Grade: B — Generally Healthy, Minor Concerns
Framework: Bank-specific analysis (CET1, NIM, net charge-offs, efficiency ratio, ROE/ROA/ROTCE) + Schilit principles
Data: SEC EDGAR 10-K (Filed 2026-02-25, FY ended December 31, 2025) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Clean opinion (1 Critical Audit Matter)
One-line verdict: Bank of America delivered $30.5B in net income, ROE of 10.59%, ROTCE of 14.22%, and CET1 at 11.4% — a solid year driven by NII expansion and improving efficiency. The screening engine assigns Grade F based on DSO surge, CFFO/NI, and FCF checks, but all three are structural false positives for banks. DSO is meaningless for a bank (receivables are loans), and bank CFFO is driven by trading asset and deposit movements, not earnings quality. Net charge-offs at 0.50% actually improved from 0.57% in 2024. We override to Grade B based on bank-specific analysis. The Beneish M-Score and Altman Z-Score are not applicable to financial institutions.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **3** (A1, C1, C2 — all structural bank artifacts) |
| Watch Items | **2** (A2, C4 — partially structural) |
| Checks Completed | **11/18** (7 N/A) |
| Beneish M-Score | **N/A** (not applicable to financial institutions) |
| Altman Z-Score | **N/A** (not applicable to financial institutions) |
| Auditor | PricewaterhouseCoopers LLP — Unqualified opinion |
Important note on bank grading: The screening engine's Grade F is a structural false positive. For banks, operating cash flow is dominated by changes in trading assets, deposits, and lending activity — not earnings quality. We override the algorithmic grade to B based on bank-specific metrics: CET1 ratio, credit quality trends, NIM, efficiency ratio, and return metrics.
The Second-Largest U.S. Bank
Per the 10-K:
| Metric | 2024 | 2025 | Change |
|---|---|---|---|
| Total Revenue, Net of Interest Expense | $105,856M | $113,097M | +7% |
| Net Interest Income | $56,060M | $60,096M | +7% |
| Noninterest Income | $49,796M | $53,001M | +6% |
| Provision for Credit Losses | $5,821M | $5,675M | -3% |
| Noninterest Expense | $66,812M | $69,727M | +4% |
| Net Income | $26,973M | $30,509M | +13% |
| EPS (diluted) | $3.19 | $3.81 | +19% |
| ROA | 0.82% | 0.89% | Improving |
| ROE | 9.53% | 10.59% | Improving |
| ROTCE | 12.94% | 14.22% | Improving |
| Efficiency Ratio | 63.12% | 61.65% | Improving |
Net income grew 13% to $30.5B. The primary driver was NII expansion: per the filing, "Net interest income increased $4.0 billion to $60.1 billion in 2025 compared to 2024. Net interest yield on a fully taxable-equivalent (FTE) basis increased six basis points to 2.01 percent." The increases were "primarily driven by higher net interest income related to Global Markets activity, fixed-asset repricing, and higher deposit balances."
The efficiency ratio improved to 61.65% from 63.12% — still above JPM's 52% but moving in the right direction.
Credit Quality: Improving
Per the 10-K:
| Credit Metric | 2023 | 2024 | 2025 |
|---|---|---|---|
| Net Charge-off Rate | 0.36% | 0.57% | 0.50% |
| Provision for Credit Losses | — | $5,821M | $5,675M |
Net charge-offs at 0.50% actually improved from 0.57% in 2024 — counter to the trend at JPM and other large banks. The provision declined 3% to $5.7B. This is a positive signal: BAC's credit quality is normalizing without further deterioration.
Capital and Balance Sheet
Per the filing:
| Capital Metric | 2023 | 2024 | 2025 |
|---|---|---|---|
| CET1 Ratio | 11.8% | 11.9% | 11.4% |
| Tier 1 Capital Ratio | 13.5% | 13.2% | 12.8% |
| Total Capital Ratio | 15.2% | 15.1% | 14.7% |
| Tier 1 Leverage Ratio | 7.1% | 6.9% | 6.8% |
| Tangible Equity | 7.1% | 7.0% | 7.0% |
| Total Loans and Leases | — | $1,095,835M | $1,185,700M |
| Total Assets | — | $3,261,299M | $3,411,738M |
| Total Deposits | — | $1,965,467M | $2,018,729M |
CET1 declined from 11.9% to 11.4%, primarily reflecting balance sheet growth ($150B increase in total assets). At 11.4%, BAC is above regulatory minimums but below JPM (14.6%). Total loans grew 8% to $1.19T, and deposits grew 3% to $2.02T.
The filing also shows BAC's longstanding accumulated other comprehensive income (AOCI) issue: the unrealized losses on its held-to-maturity securities portfolio — a legacy of buying long-duration bonds before the 2022 rate hikes — continue to weigh on tangible book value, though they are slowly amortizing as bonds mature.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | FAIL* | DSO surged +33 days. *Not applicable to banks |
| A2 | AR vs Revenue Growth | WATCH* | AR growth 19.4% vs revenue 6.8%. *Loans are "AR" for banks |
| A3 | Revenue vs CFFO | PASS | Revenue +6.8%, CFFO +243% |
| B1 | Inventory vs COGS | PASS | No inventory (bank) |
| B2 | CapEx vs Revenue | N/A | Not applicable to banks |
| B3 | SG&A Ratio | N/A | Not applicable |
| B4 | Gross Margin | N/A | Not applicable |
| C1 | CFFO vs Net Income | FAIL* | CFFO/NI = 0.41. *Structural bank artifact |
| C2 | Free Cash Flow | FAIL* | FCF < 50% of NI. *Structural bank artifact |
| C3 | Accruals Ratio | PASS | 0.5%. Low |
| C4 | Cash vs Debt | WATCH | Cash $239B covers 65% of $366B debt |
| D1 | Goodwill + Intangibles | PASS | $69.0B = 23% of equity |
| D2 | Leverage | N/A | Not applicable to banks |
| D3 | Soft Asset Growth | N/A | Not applicable |
| D4 | Asset Impairment | N/A | No write-off data |
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill flat YoY |
| F1 | Beneish M-Score | N/A | Not applicable to financial institutions |
*Note: A1, C1, and C2 are structural false positives for banks. Bank "accounts receivable" is the loan book. CFFO is dominated by changes in trading positions and deposit flows, not earnings quality.
Key Risks from the 10-K
1. AOCI / Held-to-Maturity Securities
BAC's most distinctive risk remains its HTM securities portfolio. During 2020-2021, the bank purchased long-duration bonds at historically low yields. When rates surged in 2022, these bonds suffered massive unrealized losses. Per the filing, these losses flow through AOCI and impact tangible book value, though they do not hit the income statement (because the bonds are classified HTM). The losses are amortizing as bonds mature, but this remains a multi-year drag.
2. Net Interest Income Sensitivity
The filing warns that BAC may "experience net interest margin compression from offering higher than expected deposit rates in order to attract and maintain deposits." As a bank heavily dependent on NII ($60.1B of $113.1B total revenue), any rate environment that compresses margins would disproportionately affect BAC.
3. Concentration Risk
Per the filing, BAC has exposure to "concentrations within our funding profile, such as by maturity, currency or counterparty." As the second-largest U.S. bank by assets, it is systemically important and subject to enhanced regulatory requirements.
4. Credit Risk in Economic Downturn
While current credit metrics are improving, the filing notes that "if actual or anticipated business, economic or market conditions worsen, our credit portfolio, net charge-offs, provision and allowance for credit losses could be adversely impacted."
Summary
Grade: B. Generally healthy. NII expansion and improving efficiency drive solid results, with the HTM securities overhang as the key legacy risk.
Bank of America's fiscal 2025 was strong: $30.5B net income (+13%), ROE of 10.59%, ROTCE of 14.22%, and a declining net charge-off rate (0.50% vs. 0.57%). NII grew 7% to $60.1B. The efficiency ratio improved to 61.65%. PricewaterhouseCoopers issued a clean opinion.
The screening engine's three "fails" are all structural false positives for banks — DSO, CFFO/NI, and FCF metrics do not measure earnings quality for banking institutions.
Key concerns to monitor:
BAC is not a company with accounting red flags. It is a bank with improving fundamentals and a legacy securities portfolio issue that will take years to fully resolve.
**Disclaimer**: This report is based on Bank of America's fiscal year 2025 10-K filed with the SEC on February 25, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.