ROTCE 16% Cleared Lower-End of Target Range, FY26 NII Guide Raised to 6–8%, Equities Best-Ever Quarter — Maintaining Outperform, FV $52–60

Rating Action

This print maintains the Outperform rating we moved to at Q4 2025. The thesis-validating element is not the headline beat — impressive though it is — but the speed at which the Q4 framework is converting to printed numbers:

• Q2 2025 (Initiating at Hold): Best-in-class deposit franchise (avg. consumer deposits $950B at 146bps cost; 92% primary penetration), record Q2 NII $14.8B, 13 consecutive quarters of S&T growth. But the multiple already reflected the franchise quality and the asset-sensitive book was exposed to a 2026 easing cycle that hadn't been sized. Initiated at Hold.
• Q3 2025 (Maintaining Hold): Composition firmed exactly as the bull case required: NII tracked to the Q4 exit guide; IB fees +43% YoY; capital return cadence stepped up. None of this was missed-call material, but the FY26 framework remained pending. Held Hold with the upgrade trigger explicitly tied to the Q4 call.
• Q4 2025 (Upgrading to Outperform): The framework landed. NII +5–7% guide for 2026 internally consistent with $12–15B/quarter MBS + mortgage roll-off pricing 150–200bps higher; 200bps operating leverage guidance; ROTCE glide path to 16–18% over 8–12 quarters. The asset-sensitivity overhang resolved. Upgraded.
• Q1 2026 (Maintaining Outperform): The framework has converted to print. NII printed +9% YoY ahead of guide; FY26 guide raised to 6–8% on the rate curve resetting to no cuts; ROTCE printed 16% in the very first quarter of a glide path that was supposed to take 8–12 quarters; equities had its best quarter ever and S&T its strongest decade-running performance. The cycle thesis is materially stronger than the upgrade case. Maintaining; FV $52–60.

Results vs. Consensus

Beats top-to-bottom; the magnitude is meaningfully ahead of the bar across every reportable line.

Segment Performance

Consumer Banking — Strong Quarter, Deposit Inflection Confirmed

• Net income: $3.1B (+21% YoY) on revenue $11.2B+ (+5% YoY). Operating leverage +500bps; efficiency ratio 53%.
• Deposits: Average deposits $951B; 4th consecutive quarter of YoY growth. Over half of balances in low/no-interest checking. Both interest-bearing and noninterest-bearing grew 3% — the deposit-mix inflection we flagged at Q4 is confirmed.
• Checking accounts: Record 38.5M consumer checking accounts; +100K+ net new in Q1; >90% primary relationships. The 7-year streak of consecutive quarterly net growth extends.
• Investment platform: Continues to compound on the $600B base from FY25; consumer investment activity remains a meaningful contributor to GWIM cross-sell.
• Digital adoption: 79% of households digitally active; 71% of sales digital (vs. 65% prior year). The structural cost-compression engine is intact.
• Read: The franchise leverage point we've held throughout the four-quarter sequence is converting cleanly. Borthwick was explicit in the Q&A that the consumer is "beginning to turn and grow at the beginnings of accelerating" — the long-deferred deposit-growth re-acceleration is now visible.

Global Wealth & Investment Management (GWIM) — Record Quarter, Margin Compounding

• Net income: $1.3B (+32% YoY) on record Q1 revenue $6.7B.
• Pretax margin: 26% (vs. 20%-ish a year earlier; trajectory toward 30% Investor Day target).
• Client balances: $4.6T (+10% YoY).
• Asset management flows: $20B in Q1.
• Loan growth: +13% YoY led by custom lending and securities-based lending.
• Adviser dynamics: Recruiting roughly doubled YoY; FA attrition at multi-year lows. Both newer and experienced FA productivity moving higher.
• Read: The cleanest leverage point in the franchise this cycle. Margin compounding from low-20s a year ago to 26% now with the trajectory toward 30% intact. We mark this as a structurally larger contributor to FY26 EPS.

Global Banking — IB Fees Lead, Operating Leverage Strong

• Net income: $2.1B (+8% YoY) on revenue $6.3B (+5% YoY); operating leverage +350bps; expense growth only +1%.
• IB fees: $1.8B (+21% YoY) — led by M&A with ECM also up "very nicely." +21% even against a Q1 2025 base that included ~$230M of leveraged-finance position gains that did not repeat. The cleanest signal that the IB-fee acceleration from FY25 is structural.
• Average loans: +5% YoY across all lines of business; mostly revolver utilization on the C&I side ("$5–10B of loan growth just from revolver draws," per Borthwick) — characterized as BAU working-capital activity, not panic draws.
• Average deposits: +13% YoY; rates paid down YoY and Q/Q.
• Return on capital: 16% (up YoY).
• Read: The IB-fee print on this base is the strongest single confirmation of the capital-markets-composition bull pillar. Pipeline characterized as constructive heading into Q2.

Global Markets — Best Decade-Running Performance, Equities Best-Ever

• Net income: $2B (modestly above Q1 2025, which had $230M of lev-fin gains that didn't repeat); 15% return on capital.
• Revenue ex-DVA: $7B (+7% YoY).
• Sales & Trading (ex-DVA): $6.3B (+12% YoY) — strongest in a decade; 16th consecutive quarter of YoY S&T growth.
• Equities: $2.83B (+30% YoY) — best quarter ever. Driven by client financing in Asia + strong derivatives trading. Topped StreetAccount estimate by ~$350M.
• FICC: Modestly higher with commodities strength offsetting modest FX and rates declines.
• Risk discipline: No trading-loss days in the quarter despite the volatility — the cleanest signal of the franchise quality through environment turbulence.
• Average assets: $1.1T (+14% YoY); higher inventory + strong client balances.
• Read: The cycle engine is now printing at a structurally higher run-rate than the FY25 record set. The Q1 step-up is meaningful enough to materially upgrade the model's FY26 capital-markets revenue base.

Key Topics & Management Commentary

FY26 NII Guide Raised to 6–8%

Borthwick raised the FY26 NII guidance range from +5–7% to +6–8% based on (1) Q1 outperformance, and (2) the rate curve having shifted from 2 cuts assumed at Q4 to no cuts currently:

“Given our outperformance against expectations of NII in Q1 and based on the most recent interest rate curve, which has now shifted from 2 rate cuts expected to having none currently, we're raising our full year NII growth guidance range for 2026 versus 2025 to be up 6% to 8%, and that outlook continues to assume moderate deposit and loan growth.”
— Alastair Borthwick, CFO

Rate sensitivity: 12-month dynamic-deposit basis — an additional 100bps decline beyond the curve reduces NII by ~$2B; 100bps increase adds ~$500M.

Usdin pressed on whether the +9% Q1 run-rate could hold through the full year; Borthwick was honest about the comp dynamic: 2H 2025 had a bigger fixed-rate-asset-rebasing tailwind than 2H 2026 will (the swap and securities books are now further along in the repricing cycle). The 6–8% range is what the year prints if the tailwind moderates as expected; the +9% Q1 print is the ceiling, not the floor.

Read-through: The bridge holds. The asset-sensitivity question we held against the rating through Q3 is fully resolved. We mark FY26 NII at the midpoint of the new range.

ROTCE 16% — Cleared the Glide Path Goal

The Q1 ROTCE of 16% is exactly at the lower end of the 16–18% medium-term target Moynihan articulated at Q4 2025. The Q4 framework had assumed an 8–12-quarter glide path to that level; Q1 cleared it in one. Gosalia's question was whether there were one-time benefits; Borthwick's response:

“I don't think there's any one-timers to consider here. We provided that guidance of a medium-term range for ROTCE over the course of the medium term. ... A couple of years ago, it was 13%, then 14%, every quarter will be different. We just got to keep making progress towards our goal, and that remains our focus as a management team.”
— Alastair Borthwick, CFO

Read-through: 16% is now the floor of the framework, not the destination. We update the ROTCE glide path to anchor at 16% in Q1 with the upper end (18%) now plausible inside Moynihan's "year three" framing rather than the original full medium-term horizon.

Capital Markets Durability — Diversification Doing the Work

Schorr asked the durability question directly — whether the Q1 trading print is the cycle peak. Borthwick's framing:

“This is what you have when you've got a nice portfolio of businesses, activity can move from one to another, still end up with 12% sales and trading increases year-over-year. So we've obviously invested a lot — we'll continue to invest in this business. The client activity remains robust.”
— Alastair Borthwick, CFO

Moynihan was explicit on the breadth-vs.-volatility framing in his prepared remarks: this is improved breadth across global businesses, not episodic volatility-driven activity. IB pipelines are building. Engagement is up across all products.

Read-through: The structural-vs.-cyclical question is decisively answered. Volatility helped this quarter (heightened geopolitical environment), but the breadth and the IB-fee acceleration through 2H 2025 plus Q1 2026 confirms the structural read. We do not pencil mean-reversion into the model.

Capital Position & Buyback Pace Acceleration

Q1 capital return was $9.2B ($7.2B buybacks + $2.0B dividends) — meaningfully above the ~$4.5B/quarter near-term cadence guided at Q3 and Q4. CET1 deliberately drifted to 11.2% (from 11.4% Q4) on capital return exceeding earnings generation, plus balance-sheet growth. McDonald asked the timeline-to-mid-10s question:

“The reality is as the — as we have studied this, the volatility in our earnings stream under all the stress scenarios that we run every quarter is how we start to think about the cushion we have to maintain ... that cushion could be tighter to the reg minimum without having the same threats because of stability in the earnings streams. ... long term, 50 basis points over the minimum is more of what we're shooting for.”
— Brian Moynihan, CEO

Basel III + G-SIB combo: net beneficial. Borthwick was clearer than at prior quarters: the Basel III endgame proposal would result in modestly higher capital, but the G-SIB inflation-indexing proposal more than offsets that. Net net, BAC expects "some reduction in overall capital requirements relative to the current regime in future periods." Comment period ends mid-June; final rules pending.

Najarian flagged a technical concern that BAC's 2025 G-SIB score could push the surcharge up by 2028 even with the proposed indexing relief. Borthwick acknowledged the two-worlds framework (current rule vs. proposed) and reaffirmed the indexing methodology was the binding incremental change.

Headcount Discipline & AI Productivity

Headcount is down ~1,070 from year-end 2025 through attrition. The structural framework Moynihan articulated:

“Each month, we have to hire 1,300 people round numbers to stay neutral in the company. And so you can adjust the headcount by just being careful on hiring and let attrition be your friend. ... It comes from eliminating work and applying technology, and consumer and commercial customers using those technologies, and AI gives us pieces to go we haven't gone.”
— Brian Moynihan, CEO

Mayo asked the AI-victim-vs.-beneficiary question. Moynihan's framing was that the company is positioned as a beneficiary across multiple vectors: Erica + alerts compressing per-customer interaction cost; 18,000 coders with AI tools at ~30% productivity uplift; cybersecurity investment as the offsetting cost; 4,000+ AI patents and 90 active installations; trust at all-time highs per customer-satisfaction surveys.

Read-through: Headcount-down 1,070 inside Q1 is materially ahead of the headcount-flat trajectory implicit at Q4. If sustained, this is the lever that makes the upper-end (300bps) operating-leverage scenario achievable rather than aspirational.

Credit Quality — CRE Office Resolution Confirmed

Provision $1.3B with a small net reserve release driven by improvements in card and CRE, partially offset by growth-related corporate / commercial reserve build. NCOs $1.4B (48bps NCO ratio); modestly up Q/Q on normal card-portfolio seasonality but down YoY. Commercial reservable criticized exposure declined to ~$24B; nonperforming loans flat Q/Q. First quarter in 3+ years with no new inflows of nonperforming assets into office exposures — the cleanup arc we tracked from Q2 2025 through Q4 2025 has now resolved cleanly.

Borthwick provided new disclosure on the Global Markets loan portfolio (Slides 24–25) addressing the private-credit underwriting-dispersion concerns surfacing across the industry: structural insulation from sponsor-equity and fund-investor first-loss positions; continuous re-underwriting of collateral for borrowing-base purposes; independent borrowing-basis governance with ongoing performance tests; no reliance on sponsor marks. Cassidy asked whether underwriting standards were getting stretched anywhere; Borthwick: not seeing it at BAC and not detecting it elsewhere.

Wholesale Funding Optimization — ~$100B Runway

Mitchell asked Borthwick to quantify the wholesale-funding-optimization runway. Borthwick reaffirmed the prior-quarter framing of ~$100B remaining (long-dated CDs and repo activity rolling off as core deposits replace them). Moynihan reframed the optic on nominal balance-sheet size:

“Be careful about nominal. ... we grow core loans within the balance sheet and let other stuff go off. But the total footings at one point, but it's the — what you're holding within those footings that's the key point and what your — what liabilities you have within those footings.”
— Brian Moynihan, CEO

FY26 Guidance Update

Read: Every guidance line either tightened higher or stayed reaffirmed. The Q1 print plus the FY26 NII raise plus the ROTCE clearance plus the capital-return acceleration plus the Basel III + G-SIB net-beneficial framing — this is the cleanest single-quarter framework upgrade we've seen from the franchise this cycle.

Analyst Q&A — Notable Threads

• Manan Gosalia (Morgan Stanley) opened on operating-leverage drop-through (whether the NII raise translates to higher operating leverage); Moynihan affirmed the higher-end of the range when NII overdelivers. Follow-up on ROTCE one-timers drew the cleanest "no one-timers, just keep moving up the ladder" framing.
• Glenn Schorr (Evercore) got the cleanest consumer-deposit / consumer-loan-growth color of the call — deposits "finding their floor and beginning to grow out of it" with noninterest-bearing accelerating; lending broad-based at 3–4%; balance-sheet-discipline preference for core operating activity over chasing CDs. Follow-up on AI / headcount drew Moynihan's framing of long-arc headcount compression with continued investment in client-facing roles.
• John McDonald (Truist) drew the most thesis-relevant capital-management framing of the call — ~50bps target buffer over regulatory minimum is the medium-term destination; Basel III + G-SIB combo expected net-beneficial. Follow-up on NII drivers got Borthwick's response that organic growth, slowing rotation from noninterest-bearing to interest-bearing, and a little more balance sheet to Markets are the binding factors.
• Jim Mitchell (Seaport Global) got the ~$100B wholesale-funding-runway sizing and the C&I-loan-growth-from-revolver-utilization framing. Follow-up on whether C&I growth was share take from private credit got "mostly revolver utilization, BAU working capital."
• Mike Mayo (Wells Fargo) drew Moynihan's most-substantive AI-as-beneficiary framing of the call — trust at all-time highs, revenue-per-employee compounding through application of technology, customer data discipline ("we keep our data out of the models"), 99% of consumer interactions already digital so the AI lift is on the 1% high-cost tail and on internal productivity.
• Erika Najarian (UBS) closed out the asset-sensitivity-into-no-cut-environment question with Borthwick's response that deposit-cost trajectory holds in a no-cut scenario. Her technical follow-up on the 2025 G-SIB score / 2028 surcharge concern got Borthwick's two-worlds framework (current vs. proposed rules; indexing is the binding new mechanism). Najarian's "Brian, fantastic job on addressing the efficiency questions very clearly earlier in the call" was the cleanest implicit market-validation moment.
• Ken Usdin (Autonomous Research) pressed on the +9% Q1 NII run-rate sustainability; Borthwick's honest framing was that the 2H 2025 had a bigger fixed-rate-asset rebasing tailwind than 2H 2026 will, so the +9% Q1 is closer to the year's ceiling than its average. Follow-up on the operating-leverage glide path drew the clearest articulation of the headcount-discipline framework.
• Chris McGratty (KBW) asked the GWIM medium-term Investor Day target update. Moynihan's response framed the recruiting cadence (advisers approximately doubled YoY) and the multi-year-low FA attrition as the binding net-flow-acceleration mechanism.
• Gerard Cassidy (RBC) drew the cleanest consumer-credit / wage-growth framing of the call — spending up across all income strata at faster rates in middle and high; wage growth solid across the spectrum; unemployment at 4.5%, new claims ~200K with continuing claims 1.8M at levels lower than pre-pandemic on a bigger workforce. Follow-up on underwriting-stretch concerns drew Borthwick's "not seeing it" response.
• David Chiaverini (Jefferies) closed with the borrower-sentiment-into-Middle-East question; Borthwick's response was that revolver draws are BAU working-capital-driven, not panic-positioning; Moynihan extended with the framing that commercial customers a year forward from "Liberation Day" have absorbed trade/tariff/immigration policy and are seeing solid demand.

What They’re NOT Saying

• No Q2 2026 guidance specifics. The full-year framework was raised; the seasonal Q2 setup was not sized. We model Q2 NII at modestly above Q1 on continued organic growth + a modest fixed-rate-repricing benefit.
• No specific ROTCE 18% target timeline. Q1 cleared the lower-end of the range; the upper-end (18%) timing was not re-articulated. We continue to model 18% inside Moynihan's original "year three" framing rather than accelerated.
• No Berkshire commentary. The Berkshire reduction continues to be the elephant in the room not raised by analysts and not volunteered by management. Marginal-bid composition has fully normalized through the four-quarter sequence.
• No specific Basel III endgame implementation timeline. Comment period ends mid-June; final rules pending. We treat the net-beneficial framing as upside-modeled rather than embedded.
• No detailed M&A pipeline commentary on inorganic growth. The deposit-franchise M&A path remains closed (regulatory); technology / specialized-payments tuck-ins remain optionality. No incremental disclosure.
• No explicit reserve-build for any specific tail-risk scenario. Provision has a small net reserve release; with NCO ratio at 48bps below the through-cycle 50–55bps reference, the reserves would need to build through any meaningful labor-market deterioration. We continue to flag this as the principal credit-tail-risk monitor.
• No incremental commentary on AML / regulatory consent orders. Continues to be cleanup-stage with no explicit lift-of-order timeline. We continue to monitor.

Market Reaction

The print landed pre-open April 15. The intraday reaction was essentially flat (~−0.07% on the day) despite the magnitude of the beat across every reportable line and the FY26 NII guide raise. Reading the tape: this is a market that had already priced the Q4 framework upgrade into the multiple, and even a clean composition print + raised guide does not move a stock that has rerated through 2025 and into 2026. Volume was elevated; trading sessions absorbed the print without thesis pivots from the buyside.

Our read on the muted reaction: it is positioning, not thesis. The post-print rerating that followed Q4 has held into Q1, which is consistent with a market that bought the upgrade thesis ahead of the validation print. The 12-month total-return setup from here continues to be supported by the FY26 framework raise + ROTCE glide path now anchored at 16% + capital return acceleration + Basel III + G-SIB net-beneficial regulatory tailwind — none of which the muted Q1 tape negates.

Street Perspective

The bull case being made on the Street post-print converges on three planks: (1) FY26 NII guide raise to 6–8% on the rate curve resetting to no cuts is incremental tailwind that materially de-risks the FY26 EPS framework; (2) ROTCE 16% in Q1 vs. an original 8–12-quarter glide path is the strongest single signal the upper end of the medium-term range (18%) is plausible inside the Moynihan three-year framing; (3) capital markets composition is now structurally larger than the cycle implied, with Q1 sales-and-trading the strongest in a decade and equities the best ever, alongside continued IB-fee acceleration, and we are now past two prints (Q4 + Q1) of capital-markets confirmation.

The bear case being articulated on the Street centers on: (1) Q1 +9% NII print is closer to the ceiling than the year's average given 2H 2026 rebasing comp dynamics; (2) ROTCE 16% in Q1 raises the question of what catalyst drives the next leg vs. the multiple already absorbing the framework upgrade; (3) NCO ratio at 48bps below through-cycle 50–55bps creates negative skew on credit normalization; (4) the equity has rerated through 2025 and Q1 2026 and is no longer at a deep discount to franchise quality; (5) Basel III + G-SIB final rules carry implementation tail-risk despite the proposed-net-beneficial framing.

Our read: the bull framing on (1) and (3) is consistent with our updated thesis. The bull framing on (2) is the multiple-mover question, and we treat 18% ROTCE as plausible-but-not-modeled inside the FY26 framework. The bear framing on (1) and (2) is appropriate model-conservatism. The bear framing on (4) is real but does not eliminate the 12-month total-return potential. (3) and (5) are tail-risk monitors.

Model Implications

• FY26 revenue: We mark the trajectory implied by the Q1 print + raised NII guide as supportive of $120–124B FY26 revenue (~+6–9% YoY off the FY25 ~$113B base) — modestly above the Q4 framework.
• FY26 EPS: Q1 EPS run-rate plus the FY26 framework underwrites $4.40–4.70 FY26 EPS (vs. our Q4-call framework of $4.20–4.50). Our base case moves to $4.50 with skew to upside.
• NII walk: FY26 +6–8% (raised); Q1 +9% the ceiling. The multi-year fixed-rate-repricing tailwind extends; we continue to model sequential growth into 2027.
• Capital markets composition: Marked structurally higher again on Q1 step-up (S&T best in a decade; equities best-ever quarter; IB fees +21%). FY26 Markets revenue base now anchors materially above the FY25 record.
• Capital return: Q1 $9.2B return ($7.2B buybacks + $2.0B dividends) materially accelerates the prior $4.5B/quarter cadence. We model continued acceleration through 2026 as CET1 drifts toward the 50bps target buffer.
• Credit: NCO trajectory at the through-cycle 50–55bps reference; Q1 48bps treated as below trend with normalization consistent with management framing. Office cleanup confirmed resolved — we close out the CRE-office reserve-monitor line.
• ROTCE: Now anchored at 16% in Q1; we model FY26 ROTCE at 15–17% with the 18% upper-end plausible by year three.
• Fair value: 12–14x our updated FY26 EPS framework of $4.40–4.70 supports a $52–60 FV range, with skew to the upper end if the ROTCE glide path acceleration is sustained or if the Basel III + G-SIB final rules deliver the net-beneficial outcome.

Thesis Scorecard

Overall: Thesis materially strengthens. All five bull pillars are confirmed or confirmed-plus; three of five bear cases are resolved (Bear #1 asset sensitivity, Bear #2 CRE office cleanup, Bear #4 Berkshire overhang). Bear #3 (ROTCE gap) is closing as the multiple-mover. Bear #5 (NCO normalization) is the only remaining latent risk, and it is appropriately scoped as a labor-market-deterioration-dependent tail-risk monitor rather than a near-term modeled outcome.

Action: Maintaining Outperform; fair value $52–60 (~12–14x our updated FY26 EPS framework of $4.40–4.70). We expect BAC to beat the S&P 500 over the next 12 months on the FY26 framework raise, the ROTCE glide path executing ahead of schedule, capital return cadence accelerating, and the Basel III + G-SIB net-beneficial regulatory tailwind. We do not chase parabolic moves but underwrite a 12-month total return above the S&P 500 from current levels. Holders should reassess sizing if the stock breaks meaningfully through the upper end of the FV range without a corresponding thesis upgrade, or if the NCO trajectory deteriorates faster than the through-cycle 50–55bps reference implies. Net: the thesis is converting cleanly. We hold.