Bank of America leans into operating leverage as rate tailwind returns

A strong end to a year that finally looks like a “normal” cycle

Bank of America’s fourth quarter and full-year 2025 numbers were less about surprise and more about confirmation: confirmation that the rate environment has shifted back in its favor, that credit remains almost eerily benign, and that its sprawling franchise can deliver operating leverage without headline-grabbing restructuring.

Net income in Q4 rose 12% year on year to $7.6 billion, with EPS advancing 18% to $0.98, helped by aggressive share repurchases and modestly lower taxes. Revenue grew 7% to $28.4 billion, while expenses rose just under 4%, yielding 330 basis points of operating leverage in the quarter and 250 basis points for the full year.

For 2025 as a whole, revenue edged above $113 billion, up 7% year on year. Net income grew 13%, EPS 19% to $3.81, and return on tangible common equity improved by 128 basis points, with return on assets at 0.89%. In practical terms, that translated into more than $30 billion of capital returned to shareholders—41% higher than in 2024—split between a rising dividend and a step-up in buybacks that trimmed diluted shares by 4%.

Behind those headline numbers is a pattern investors have seen before from Bank of America: a grinding focus on “responsible growth” coupled with a willingness to let technology—particularly AI—do the ugly work on costs.

Balance sheet: growth without stretch

On the face of it, Bank of America’s balance sheet barely budged in Q4. Total assets stood at $3.4 trillion, flat sequentially as securities and cash were run down to fund loans. Under the surface, though, the mix continues to tilt in ways equity investors tend to like.

Average loans climbed 8% year on year to $1.17 trillion, driven by 12% growth in commercial credits and 4% growth across consumer products. Every loan category—cards, mortgages, auto, home equity—was up, and each business segment has posted at least five consecutive quarters of year-on-year loan growth.

Deposit dynamics, a source of angst for the sector over the past two years, are quietly improving. Average deposits rose nearly 3% year on year, with Q4 balances up $17 billion from Q3. Commercial clients have been the primary engine—Global Banking deposits are up $71 billion, or 13%, over the past year—but the more valuable consumer deposits have now grown year on year for three consecutive quarters. Wealth management deposits, which had bled into higher-yielding off-balance-sheet products, appear to be bottoming and even ticked up at year end.

Crucially, the bank has been using that deposit growth to pay down wholesale funding. Management estimates there is still $50–$100 billion of short-term and institutional funding it can retire over time, providing a further tailwind to net interest income as long as deposit momentum persists.

Capital remains ample. Common equity Tier 1 capital stands at $201 billion, with the CET1 ratio at 11.4%, down 20 basis points in the quarter on loan-driven RWA growth and a $2.1 billion hit from a change in tax-equity accounting. That accounting impact—roughly 12 basis points of CET1—will unwind back into capital over several years as deals mature. Even after the drop, the bank sits more than 140 basis points above its current 10% CET1 minimum, and its 5.7% supplementary leverage ratio leaves room for further balance sheet expansion and capital return, subject to final Basel rulemaking.

Tangible book value per share climbed 9% year on year to $28.73, a reminder that the bank is quietly accreting book even as it leans into buybacks.

NII and the rate curve: the franchise starts to pull ahead

With the Fed’s rapid hiking cycle now giving way to gradual cuts, attention has shifted from raw rate sensitivity to execution: who can capture loan and deposit growth and who can reprice assets fastest. Here, Bank of America’s Q4 numbers were encouraging.

Net interest income on a fully taxable equivalent basis was $15.9 billion, up 10% year on year and $528 million sequentially. Net interest yield improved 7 basis points quarter on quarter to 2.08%. Management attributes the NII growth to four elements:

• Core balance sheet growth and pricing discipline, particularly in commercial deposits and loans.
• Asset repricing, as higher-yielding loans replace maturing securities and loans; the bank expects $12–$15 billion per quarter of mortgage and MBS runoff in 2026, to be redeployed at spreads of 150–200 basis points over the outgoing assets or used to pay down expensive short-term debt.
• A mix shift in Global Markets revenue, with roughly $100 million more sales & trading income recognized as NII rather than fees in Q4; that is expected to reverse in geography rather than substance.
• A modest benefit from rate cuts, as funding costs tied to Fed funds fell faster than asset yields tied to SOFR.

On deposit costs, the bank’s discipline is starting to show. The overall rate paid on deposits fell 15 basis points quarter on quarter to 1.63%. In Global Banking and Wealth Management—where deposits are price-sensitive and rate cuts are passed through promptly—rates paid dropped 28 basis points in the quarter. Consumer deposits, by contrast, remain cheap: on $945 billion of consumer deposits, the average rate paid is just 55 basis points, down three basis points in Q4, reflecting the high proportion of operating and non-interest-bearing balances.

Rate sensitivity remains asymmetric. On a “dynamic deposit” basis, management estimates that a hypothetical 100 basis point drop in rates—beyond the two cuts already in the forward curve—would reduce NII by about $2 billion over 12 months, while a 100 basis point increase would add roughly $700 million. That asymmetry is less about structural bias and more about the reality that the easiest funding repricing has already occurred; further falls in asset yields will now bite more.

Even so, at its November Investor Day and again on this call, the bank reiterated its expectation of 5–7% NII growth in 2026 versus 2025, on the back of mid-single-digit loan growth, continuing deposit growth and the asset repricing wave.

Expenses and efficiency: technology does the heavy lifting

For a bank that has spent years battling the perception it is structurally “expensive”, the 2025 story on costs is deceptively simple: hold headcount flat, let AI and digital channels quietly remove work, and treat any revenue-linked expense growth as a feature, not a bug.

Reported noninterest expense in Q4 was $17.4 billion, up just under 4% year on year, against 7% revenue growth. The main year-on-year cost drivers were incentive compensation tied to higher market-facing revenues, and brokerage, clearing and exchange (BC&E) fees connected to an uptick in trading volumes, particularly in higher-cost overseas markets like Asia. Those BC&E expenses are largely reimbursed by clients and thus netted out by offsetting revenue.

Strip out those revenue-linked items, and core expense growth is closer to 2%, management argues, helping to deliver the 300-plus basis points of positive operating leverage in Q4 and roughly 250 basis points for the full year.

The bank’s approach to headcount is central. The employee base has hovered around 213,000 since the end of 2023. In 2025, BofA hired about 17,000 replacements into a low-attrition environment and brought in around 2,000 college graduates—but offset those additions by allowing attrition to reduce roles in operations and support, particularly where AI and digital tools substituted for manual work.

Examples abound: digital assistant “Erica” in consumer banking is already handling interactions equivalent to “thousands of teammates”, according to CEO Brian Moynihan; AI tools in software development have cut the coding portion of project cycles by 30%, equating to savings of roughly 2,000 developers; internal functions such as audit are building their own AI workflows on top of Microsoft 365 Copilot to shrink headcount over time.

Technology spending itself remains substantial. Total tech outlays run around $13 billion annually, with more than $4 billion in new initiatives—growing mid- to high-single digits year on year—as the bank refreshes platforms, deploys AI and pushes more client activity into digital channels.

Investors have been pressing for a more explicit expense “cap”, but management is adamant that the more important metric is operating leverage, not an arbitrary dollar level. With efficiency already improving by around 200 basis points and the bank targeting another 200 in 2026, the message is that the existing 55–59% medium-term efficiency ratio range is a waypoint rather than a promise; the range will be revisited once BofA is well inside it.

Asset quality: credit costs as a rounding error

In an environment where investors are conditioned to look for the next credit problem, Bank of America’s numbers remain stubbornly dull.

Net charge-offs in Q4 were $1.3 billion, down about $80 million from Q3. The total NCO ratio fell to 0.44%, three basis points lower quarter on quarter and 10 basis points below the prior year. Provision for credit losses matched NCOs at $1.3 billion, implying no material build or release in reserves.

The picture is similar across portfolios:

• Consumer credit: delinquencies and charge-offs improved year on year. Card NCOs fell to 3.4%, almost 40 basis points better than Q4 2024 and down sequentially.
• Commercial: continued stability in C&I, with lower losses in commercial real estate; the bank has been reducing CRE exposures over time.
• Overall: management continues to point to benign consumer delinquency trends and low unemployment as supports for near-term stability. At its Investor Day, BofA floated a through-the-cycle NCO range of 50–55 basis points; current performance is comfortably better than that.

In short, credit is not a constraint on growth, nor is it a material drag on earnings at present levels.

Franchise segments: deposit-rich consumer, recovering wealth, and scaled markets

Consumer Banking: the deposit engine

Consumer Banking delivered a robust year. For 2025, revenue rose to $44 billion, with net income up 14% to $12 billion and a 28% return on allocated capital. In Q4 alone, revenue increased 5% year on year to $11.2 billion and net income 17% to $3.3 billion. Expenses grew less than 2%, pushing the efficiency ratio to 51% and operating leverage to nearly 350 basis points.

Behind those numbers lies a deliberate organic growth machine. The bank added 680,000 net new consumer checking accounts over the year, extending its streak of positive checking account growth to 28 consecutive quarters (seven years). Average balances in those accounts remain healthy at above $9,000.

Consumer investment balances climbed $81 billion year on year to just under $600 billion, driven by $19 billion of net flows and market appreciation. The average balance per investment account is now $147,000, up 12%. Digital engagement metrics remain strong: digital account openings and usage of tools such as Zelle continue to grow, even as some interactions shift from the Erica assistant to push alerts, moderating visible Erica volumes.

Credit quality in consumer is improving rather than deteriorating. Combined with stable spending growth—consumer card spending was up 6% year on year—and rising loan balances across cards, mortgage, auto and home equity, the consumer business continues to underpin the group’s high-margin deposit base.

Global Wealth & Investment Management: margins rebuilding

Wealth management, historically a bright spot for Bank of America, rediscovered its momentum in 2025. Full-year revenue reached $25 billion, up 9%, with net income up 10% to $4.7 billion. Over the course of the last three quarters, quarterly net income has marched from $1.0 billion in Q2 to $1.3 billion in Q3 and $1.4 billion in Q4, with return on allocated capital rising from 20% to 28% and pretax margins climbing back into the high-20s.

Client balances swelled by $500 billion during the year to $4.8 trillion, supported by nearly $30 billion (13%) growth in loans and strong asset flows. Assets under management saw $82 billion of net inflows; total flows, including deposits and brokerage, were $96 billion. Across Merrill and the Private Bank, the franchise added 21,000 net new client relationships, with the average size of new relationships trending higher, and opened 114,000 new bank accounts.

The strategic logic is straightforward: combine high-touch advice with the bank’s deposit and lending capabilities, augmented by increasingly digital onboarding and servicing. The digital effect is visible in the data: a rising share of new wealth accounts are opened digitally, and competitive attrition of advisors has fallen to its lowest level in years, according to management.

Global Banking: fee growth offsets rate headwinds

Global Banking—a mix of corporate lending, treasury services and investment banking—generated $7.8 billion of net income in 2025, down about 2% year on year, and accounted for roughly a quarter of group earnings. The drag came from lower NII on variable-rate assets as interest rates were cut.

But the underlying franchise is expanding. Average deposits rose $71 billion (13%), average loans grew $12 billion, and the bank added some 500 new middle-market banking clients and more than 1,000 new business banking relationships in 2025. Treasury services fees climbed 13% year on year, reflecting deeper transaction relationships.

In Q4, Global Banking net income fell 3% year on year to $2.1 billion, but fees rose 6%, helping offset NII compression. The business remains lean, with a 50% efficiency ratio and a 16% return on allocated capital.

Investment banking fees for the full year increased 7% and reached their highest level since 2020, excluding the post-pandemic snapback. BofA maintained its #3 global league table position. Fees in the second half of 2025 were 25% higher than in the first half, as regulatory and tariff uncertainties eased and deal-making resumed.

Global Markets: scale and breadth paying off

Global Markets, excluding DVA, delivered a record year. Revenue reached $24 billion, up 10% year on year, with net income rising 8% to $6.1 billion and a 13% return on allocated capital. Q4 was the 12th consecutive quarter of year-on-year earnings growth, with net income just shy of $1 billion and revenue up 10%.

Sales & Trading revenue, ex-DVA, hit about $21 billion for the year, marking the 15th consecutive quarterly increase and underscoring the rebuilding of BofA’s trading franchise. Q4 Sales & Trading revenue rose 10% year on year to $4.5 billion, led by a 23% jump in equities, driven largely by increased activity in Asia. Fixed-income trading revenue rose 1%, with strong macro rates and FX offsetting a modest decline in credit.

The expansion has not come for free: higher transaction volumes in overseas markets lifted BC&E costs, which show up in expenses before being reimbursed through revenue. But the scale and diversification of the platform—both across asset classes and geographies—are now clearly visible in the income statement.

What investors should watch

Bank of America’s 2025 and Q4 performance offers a narrative of incremental gains rather than drama: modestly higher returns, steadily improving efficiency, and balance sheet growth without obvious excess. For investors, three themes stand out:

• Operating leverage is real, but lumpy: With efficiency already down by roughly 200 basis points and another 200 targeted in 2026, much depends on whether management can continue to shrink headcount without sacrificing revenue growth. AI and digital tools are doing visible work, but the pay-off will likely remain gradual.

• Rate repricing is a multi-year story: The combination of mid-single-digit loan growth, normalizing deposit growth and the repricing of $12–$15 billion per quarter of fixed-rate mortgages and MBS into higher-yielding assets gives Bank of America a credible path to the 5–7% NII growth it has guided to for 2026, even with modest rate cuts.

• Credit and capital provide a wide safety margin: With NCOs at 44 basis points and CET1 at 11.4%, the bank is operating with both low credit losses and surplus capital. That gives it room to keep buying back stock and growing the balance sheet, while absorbing any eventual cyclical turn.

After years of restructuring and regulatory recalibration, Bank of America is increasingly behaving like the kind of high-capacity utility investors once expected: a large, diversified financial plumbing system that grinds out incremental returns, driven less by bold bets and more by the quiet compounding of deposits, technology and operating discipline.