BANK OF AMERICA CORP /DE/ (BAC) stock intrinsic value fair value estimate & owner earnings analysis

Bank of America is the second-largest U.S. bank: about $3.4 trillion of assets, roughly $2.0 trillion of deposits, about 69 million consumer and small-business clients served through some 3,600 financial centers in 38 states and the District of Columbia, a wealth arm (Merrill and the Private Bank) with $4.8 trillion of client balances, and a global corporate, investment banking and trading business. It earns the spread between what it pays depositors and what it earns on loans and securities, plus fees from cards, wealth management, advice and trading. About 86% of 2025 revenue was booked in the United States. How we measure earnings. For a bank, deposits and borrowings are raw material, so we value earnings after interest and do not subtract the bank's debt. We start from net income to common shareholders (after the $1.45 billion of 2025 preferred dividends, which rank ahead of the common) and make two adjustments: we replace the accounting provision for loan losses with the loans actually written off, net of recoveries, so that reserve build-ups and releases do not distort single years (in 2020 the provision was $11.3 billion against $4.1 billion of actual losses; in 2021 it was a $4.6 billion release against $2.2 billion of losses), and we add back deferred taxes. The bank does not report capital spending separately, so we treat depreciation as the cost of maintaining branches and systems. On this basis owner earnings per diluted share were $2.86 (2018), $3.00 (2019), $2.49 (2020), $2.67 (2021), $3.33 (2022), $3.00 (2023), $3.02 (2024) and $3.85 (2025). Years 2016-2017 ($1.99, $2.26) were boosted by unusually large deferred-tax items ($5.8 billion and $8.2 billion, the latter including the effect of the 2017 federal tax law change) and are not used. The normal level. We use the median of 2022-2025, the years since interest rates left zero, which include both the 2023-2024 squeeze when deposit costs rose faster than asset yields and the 2025 recovery: $25.7 billion of owner earnings, or about $3.52 per share on the 7.29 billion diluted shares of mid-2026 (the diluted share count has fallen from 11.05 billion in 2016 through steady buybacks). Recent results run well above this: 2025 owner earnings rose 23.5% to $29.6 billion ($3.85 per share), and the first half of 2026 produced $17.5 billion, with diluted earnings per share up 29% and the tax rate higher, not lower, than a year earlier. We do not treat that pace as permanent, because part of it comes from strong trading and investment-banking fees and from moderate credit losses (net charge-offs 0.50% of loans in 2025). Base case ($65.10 per share). Owner earnings of about $31 billion in 2026 (half already reported), easing to $28.5 billion in 2027 (a decline, against the 23.5% growth just achieved) and $27.5 billion in 2028 as fee and rate conditions normalize; one recession year in 2029 at $22 billion, when write-offs roughly double, comparable to the 2020 trough of $21.9 billion; recovery to $26.5 billion in 2030, then growth of about 2% a year to $30.9 billion by 2036. That growth is below the 3.4% a year that revenue has grown since 2016 and reflects the bank's steady addition of clients and deposits funded from its own earnings; we deduct about $4 billion a year of retained capital needed to support it at required capital levels. After 2036 earnings are held flat: the deposit franchise and client base are a durable structural advantage, but we credit no expansion beyond what is evidenced. Discounted at 6%, the business is worth about $464 billion, or $63.60 per share, plus about $1.50 per share of capital above the regulatory requirement and a working buffer (the common equity tier 1 ratio was 11.4% at year-end 2025 against a 10.0% requirement, with the stress capital buffer set at 2.5% through September 30, 2027). Bear case ($47.10). Two named risks hit together. Rates fall back toward zero, which the bank has lived through before: net interest income fell from $48.9 billion in 2019 to $42.9 billion in 2021. And a real credit downturn pushes write-offs to roughly three times the 2025 level for two years. Owner earnings fall to $24 billion in 2027 and about $15-16 billion in 2028-2029, then settle at $21 billion a year, below the weakest recent years, with no growth thereafter and no surplus capital left over. The bank's stress capital buffer sits at the 2.5% regulatory floor, which indicates that the capital decline projected in the Federal Reserve's severe-recession scenario fit within that minimum buffer, so this case assumes the losses are absorbed by earnings and existing capital without forced share issuance. The business is worth about $343 billion, or $47.10 per share. Bull case ($88.40). The current pace holds: about $33 billion in 2027 (close to the first-half 2026 run rate), growth of about 3% a year in line with the demonstrated revenue record, a mild credit year in 2030, $43 billion by 2036 and flat thereafter, with $6 billion a year retained to fund the growth and about $2.50 per share of surplus capital. Part of the support is contractual: $523 billion of held-to-maturity securities carried at cost were worth $80 billion less than cost at year-end 2025, meaning they yield well below current market rates, and as they mature (the book shrank by $36 billion in 2025) the cash can be reinvested at higher yields. We keep this out of the base case because the future reinvestment rate is not known. The business is worth about $626 billion, or $88.40 per share including surplus capital. Debt and capital. Because owner earnings are already after interest on deposits and on $340 billion of long-term debt, nothing further is subtracted in any case; the business value in each case is what the common shareholders own, and leverage is charged through the bear case instead. In January 2026 the bank early-adopted a revised rule that lowered its minimum supplementary leverage ratio from 5.0% to 3.75%, easing one constraint on capital return; the binding constraint remains the common equity requirement. The reasonably possible litigation losses it discloses beyond existing reserves are $0-0.5 billion, not material at this scale. Changes since our last review. Our earlier analysis used net income less stock compensation and charged risk through a different discount rate for each case. We now measure earnings with actual loan losses in place of reserve swings, value every case at the same 6% rate, and express risk through named events in each case. The bear case rises from $37.30 to $47.10 because it is now built from a specific rate and credit downturn rather than a higher discount rate; the base moves from $67.70 to $65.10 and the bull from $91.50 to $88.40. Margin-of-safety price ($42). The cases are reasonably tight for a bank (bear about 72% of base). From $42, if the price reaches the base value in about three and a half years, the base case implies roughly 20% a year from the growth in intrinsic value plus dividends (currently $0.28 a quarter), and the bear value sits above $42. What would make this wrong: a credit loss cycle far beyond the stress-test scenario, regulation forcing materially more capital, or a prolonged period of near-zero rates combined with deposit outflows.