also welcome to coverage. Thanks for joining. Yeah, the updated guide essentially assumes the following. First, modest deposit growth similar to what we've been seeing. Second, good continued loan growth in the second half of the year, similar to what we've been seeing. So, we haven't really changed our perspectives on either of those. We'll get the benefit from some fixed rate asset repricing. You get a little bit more of that in the second half than the first half. But otherwise, it's mostly balance sheet gains. And then what I described in terms of balance sheet efficiency, I would think about that as being more about net interest yield and less about NII. Okay.

Well, I think we are spending at a good clip overall on technology and also dedicating a lot of time in the company towards careful examination, implementation, catalyst, people working to understand the projects and AI. We give you the outline on slide 20. So, I think there's productivity increases. There's a lot of spending. We're going to be spending more of it. Whether that increases the expenditures of technology development dramatically or not really has to do with a couple of things. One is the shifting of spending towards it and then secondly even the coding process has become more and more efficient using these tools. So the same amount of money in 2027 will get us more code for lack of a better term in 2028. So we're driving everything as hard as we can and our focus on operating leverage, we just told you we raised it above the normalized range and then we're continuing to invest in the places that grow the business, especially around the consumer business, think financial centers and new markets done in a rational full market buildout basis, not on a one-off one at a time basis, building out cities we're not in, and we continue to drive the marketing capabilities of the firm and our consumer scores have now reached all-time highs. And then we invested heavily in our rewards program which goes to some of your other colleagues' ability to cement relationships with great deposit mix and the result cost of funds. So we're spending. I don't think you'll see a major change in our methodology of how we think about spending. A lot of the incremental expense growth from second quarter this year last year was due to incentives and BCD clearing expenses. If that keeps going, we'll all be happy because that means the revenue's got to grow. If the revenue slows down, the expense growth will slow down and it will have a different type of operating leverage that Alistair described earlier.

Yeah. Okay. Well, first thing I should say is it's not slowing it much. Second, I think it's actually helpful, I think, to just lay out if you look at the four quarters of 2025 just sequentially and then lay out essentially 2026, what you see is most all of the NII build last year was in the second half of the year. So, we're just up against tougher comps, that's all. It's not more complicated than that. So, we just got to stick doing what we're doing. We got to keep growing the loans. We got to keep growing the deposits with particular focus on operating accounts and non-interest bearing, and then we'll get some benefit from fixed rate asset repricing as we do. We've invested in global markets with their balance sheet that's a net positive, but I don't expect that to be anything particularly big in the second half of the year because markets generally speaking is sort of at a good run rate right now. So, we're talking about eight or nine percent. I don't know, they're both very good, but we kind of feel like right now it looks to us like more like 8% for the full year just based on the comps.

I think Erica, there's a lot in assumptions and things. Let me just be clear, the return on tangible common equity was 17. We thought it would take us longer to get there. That is in part due to the strong operating of the general businesses that are operating very well, getting good operating leverage, you know, consumer banking, commercial banking, and benefiting by the NII, as well as the strong performance in markets. Right now we see very strong performance this quarter and we expect it to continue based on the market conditions, but you know, the Iran wars are fractious and we can't predict what will happen next, and that could affect the market's perception, IPOs, etc., but right now the pipelines are full. We feel very good about that. The loan growth, deposit growth Alistair described, so we feel very good about the returns and maintaining those returns. But in this current quarter, there was a pretty healthy lift off of last year in a strong markets return as you mentioned. So we're a balanced company. The other parts are kicking in. The key for everyone to understand is it's all going to come to the bottom line and that's our goal was to make sure all the NII lift as we marched from 190s and NIM up to the 230s, which we said we could do, that all fell to the bottom line along the way and that's what we're driving at. So if you look at the expense growth, it's really related to the fee-based businesses and the rest of it's having a very rational amount of expense growth because the efficiency measures and it's dropping to the bottom line and that's why the earnings growth was 30 plus percent EPS. So expect that to continue. We're not hiding it from you. We're growing, we're having operating leverage of 660 basis points. So we're letting it come to the bottom line. But meanwhile, we're investing heavily in the growth of this company to make sure that we're positioned in the future. Whether we accept lower returning business or not, we always look at all the businesses and say what can you swap out from low return to higher returning based on the return on tangible common equity metric which at 6% plus or minus we think is the right standard to look at. We think it's what the rating agencies look at. We think the people operating below that have to be careful. That's a lesson learned from the financial crisis. So we expect to be around that level and when people have optimization opportunities, they have to grow the bottom line, but if they can grow it with more return, we're pushing them to do that as well as letting them grow to meet the market demand.

I'd say overall we see you know from what we're underwriting, we stick to our credit knitting so to speak. It's been consistent. It's been long-term. You can see it in the stress test results again that just got issued. So it is in what we do. We maintain that consistency and the nice thing is we can maintain that consistency and actually grow a stronger share in the industry and core market, the areas that you're thinking about, small business, etc. So we feel very good about that. Do we see some excesses on outside? We always do. A lot of that went to a different market, not in the banking system. Some of that's come back and now needs to do it more on bank lendable terms so to speak, so we're seeing that competitive pressure ease a hair, but we'll see if it stays that way. And we're seeing price pressure in some of the more liquid products like auto loans and stuff, and that's why we laid off a little bit as the pricing got very tight, and that happens once in a while. But overall we feel good that the credit quality is high. The underwriting that we see is high. The impact of more leverage done with loans outside the banking system is mitigated as that practice straightens itself out over time here. And so we feel very good about the credit quality. It's all going to come down to the economy and right now our team is fairly very constructive on the economy and unemployment at 4.2 or whatever it is, new claims for unemployment staying low. It's a pretty good place. And so that's why you're seeing a complete sort of steadiness in our credit cost. And importantly, the issues of the moment, whether it was real estate four or five years ago, or whether it was private capital lending and all this stuff, just aren't surfacing the way people thought they would.

But when we look at the work we do with clients and others, we factor in across all our companies as part of the underwriting work that the team does, they have to factor in the question of what's the impact of AI in the industry and the company and what'll happen. I think it'll take time as you said, and we continue to watch that as we look at underlying deals. We're always looking at the credit capability and the earnings power of the underlying tenants so to speak that are driving the revenue to the buildout, so that we can keep care on, and we look at the energy buildout, we see the demand there. So we look at all the factors you're talking about. I think that and what we learn from also is not only what happens outside, we see the impact in our company and the ability for us to use it effectively relatively quickly. So it's a very powerful tool. It has great utility. It has to be carefully managed. You have to have your data perfect, you have to have your rules base so it doesn't make mistakes and how you use it. You have to look at processes and re-engineer them. So we feel very strong about it and we talk to the companies that are in our portfolios of lending to make sure they're active using this so they don't get left behind, but on the other hand they're using it in a responsible way that they can protect their data and their security. So we feel good about it and we feel it'll be a powerful force and a place where the American economy will be very successful.

I thank all of you for joining us. The consistency is a key as you look across all our metrics in every area, whether it's NII, fees, etc. The second thing is to keep in mind that the revenue growth is strong but also very diversified across lots of different businesses, lots of different outcomes. And the third to keep in mind is that the credit costs in the company have flattened out at a very strong historical levels and we continue to feel good about the delinquencies. Everything we show you is getting better. If you think about that, all that we gave you guidance that we're at the top end of a range and operating leverage, so all that backs into a strong second half ahead of us. When you think about the atmosphere we operate in, it's a constructive environment. Full pipelines in the markets business, strong investor demand for debt and equity, commercial lending strengthening and continuing to broaden out, and we continue to see strong consumer spending activity which in the end of the day shores up the US economy. Our company is well positioned to be a part of all that growth and we look forward to talking to you next time. Thank you.