Bank of America (BAC)

Business Overview

Bank of America is the clean teaching case for how a massive US deposit franchise translates rate moves into earnings, and how those earnings map to tangible book. The company runs consumer banking, wealth management, and markets at global systemically important bank scale. Market cap was roughly $392 billion as of 10 June 2026. FY2025 return on average tangible common shareholders' equity was 14.22%, squarely in the 12–16% band where large banks tend to trade between about 1.3× and 1.8× tangible book.

On mid-teens returns BAC sits in the middle of the large-bank pack rather than at the top of it, and the spread income line is why. Tangible book value per share was $28.73 at 31 December 2025.

FY2025 net interest yield on earning assets was 2.01% on a fully taxable-equivalent basis. That is the lowest spread of the six banks covered here, below PNC at 2.83% and well below the 3.30% average margin FDIC-insured institutions earned in the same year. BAC's large, rate-sensitive deposit base reprices with policy rates; when funding costs catch up to asset yields, the consolidated net interest yield compresses faster than at a more diversified earnings mix.

How Deposit Spread Works Here

Start with the label. BAC reports net interest yield (FTE), not "NIM" in the headline table. JPM reports net yield on interest-earning assets; Wells Fargo and others report taxable-equivalent NIM. The NIM guide walks through why cross-filer ranking without harmonising labels mis-ranks franchises.

At 2.01%, BAC sits at the bottom of the FY2025 range, which runs to 2.83% at PNC. The gap to the 3.30% industry average is not a data error; it reflects mix (markets funding, non-US operations, a smaller card book than JPM's) and how quickly deposit costs reset when rates fall. Deposit beta, the share of a rate move that passes through to what the bank pays savers, is only disclosed quarter by quarter, so it is a trend to follow in the supplements rather than a single annual figure to rank on.

Noninterest income matters as a partial offset. The efficiency ratio was 61.32% for FY2025, expense over revenue, so lower is better, and BAC is mid-table. That sits in the average large-bank band of 60–65% in our screening, above USB's 58.6% and JPM's 52% overhead ratio but below Wells Fargo's 66%. At that level spread income and balance-sheet mix matter more to returns than another cost programme.

Credit quality is benign. Net charge-offs were $5,631 million on average loans and leases, a 0.50% charge-off rate, below the 0.62% FY2025 industry figure and well below JPM's 0.74%. CET1 on the Standardised approach ended at 11.4% against a 10.0% total requirement (a 4.5% minimum, a 2.5% stress capital buffer and a 3.0% G-SIB surcharge, the extra capital the largest banks carry for being systemically important), headroom of +1.4 pp in the normal buffer band of the CET1 guide.

Valuation Framework

The typical band for 12–16% sustainable returns is about 1.3–1.8× tangible book, with quality names able to push higher. The steady-state check at 10.5% COE implies about 1.35× (14.22 ÷ 10.5); a bank with scale and distribution capacity, but not JPM-like dominance, sits at a modest premium above that line.

TBVPS of $28.73 at 31 December 2025 is the per-share capital scoreboard, and retained earnings are what grow it. Buying stock back above tangible book reduces tangible book per share, so repurchases are worth doing only if the shares are cheap against the returns the franchise earns, which at 14% ROTCE against a 10.5% cost of equity is a closer call than at a 20%-ROTCE franchise. With headroom at +1.4 pp, buybacks compete with organic growth in risk-weighted assets rather than with a binding capital constraint.

The bear case on valuation is spread-led: if net interest yield drifts lower while ROTCE falls toward 12%, the stock re-rates toward the lower end of the P/TBV band without needing a credit crisis. The bull case is operating leverage the other way if deposit costs fall faster than asset yields in an easing cycle.

What to Watch in the Financials

Net interest yield quarter to quarter. The 2.01% FY2025 figure is a full-year average. Quarterly supplements show whether deposit repricing is stabilising or still catching down on the asset side.

ROTCE path versus 14.22%. Mid-teens returns support a mid-range franchise multiple. Migration toward high-teens could expand the multiple if credit holds; drift toward low-teens compresses the premium without waiting for a credit event.

CET1 versus the 10.0% requirement. A 1.4 pp cushion covers routine distributions but is thinner than JPM's. The requirement itself is settled for now, because the Fed has frozen stress capital buffers while it reworks its stress models, so BAC's 2.5% buffer holds into 2027. That leaves risk-weighted asset growth as the thing that quietly absorbs headroom, with no visible "CET1 miss" in the headline ratio.

NCO versus 0.50%. Credit is a tailwind today. Provisions rising while charge-offs lag would be the early CECL signal that the cycle is turning for BAC's consumer and commercial books.

Key Risks

Deposit-beta squeeze. BAC's franchise is explicitly rate-sensitive. Slower-than-expected pass-through of lower funding costs, or faster repricing on the way up in the next cycle, moves net interest yield first.

Efficiency stuck above 60%. At 61.32%, BAC is not a cost-out story unless revenue growth outruns expense growth. Failure to bend the efficiency ratio limits ROTCE expansion even if spreads stabilise.

Capital headroom. A normal-band CET1 cushion absorbs less shock than JPM's. Buyback pace is the variable that usually gives first when headroom tightens.

Multiple compression from spread disappointment. The multiple has little cushion for spread disappointment. Credit would have to worsen materially before NCOs became the re-rating catalyst at the current 0.50% ratio.