Lubin Investment · Blog

Bank of America (BAC): Q2 2026 results, my verdict

2026-07-17 ·

BAC: see the full analysis on Lubin Investment

Bank of America just posted net income up 27% year over year and raised its net interest income guidance for 2026. This is my first full analysis of this bank: broad based growth rather than a one-off stroke of luck, but a price ratio that needs careful reading for a financial institution.

A bank I had not covered yet, at a good time to start

Bank of America is the second largest US bank by balance sheet size, right behind JPMorgan Chase. The group is organized around four businesses: retail banking for consumers, wealth management through Merrill and the private bank, investment banking, and capital markets. With a market cap near 437.5 billion dollars and average deposits of 950.8 billion dollars in the first quarter of 2026, the bank carries considerable weight in the US financial system.

I had never run Bank of America through my quality filter before. The quarter it just reported, on July 14, 2026, is a good occasion to do so: net income of 9.1 billion dollars, up 27% year over year, earnings per share of 1.21 dollars (+34%), above the 1.12 dollars analysts expected, and revenue of 31.6 billion dollars, up 15% and above the 30.67 billion expected. The stock rose 1.76% in premarket trading, approaching its 52 week high.

Bank of America's moat: scale and cheap deposits

What durably protects a bank like Bank of America is not a patent or proprietary technology, it is the scale of its deposit gathering. The bank counts 3,540 physical financial centers and 49.3 million active digital users at the end of 2025, with about 30 billion client interactions (logins and automated alerts combined) over the past twelve months, up 14% year over year. This scale lets it gather deposits at a much lower cost than smaller regional banks, which often must offer higher rates to attract the same money. A cheap deposit is the cheapest raw material a bank can turn into profitable loans.

The second pillar of the moat is Merrill, the wealth management and private banking division: a fee based business rather than a lending one, so lighter on regulatory capital and less sensitive to the credit cycle. On management, Brian Moynihan has led the bank since 2010, a rare tenure among large US banks, around a doctrine he has repeated for years, responsible growth: aim for revenue growth above expense growth, what investors call positive operating leverage. That is exactly what this quarter confirms.

The quarter in detail: broad growth, not a one-off stroke of luck

What sets this quarter apart is its breadth: growth came from several businesses at once rather than one exceptional segment. Bank of America even raised its 2026 net interest income growth guidance toward the upper end of its 6% to 8% range, helped by loan and deposit growth, the repricing of fixed rate assets on better terms, and balance sheet optimization. The bank also raised its operating leverage target to 300-400 basis points, the targeted gap between revenue growth and expense growth.

One headline sums up the real question this quarter raises well: the earnings were great, but the new guidance is the real story. In other words, is this profit engine durable, or does it depend on one particularly favorable market quarter? The fact that management raised its net interest income guidance, a far more recurring stream than trading revenue, leans toward durability.

Why I am wary, here too, of P/FCF for judging a bank

As with every bank, Bank of America's free cash flow (the cash left once every bill is paid) behaves erratically year to year: positive 38.0 billion dollars in 2020, negative 7.2 billion in 2021, negative 6.3 billion in 2022, positive 45.0 billion in 2023, negative 8.8 billion in 2024, positive 12.6 billion in 2025. The cause is the same as for any bank: when customer deposits swell year over year, which happened several times during and after the pandemic, that increase counts as a huge cash inflow in the free cash flow calculation, with no relation to the real economic profit of the year. The opposite happens when customers withdraw their savings or move it elsewhere.

Net income tells a far more readable story: 16.5 billion dollars in 2020, 30.6 billion in 2021, 26.0 billion in 2022, 24.9 billion in 2023, 25.5 billion in 2024, 29.1 billion in 2025. An overall upward trend since 2020, despite a few softer years. My site's fair price model, built on a projection of free cash flow per share, sets the bar at 9.23 dollars against a share price of 61.27 dollars, an 84.9% premium according to this calculation. Exactly as with JPMorgan, which I just analyzed for the same quarter, this model inherits the flaw of banking free cash flow, and I do not take it at face value here: I prefer judging price through the P/E ratio and the trajectory of return on capital.

Quality and capital management: what I take away

My quality filter validates 7 out of 10 criteria for Bank of America: 30.2% net margin, share count down 2.31% a year through buybacks, expanding margins, and solid conversion of profit into cash. Return on tangible common equity comes in at 9.4%, below my comfort threshold, and the net debt to free cash flow ratio fails my test, but that last figure also inherits the banking free cash flow noise already explained: I read it with the same caution.

On shareholder returns, Bank of America pays a dividend yielding 1.8%, with a payout ratio of only 25.9% of profit: comfortable room to keep raising it, which the bank has done at a 9.2% annual pace over five years. Combined with regular buybacks, this is the profile of a bank returning a reasonable share of profits without starving itself of capital to keep growing.

What I am watching

Three things to track: the consumer credit cycle, which could push loss provisions higher if the economy slows; the sensitivity of net interest income to Federal Reserve policy, current guidance assuming a single 25 basis point rate cut in September; and the bank's ability to turn this broad quarter into a trend rather than an isolated peak.

How I read it

For a first look at Bank of America, this quarter gives a fairly encouraging picture: broad growth touching several businesses at once, unlike the record but partly inflated quarter from JPMorgan, which I just analyzed for the same period. Quality is solid without being exceptional (7 out of 10 criteria), carried by the scale of deposit gathering and management's cost discipline. On price, I rely on the P/E ratio and return on capital rather than P/FCF, a ratio that a bank's balance sheet renders unreliable. You can find the full breakdown on the Bank of America analysis page and my methodology.

FAQ

Why can Bank of America gather deposits more cheaply than small banks?

Thanks to its scale: 3,540 financial centers and 49.3 million active digital users give it access to a very large deposit base, letting it offer lower rates than regional banks that must compete harder for the same money.

What is operating leverage in a bank?

It is the gap between revenue growth and expense growth. Positive operating leverage means revenue grows faster than costs, which mechanically lifts margins. Bank of America now targets a 300 to 400 basis point gap for 2026.

Why is P/FCF unreliable for Bank of America?

As with any bank, the calculation includes changes in balance sheet deposits and loans, which inflate or deflate free cash flow with no relation to the real economic profit of the year. Bank of America's free cash flow swung from positive 45 to negative 8.8 billion dollars within a single year.

Is Bank of America's dividend safe?

The payout ratio is only 25.9% of profit, leaving a comfortable safety margin. The dividend has grown at an average 9.2% a year over five years, a solid pace for a large bank.

Should I buy Bank of America stock after these results?

This quarter's growth is broad and the raised guidance is an encouraging signal, but my free cash flow based pricing model is unreliable for a bank: I prefer judging price through the P/E ratio and return on capital. This is not personalized investment advice, do your own research.

BAC: see the full analysis on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).