Bank of America (BAC)

Financial services giant Bank of America (NYSE:BAC) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 10.8% year on year to $28.09 billion. Its GAAP profit of $1.06 per share was 12% above analysts’ consensus estimates.

Company Overview

Tracing its roots back to 1784 and now serving approximately 67 million consumer and small business clients, Bank of America (NYSE:BAC) is a global financial institution that provides banking, investing, asset management, and risk management products and services to individuals, businesses, and governments.

At their core, diversified banks take in deposits and engage in various forms of lending, which means revenue is generated through interest rate spreads (difference between loan and deposit rates) and fees. Other revenue comes from adjacent services such as wealth management, card and account fees, and products such as annuities. These institutions benefit from rising interest rates that improve NIMs (net interest margins), digital transformation reducing operational costs, and expanding wealth management services as populations age. However, they face headwinds including fintech competition disrupting traditional models (how disruptive is crypto?), stringent regulatory requirements increasing compliance costs, and cybersecurity threats requiring substantial technology investments. Economic downturns also pose risks through potential loan defaults and compressed margins during accommodative monetary policy periods.

Bank of America's primary competitors include other major U.S. financial institutions such as JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC), along with investment banking rivals like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Regrettably, Bank of America’s revenue grew at a mediocre 4.1% compounded annual growth rate over the last five years. This was below our standard for the banking sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Bank of America’s recent performance shows its demand has slowed as its annualized revenue growth of 3% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Bank of America reported year-on-year revenue growth of 10.8%, and its $28.09 billion of revenue exceeded Wall Street’s estimates by 1.8%.

Net interest income made up 53.9% of the company’s total revenue during the last five years, meaning Bank of America’s growth drivers strike a balance between lending and non-lending activities.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Bank of America’s efficiency ratio couldn’t build momentum, hanging around 63.9%.

In Q3, Bank of America’s efficiency ratio was 61.7%, beating analysts’ expectations by 103.7 basis points (100 basis points = 1 percentage point). This result was 3.3 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Bank of America to rein in some of its expenses as it anticipates an efficiency ratio of 62.3%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Bank of America’s EPS grew at an astounding 12.7% compounded annual growth rate over the last five years, higher than its 4.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Bank of America, its two-year annual EPS growth of 1.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Bank of America reported EPS of $1.06, up from $0.81 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Bank of America’s full-year EPS of $3.67 to grow 13.4%.

The balance sheet drives banking profitability since earnings flow from the spread between borrowing and lending rates. As such, valuations for these companies concentrate on capital strength and sustainable equity accumulation potential.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

Bank of America’s TBVPS grew at a solid 6.9% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 8.9% annually over the last two years from $23.94 to $28.39 per share.

Over the next 12 months, Consensus estimates call for Bank of America’s TBVPS to grow by 5.3% to $29.89, mediocre growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Bank of America has averaged a Tier 1 capital ratio of 13.1%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Bank of America has averaged an ROE of 10.1%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Bank of America.

It was good to see Bank of America beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 4.9% to $52.51 immediately after reporting.

Updated: December 4, 2025 at 11:34 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Bank of America’s business quality ultimately falls short of our standards. For starters, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its net interest margin limits its operating profit potential compared to other banks that can earn more, all else equal.. On top of that, its net interest income growth was weak over the last five years.

Bank of America’s P/B ratio based on the next 12 months is 1.4x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $58.90 on the company (compared to the current share price of $54.19).