Bank of America (BAC) Q3 2026 earnings review
BofA's loan income rises, but a fine cuts its profit
Bank of America earned more from lending, but a money-laundering settlement and higher costs took the gain away. Net interest income rose 8% and its margin widened for the first time in a year, while trading and deal fees fell. A $1.2 billion charge for the regulators' consent orders cut profit per share to 91 cents.
| Net interest income | $16.6 billion +8% from a year ago |
|---|---|
| Revenue | $30.0 billion +3% from a year ago |
| Profit per share | $0.91 $1.08 excluding the $1.2 billion settlement; $1.04 a year ago |
| Interest income at risk if rates fall 1 point | Improved to -$1.9 billion -$2.2 billion in June |
⚖️ Verdict: 🔴 Bearish
The story got worse because costs grew faster than revenue for the first time in five quarters, even before the settlement. Expenses excluding the charge rose 7% against revenue growth of 3%, so the operating leverage that carried the case this year turned negative. The good news: interest income stayed on the July path.
The question now is whether this quarter's cost growth was a one-off overlap of investment and lower fees, or the new pace. If fees recover in the fourth quarter, the year can still show the planned operating leverage; if not, costs set the margin. The fourth-quarter expense line will tell.
🐂 Bull Case
Interest Income Grows 8% and the Margin Widens
Bank of America earns most of its money from the gap between what it charges on loans and what it pays on deposits. That gap, the net interest yield, had sat near 2.08% for three quarters. This quarter it widened to 2.16%.
The bank earned $16.6 billion of interest income, 8% more than a year ago. It credits loan growth, older fixed-rate assets repricing at higher rates and "a more efficient balance sheet". In plain terms, it borrowed less in the repo market and cut debt.
- Net interest yield: 2.16%, up 8 basis points from last quarter
- Yield outside the trading business: 2.65%, up 17 basis points
- Rate paid on deposits: 1.49%, down from 1.78% a year ago
This matters because interest income now carries the company. Total revenue grew 3%, so without the extra interest it would have fallen. The quarter also puts the lender back on the road to the 2.30% yield it targets.
What to watch: fourth-quarter interest income against the roughly $16.9 billion that the top of the July outlook implies by our math. A figure near it would confirm the upper end of the range.
Wealth Fees Rise 17% as New Money Arrives
Merrill and the Private Bank, the units that manage money for wealthy households, charge a percentage of the assets they oversee. Those fees reached $4.6 billion, 17% more than a year ago, and the division kept more of each revenue dollar as profit.
The useful detail is where the asset growth came from. In the second quarter rising markets did almost all the work. This quarter clients added $20 billion of new money while markets added $23 billion, so by our math flows did nearly half the job. That matters because fees on money clients bring stay when markets fall.
What to watch: net client flows in the fourth quarter, in the asset rollforward. A figure near $20 billion again would mean the second-quarter dip was the exception.
🐻 Bear Case
Trading and Deal Fees Fall While Costs Rise
Global Markets is the trading arm, and Global Banking arranges debt and share sales and advises on mergers. Together they produced the exceptional first half. In the third quarter both reversed: trading revenue fell 5% from a year ago and deal fees fell 11%.
Inside trading the picture splits. Bond, currency and commodity trading fell 17%, "driven primarily by mortgages, municipals and credit", the company said. Equities rose 11% to a third-quarter record on client financing in Asia and the U.S., so the division leans on one desk.
- Global Markets revenue: $5.9 billion, down 6%
- Global Markets expense: $4.2 billion, up 8%
- Return on the division's capital: 9%, against 20% last quarter
Costs did not fall with revenue because the bank kept hiring and investing in technology while fees shrank. "Investment banking pipelines remain robust," the presentation says, but a pipeline is not a fee until the deal closes.
What to watch: fourth-quarter investment banking fees. A figure back above $2 billion would show the third quarter was a pause; another near $1.8 billion would mean the first-half pace has ended.
Costs Grew Faster Than Revenue Before the Fine
"With more than 200,000 teammates using AI tools and 300-plus approved use cases across the company, we are turning our scale into a competitive advantage," chief executive Brian Moynihan said. The cost line does not show it yet. Leaving aside the penalty, expenses rose 7% while revenue rose 3%.
That is the first quarter in five in which costs outgrew revenue. The bank calls the gap operating leverage, and in July it set out three to four points for the year. By our math the first nine months delivered 1.8 points, before the penalty.
- Pay and benefits: 36.6% of revenue, up 0.4 points with fewer staff
- Information processing: 6.7% of revenue, up 0.4 points
- Card rewards paid out: up 8%, so net interchange fees fell 10%
The company blames "investments in technology and brand" and "revenue-related incentives". Bonuses should fall when fees fall, and they did not fall enough. Return on tangible equity, excluding the penalty, slipped to 14.9% from 17.0% last quarter.
What to watch: fourth-quarter expenses against fourth-quarter revenue. The year reaches three points of operating leverage only if costs stop growing while revenue recovers; at this pace, the plan fails.
Buybacks Outran Earnings and the Capital Ratio Slipped
Regulators require banks to hold equity against the risk on their books, measured by the CET1 ratio. Bank of America's fell to 10.9% from 11.2% in June. The company still calls it "well above the regulatory minimum". It paid out $8.3 billion in buybacks and dividends while earning $6.5 billion for common holders.
Loan growth and trading positions also added $32 billion of risk-weighted assets. A third item hurts book value: rising rates produced a $3.2 billion loss on bonds and hedges, so tangible equity per share fell from June.
What to watch: the CET1 ratio at year-end, before the higher surcharge on the largest banks takes effect in January 2027. Another $6 billion buyback with the ratio below 11% would mean the bank is spending its cushion.
Loan Losses Fell, Corporate Bad Loans Did Not
For a year the open question on credit has been corporate loans, which the bank calls commercial and industrial. Bad loans in that book had been rising. This quarter the losses eased: charge-offs on those loans halved from June, to $116 million.
Loans the bank flags as weakening fell to $19.9 billion, the "lowest since 4Q19" as a share of the book. But nonperforming U.S. corporate loans rose again to $1.7 billion, about half more than a year ago. One quarter of lower losses does not settle a trend that took four quarters to build.
What to watch: U.S. commercial nonperforming loans at year-end. A fall from $1.7 billion would mean the problem loans are working out; a rise toward $2 billion would mean the lower charge-offs were timing.
👓 Other Themes
Bank Pays $1.2 Billion to Settle Money-Laundering Orders
On October 13 the bank "consented to orders related to certain aspects of its U.S. Bank Secrecy Act and Anti-Money Laundering and Economic Sanctions Compliance Programs". It booked $1.2 billion for the penalties, which it cannot deduct from tax. The charge cost 17 cents a share and lifted the tax rate to 23%.
Consumers Keep Spending and Bank Sees No Slowdown
Payments from the bank's accounts reached $3.5 trillion this year, up 5%. Card spending rose 7%. The bank's economists expect U.S. growth of about 2% this year and next, with inflation above 3%. Consumer loan losses fell, so the bank's own customers show no strain.
Rewards Programme Signs Up Four Million Clients
BofA Rewards, the loyalty scheme launched on May 27, now has 17.6 million clients, about four million of them enrolled this quarter. Erica, the bank's digital assistant, has 24.2 million active users. Digital channels now carry 71% of consumer sales. The programme's cost appears in the rising rewards payments discussed above.
💲 Other KPIs
Growing, but more slowly each quarter: up 6.3% from a year ago, against 8.8% a year earlier. The company counts a "10th consecutive quarter of sequential average growth". The quarterly step was only 0.8%, because the trading arm cut its loans by $4 billion while wealth and corporate lending grew.
Flat from last quarter and up 1.5% from a year ago. Consumer deposits slipped 0.9% from the second quarter while corporate deposits rose, so the cheapest funding is not growing. The bank paid 1.49% on deposits on average, down from 1.78% a year ago, which helped the interest margin.
Up 3.5% from a year ago but down 0.8% from June, the first quarterly fall in a year. Tangible book value is equity per share after goodwill. It fell because a $3.2 billion loss on bonds and hedges went straight to equity, while buybacks shrank the share count by 5%.
🔮 Guidance
Improved. A one-point drop in rates would now cost the bank about $1.9 billion of interest income over a year. That is $300 million less than it estimated in June. The lower exposure reflects a smaller and cheaper funding base; the figure has stayed near $2 billion for a year.
Raised. A one-point rise in rates would now add about $1.4 billion of interest income over a year, up from $1.0 billion in June. The bank therefore gains more from higher rates and loses less from lower ones than three months ago. That is the position a lender wants ahead of an uncertain rate path.
❓ Key Questions
Will the year still show three points of operating leverage?
In July the company set out three to four percentage points for 2026. By our math the first nine months delivered 1.8 points excluding the penalty, so the fourth quarter alone must close the gap.
What does the fourth-quarter interest income look like?
The release gives no fourth-quarter figure. The top of the July range implies about $16.9 billion by our math; the company should say whether it still expects the upper end.
What will the consent orders cost beyond the penalty?
Compliance programmes under regulatory orders usually require more staff and systems for years. The release gives only the $1.2 billion charge, not the running cost.
Which borrowers sit in the rising U.S. corporate bad loans?
Nonperforming U.S. commercial loans are up about half in a year while losses fell. Investors need the industries and whether any sit in private-credit lending.
Do the new rewards pay for themselves?
Rewards and partner costs rose $200 million in a year while net interchange fell 10%. The company has not shown the extra spending or deposits the programme brings.