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1,000
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BAC
| 1
| 2,024
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2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Alastair Borthwick: Yes, so Glenn, ultimately we’ll use the same philosophy and strategy that we do to this point. We are in obviously a very good position where we have substantial deposits in excess of loans - that’s what creates this excess in the top left of Page 8, and it’s what allows us to put everything to work in the top right. The balance that we try to strike, you can sort of see in the left-hand side - we’re trying to make sure that that cash and securities yield compared to the deposit rate paid performs in any environment, so in an environment like this one, where there’s an awful lot going on with rates, we feel like if you look at that spread, I think it was one basis point different quarter-over-quarter, so we’re trying to make sure that we lock in the value, monetize the deposits regardless of whatever the rate environment turns out to be, and we feel like we’re pretty balanced now. We’ve got a pretty good balance of short dated, long dated, fixed and floating that should allow us to perform, whether rates go up or down from here. One final thing I’ll just say, and I think you know this, underneath all of this, obviously we’ve got some securities re-pricing, and to the point, I think it was John asked earlier, we’ve got loans re-pricing as well, and all of that gives a little bit of underlying resilience to this.
Glenn Schorr: Yes, I get that. I guess you have a lot of flexibility [indiscernible]. Just one follow-up, you talked deposits to debt. You had a smidgen of year-on-year loan growth, mostly in cards, I think. I know how we got here, but it’s a weird environment - we’re seeing a really strong economy with up markets, and yet no loan growth.
Alastair Borthwick: Yes.
Glenn Schorr: Is this just any way you slice it, we have to go through another year or two of super low loan growth, or are there any leading indicators that would lead you to believe we can get back to a little bit more normal BofA loan growth and not have to wait two years for it?
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1,001
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BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Alastair Borthwick: Yes, well I think we’re probably getting closer now because, remember, in the big macro, we’re in that transition period where post-pandemic, the economy is sort of recovering and rates are settling in, and it’s changing people’s behavior. We’ve actually got pretty good credit card growth, and that’s just offset by the fact that, for example with securities-based lending at rates that are 5% higher, people are doing less of it; or in commercial, we’ve got some loan growth but the revolver utilization is still suppressed because revolver costs a lot more, so as the Fed has raised rates, it’s changed some of the borrowing patterns of our clients. But that’s not going to last forever because, as you point out, the economy powers through at 3%, 3.5%, whatever it end ups being, loan growth is going to catch up to that over time. For right now, we’re in that transition period, but we’re anticipating that loan growth will pick up at some point in the future, but it’s not an enormous part of our NII guide at this point.
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1,002
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BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Brian Moynihan: And just remember that the capital markets opened up and a lot of the larger clients accessed them as they’ve, frankly, have gotten used to the higher rate structure and need to refinance. If you look across the businesses, you’ve got the commercial [indiscernible]. If you look across the commercial businesses in middle market and business banking, the segment up to $50 million of revenue companies and up to $2.5 billion, they actually saw progress in loan growth. It was really in the high end global corporate investing banking business where you saw sort of pay downs to bring that down. That phenomenon is one that occurs from time to time. It’s probably stabilized now and we’ll see it play out, but we are fighting for loan growth and, frankly, line usage stabilized. It’s better than it’s been for the last few quarters in terms of trend and so again that all speaks to people feeling fine, but they’re not quite as aggressive as they would be when you read the economic statistics, and that’s one of the great debates that you can read about in the paper every day.
Glenn Schorr: Thank you both for all that.
Operator: We’ll take our next question from Matt O’Connor of Deutsche Bank.
Matt O’Connor : Good morning. Obviously there’s been a lot of questions on net interest income and a lot of the color, I guess. Just when you put it all together, when you think about the higher for longer environment, obviously it’s good on the re-investments, you’re trying to max the deposits like you talked about, but how would you just boil it down? You know, the rate disclosure is still [indiscernible] $3 billion kind of exposure to either side is stable--you know, is stable rates for a couple years, is that good or does that accelerate the deposit re-pricing? Just boil that down, thanks.
|
1,003
|
BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Alastair Borthwick: Sure, well I’d say generally speaking, higher for longer is probably better for banks, as a general statement. The question will become why are rates higher, like what’s going on in the economy? Are we talking about inflation, is it under control, is it coming down? Right now, that appears to be the case, so that’s obviously a good place. The Fed’s in a good place because they appear to have rates that are a real rate that is high enough to make sure that inflation stays in a good place. Things can change, Matt, so an awful lot will depend upon just the why for rates; but generally speaking, if it’s just because it’s taken a little while longer for the inflation to nudge down before the next set of cuts, that’s probably a good environment for us. I would expect us to perform relatively better than we’ve disclosed so far. Then you’re asking a second question, which is around what does the sensitivity look like to plus-100 or minus-100. We’ve tried to just make sure that we continue to stay balanced. If anything, that corridor of plus-100, minus-100 has gotten narrower and narrower over time as we’re trying to lock in NII that’s $4 billion or $5 billion higher per quarter today than it was three years ago, and just make sure that the shareholder benefits from that through the course of time. We’ll see how the environment plays out - it’s only been a quarter since we were last here talking about six cuts. Now it’s three, so we just have to watch this play out and stay patient.
Matt O’Connor: Okay, fair enough. That’s helpful, thank you.
Operator: We’ll take our next question from Ken Usdin of Jefferies.
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1,004
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BAC
| 1
| 2,024
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2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Operator: We’ll take our next question from Ken Usdin of Jefferies.
Ken Usdin: Thanks very much, good morning. A real breakout quarter for the IB fee line, and just wondering a couple things within that. One, there was a bit of a back and forth from some of the other banks about whether or not DCM was pulled forward a little bit from future - I wonder what you think about that. But more broadly, you guys have done a good job taking share, what inning do you think you are in terms of not just so much just green shoots but in terms of where that incremental productivity is in terms of getting that IB line to a more permanent higher level? Thanks.
Brian Moynihan: If I think about it, if you go back to sort of the period prior to the run-up and the couple years after the pandemic, you’ve had sort of the billion and half type of numbers a quarter. We think we’re fundamentally stronger in the market position, as you said, so we feel very good about the work Matthew and the team have done. As we look at it, we believe that they’ll continue to gain share, and I think this is a more normalized level and whether it’s pulled forward or not, we’ll find out, but it’s a more normalized level given those dynamics and one we should be able to build off of, especially as I said earlier, the penetration in the middle market side of our business, of whether those clients working off our wealth management in the markets generally, plus working across the globe and we’ve done better work international, so we feel good about everything the team’s done, the combination of corporate and investment banking was very strong, so we don’t think this is an unusually high water mark and we should be able to build from here.
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1,005
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BAC
| 1
| 2,024
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2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Ken Usdin: Okay, got it. Then one question about wealth management and just client choices in terms of where they’re sitting relative to earning NII or earning fees. Where do you sense that the cash versus fully invested is in terms of the wealth management brokerage business, and could that turn to the better, turn to the worse depending on how that mix answer goes? Thanks.
Alastair Borthwick: Well, wealth management, I think Lindsay, Katy and Eric highlight for us regularly just the elevated levels of cash that our clients have. A lot of that is on us, and you can see that in our deposit chart; but there’s a lot that we captured in the investment area too, where a lot of t heir flows are coming into maybe it’s money market funds, maybe it’s short dated treasuries, but there’s a lot of cash at this point, and so that would tell you it’s supporting the ability to see continued assets under management flows going forward, depending on how obviously the stock market shakes out over time. We’re all struck by just the sheer amount of cash on the sidelines at this point.
Ken Usdin: Okay, got it. Thank you.
Operator: Once again, that is star, one if you would like to ask a question. One moment while we queue. Once again, that is star, one. We’ll take our next question from Gerard Cassidy of RBC.
Gerard Cassidy : Hi Alastair, hi Brian.
Brian Moynihan: Hi Gerard.
Gerard Cassidy: Alastair, coming back to Slide 8, which is obviously quite impressive on deposits, particularly the upper left-hand graph you presented, when you go back to maybe 2014 or ’15 and take a look at deposit levels of your company from 2015 to 2019, you just didn’t have the growth that you experienced from the end of ’19 through today. Can you guys share with us, what drove this meaningful increase in not only excess deposits but all deposits?
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1,006
|
BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Brian Moynihan: I think, Gerard, you’ve been around long enough to understand some of those dynamics. As we moved through the post-financial crisis, we had--in terms of that chart, if you looked at it, you had a lot of loans that we’d ran off because they weren’t core loans anymore, and it kind of troughed out at the $900 billion level and then grew out from there. In 2015, that’s when we started driving responsible growth. It was a call to grow now that we’d pushed out a lot of stuff from the financial crisis and got it behind us. The loans then start picking up, but if you remember back then, I think we had almost $300 billion, if I remember right, and if you looked at the slide on loans and the non line of business loans, they were $200 billion or something like that, and it’s down to $10 billion, so think about that dimension. As we ran that down and could grow, we could overcome it, and so then on the growth on loan side, it’s driven by discipline, where we want to play, and the card business is getting it positioned right. Now we can start to push from there, whether it’s on home equity business, on the auto loan business. On the commercial side, it was--we had less issues after the financial crisis in commercial, but kind of getting through all that, it was getting to the credit quality we wanted. A source of great growth for us from 2010 and beyond has been we probably gone from, I don’t know, $20 billion, $30 billion of outstanding loans in the international part of Matthew’s business [indiscernible] to almost $100 billion type of number, so expansion of our international capabilities and downright great credit work by Jeff Green and the team and Bruce Thompson and the team, so put all that together, that’s the loan side. On the deposit side, it really started with a focus that began really prior to--in the middle of the financial crisis and beyond, where we said we’re going to go for core checking accounts in consumer, primary checking accounts, drive customer satisfaction, drive organic growth, and
|
1,007
|
BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
to go for core checking accounts in consumer, primary checking accounts, drive customer satisfaction, drive organic growth, and not care about the number of sales as much as the net growth in net sales. As the team, Dee and Thong over time in there, and then Holly now have continued to push that, adding a million-ish net new checking accounts all core, we’ve gone from 60% core to 92%. We’ve got customer satisfaction to the highest levels ever, in the mid-80s, top two [indiscernible], etc., attrition down to lowest ever, preferred rewards kicked in, and all that has led to higher and higher balance retention per account, and then also more accounts. We’ve probably grown in the consumer from, I think, around $300 billion at the beginning of 2010, 2011 to now $900 billion. Now, there’s economic growth and economy growth, but that’s way outsized, and that’s what’s driven the real value of the deposit franchise. Then wealth management - again, after Merrill putting it together and then driving the core aspects between the team there has kept us up to $300 billion, that’s from 200 and something pre-pandemic and probably less than that - I think it was 200 at the time of the merger, so all these things are just part of it, and the GTS business, investments in that have driven those products, so that spread is high and growing again, which is kind of counterintuitive to the narrative that even one of your colleagues mentioned earlier, which is leave aside all the quantitative tightening and all the interest rates and all the stuff that’s supposed to happen, quarter after quarter we’re now growing the amount of deposits over the top of the loans, and the loans hopefully will kick back in and grow a little faster. But they still won’t use a lot of those balances up, and so we feel very good about that position, and those deposits, as you can see on the bottom of Page 8 on the left-hand side, all-in cost is under 93 basis points against a Fed funds rate of 5.5, and the rate of change in those deposit prices has flattened
|
1,008
|
BAC
| 1
| 2,024
|
2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
cost is under 93 basis points against a Fed funds rate of 5.5, and the rate of change in those deposit prices has flattened out to be very modest quarter over quarter. That’s just tremendous leverage for the company.
|
1,009
|
BAC
| 1
| 2,024
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2024-04-16 08:30:00
|
Bank of America Corporation
| 19,049
|
Gerard Cassidy: Very helpful, Brian, thank you. Maybe as a follow-up, I think Alastair, you pointed to that your CET-1 ratios, Basel III ending, wondering as originally proposed, you’re very comfortable with it. Can you guys share with us, what’s the latest--you know, we all read about the watering down of Basel III ending. Do you guy have a sense when we may actually see a final proposal? Could it get kicked into next year, possibly?
Alastair Borthwick: Look - we don’t have an update on the timing yet, Gerard. We’re in the same place you are - we’re kind of waiting for the rules to come out, and we’re still listening for updates from the Fed Chair and the Vice Chair, and we’ll wait until we see those come out.
Brian Moynihan: The key is we’re sitting, every under the current interpretation, we told you earlier on without any modifications, we’re sitting on enough CET-1 nominal amount, $197 billion, that exceeds what we’d need for the increase in RWA under the current version of the rules as proposed. Anything that changes in that will be positive, Gerard. We don’t need to retain capital to meet those standards, so we’re off and running.
Gerard Cassidy: Appreciate it, Brian. Thank you.
Brian Moynihan: I believe that’s--one more question? Okay.
Operator: Yes, we’ll take that question from Jim Mitchell of Seaport Global.
Brian Moynihan: Morning Jim.
Jim Mitchell : Oh hey, good morning. Maybe just one last follow-up on that last question from Gerard. If Basel III is reduced as Powell has suggested, is it with limited loan growth just more likely to be put towards buybacks, or do you see opportunities beyond loan growth, whether it’s growing the trading balance sheet or other opportunities to deploy that capital, to drive growth? Just curious how you deploy that.
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1,010
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BAC
| 1
| 2,024
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2024-04-16 08:30:00
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Bank of America Corporation
| 19,049
|
Brian Moynihan: Well, number one, our primary interest is the capital to support our businesses, so you’ve seen that happen in the markets business - as we said, it was one of the best quarters in a decade, first quarter. That is a multi-year process of building up not only the balance sheet and capital committed to the business, but importantly also the investments in systems and technology and risk management and those things, they continue to make money almost every trading day over the last several years, so that’s where we’d like to use it, supporting that business and supporting the loan business, supporting all the businesses. The reality is outside of the capital markets business, then you go to loan growth and the kind of loan growth in the mid single digits, that doesn’t eat a lot of the capital up, so then it’s just there to be returned, and so we’ve got two basic phenomena. One is we store-housed a bunch of capital, if you think about the last few years, between the changes in CCAR a few years ago that changed the capital dimension, then the proposed rules and then now whatever happens with it, so they were sort of sit in the pandemic. Before that, we were sitting on a fair amount of capital - that should be released over time here, and then secondly the question will be what those rules are going forward, and then third will be what do you need to support the business, which again that’s our primary responsibility. But generally, that is a modest amount of capital, and so most of our desire is really deploy more expenses in technology investments, and we’ve gone from $3 billion to $3.8 billion in annual technology investments across the last couple years with more branches, but that’s more of an expense question than a capital question, Jim.
Jim Mitchell: Right, right.
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1,011
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BAC
| 1
| 2,024
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2024-04-16 08:30:00
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Bank of America Corporation
| 19,049
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Jim Mitchell: Right, right.
Brian Moynihan: [Audio loss] wealth management business, investment banking and trading. NII continues to outperform what we told you last quarter, for the first quarter. We rolled that into second quarter and we expect to continue performance in that as we go through the trough and meet the higher second half of the year. We continue to manage expenses well under the inflation rate, and we [audio loss] start with strong capital and liquidity and a strong balance sheet. The team has done a great job this quarter, and we look forward to talking to you next quarter. Thank you.
Operator: This does conclude the Bank of America earnings announcement, and you may now disconnect. Everyone have a great day.
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1,012
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BAC
| 1
| 2,025
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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Operator: Good day, everyone, and welcome to today's Bank of America Q1 Earnings Results. At this time, all participants are in a listen-only mode. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Lee McIntyre.
Lee McIntyre: Good morning. Thank you. Thank you for joining the call to review our first quarter results. Our earnings release documents are available on the Investor Relations section of the bankofamerica.com website. Those documents include the earnings presentation that we will make reference to during the call. First, our CEO, Brian Moynihan, will make some opening comments before Alastair Borthwick, our CFO, discusses the details of the quarter. Let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials as well as our SEC filings available on the website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials on the website. With that, Brian, let's get started.
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1,013
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BAC
| 1
| 2,025
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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Brian Moynihan: Thank you, Lee, and thank all of you too, and good morning, and thank you for joining us. Given the recent events, we want to do a couple of things at our time today. First, we want to provide a clear picture of how well the fundamentals of the company performed to produce another good quarter of earnings in the first quarter of 2025. So I'm going to talk through a little of those highlights, and I can turn it over to Alastair for details on the quarter and some forward guidance. And second, given the market volatility and concerns of potential changes in the economy and its outlook, at the end of the quarterly presentation, I'm going to give you some facts to set the context about the quality of our credit portfolios, our capital, and liquidity as we may face periods of economic change and set that in the context to how we fared prior to past periods of economic stress. So let's get going on slide two of the discussion. This morning, Bank of America reported $7.4 billion in net income, and $0.90 in EPS for the first quarter of 2025. That's a solid start to 2025 and great work by our teams. On a year-over-year basis, we grew revenue by 6%. Grew net income at 11%, we grew earnings per share 18%, and we delivered more capital back to shareholders and we reduced shares in the aggregate by 3%. We produced an 89 basis points return on assets, and a 14% return on tangible common equity in the first quarter. So let me hit on a few highlights that drove that performance. Net interest income grew 3% year over year and is up from quarter four to the high end of our guidance range we gave you three months ago. We grew deposits for the seventh straight quarter. They reached nearly $2 trillion a quarter end and have now grown 8% from their mid-2023 low point. We grew commercial loans in nearly every line of business. This is the second quarter in a row they've grown across the board. Holly O'Neil and our consumer team marked the twenty-fifth straight quarter of net new checking account growth. We saw annual
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1,014
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BAC
| 1
| 2,025
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
|
Holly O'Neil and our consumer team marked the twenty-fifth straight quarter of net new checking account growth. We saw annual flows to our consumer investments business of $22 billion over the last twelve months. Our wealth management businesses led by Eric and Lindsay and Katie Knox in the private bank together added 7,200 net new households in this quarter and saw net AUM flows of $24 billion in the quarter. Jim Demar and the team recorded a twelve straight quarter of year-over-year sales and trading revenue growth. That achieved a 16% return on allocated capital. We generated these results working from a strong balance sheet with over $200 billion in regulatory capital nearly $1 trillion in liquidity. This allows us to provide strong support and solutions for our clients. Turning to slide three. On organic growth. One of the keys to our earnings improvement has been our ability to consistently drive organic growth. Organic growth remains strong across the businesses as highlighted on Slide three. I will go through all the statistics and all the points on the page, but as you can see, the minimum has continued. I noted the continued growth in net new checking new households, new companies of commercial banking, and growth in our institutional markets business. Clients continue to see the value of our capabilities and connected businesses as a company. Our digital engagement and sales continue to expand across all our business. We saw more than 14 billion logins in 2024. Erika has now surpassed 2.7 billion interactions since its inception. Our Cash Pro app for our commercial customers continued strong adoption and usage rates as you can see. Transactions sent through Zelle at Bank of America are not only speed times the number of checks written by our Bank of America customers, but also 1.3 times the number of checks written plus the number of cash transactions taking money out of the ATMs. It's also worth noting that digitally enabled sales in our consumer product business across the board reached 65% of total
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1,015
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BAC
| 1
| 2,025
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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It's also worth noting that digitally enabled sales in our consumer product business across the board reached 65% of total sales. You can see these trends on digital in the slides we show you each quarter, on slides twenty-six, twenty-eight, and thirty in the appendix, and we commend those to you. As you go to slide four, showed you some of the highlights in economic activity. Provide some of the current spending data by our consumers of Bank of America, there's a lot to potentially change given the uncertainty around the tariffs and other policies in the future path of the economy. And our communications with all of you, just so we've done during other stress periods, we want to relay to you those facts, which we think give you some context. But before we do that, our research team, like many research teams led by Candice Browning, does not currently believe we'll see a recession in 2025. However, they've lowered their GDP growth rates for 2025. And continue to see no rate cuts during 2025 but expect as inflation gets under control, you may see them in the future. In I e in 2026. But going more to what our customer data shows, it shows that the money moving across all our consumer spending methods debit, credit cards, ACH, checks written, Zelle, etcetera. All that aggregate shows a group about 4.4% pace in the first quarter of 2025 compared to the first quarter of 2024. As you look in the chart and look across it, you can note that consumer spending has been consistently growing year over year but during last year, it actually slowed a bit, especially in the summer and picked back up in the fall. That resulted in the fourth quarter of 2024 over the fourth quarter of 2023 being about a 4% pace, and that pace has continued. That pace has also continued through the first part of April. We note that some retailers may say that their sales are slower and others are picking but in the aggregate, the consumer keeps pushing money into the economy. As we look at our business side and what our business clients are
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1,016
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BAC
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| 2,025
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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aggregate, the consumer keeps pushing money into the economy. As we look at our business side and what our business clients are telling you, in the current setting, they remain profitable liquid, and have strong results. They all look ahead and worry about the same things that you hear reflected in your conversations with them also. So we continue to watch for signs of the environment actually changing. We thought it would be good to share with you what we're actually seeing on our customer base at this moment. So far so in summary for Bank of America for the first quarter of 2025, want to thank the team for another strong quarter. We saw good organic client activity, we saw enjoyed good growth in revenue and earnings. We continue to invest in the future growth of our company. We manage the risk well. That drove healthy returns for you, our shareholders, and we increased the capital delivered back to our shareholders. That, I'm going to turn it over to Alastair to talk you through the
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1,017
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BAC
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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Alastair Borthwick: Thank you, Brian. I start on Slide five of the earnings presentation to provide a little more context on the quarter. And as Brian noted, we generated $7.4 billion in net income or $0.90 per diluted share this quarter. And that represents good growth over both last quarter and the year earlier period. On slide six, we note some of the highlights of the quarter. Revenue of $27.5 billion on an FTE basis grew 6% from the first quarter of '24. Most revenue items showed improvement year over year. NII grew 3% Investment and brokerage fees rose 15% with both assets under management flows and market levels contributing nicely to the growth. This quarter's $5.6 billion in sales and trading revenue grew 9% from the year-ago period. Service charges grew 8% with particular strength in our global payment solutions revenue. Card income improved 4%. And other income also improved driven by gains mostly associated with leveraged finance positions and these were positions that we disposed of during the quarter. Non-interest expense was $17.8 billion up from the fourth quarter driven by seasonally elevated payroll taxes and markets revenue-related costs of processing and incentives. Litigation costs were also higher related to a recent decision in a long-running matter. Good operating leverage this quarter as revenue grew 300 basis points faster than expense compared to Q1 2024. Provision expense for the quarter was $1.5 billion with asset quality remaining in great shape. Preferred dividends were $125 million less than the first quarter of 2024, as we redeemed some preferreds over the past year. And used some of our excess capital to reduce our outstanding shares 4% from the first quarter of last year. All of these things aided in EPS improving 18% year over year. Let's move to discussion of the balance sheet using Slide seven. You can see assets ended the quarter at $3.35 trillion. That's up $88 billion euros from the fourth quarter driven by higher levels of client activity in global markets. In addition,
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1,018
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BAC
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2025-04-15 08:30:00
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Bank of America Corporation
| 19,049
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That's up $88 billion euros from the fourth quarter driven by higher levels of client activity in global markets. In addition, loans grew $15 billion in the quarter supported by $24 billion in As deposit growth exceeded loan growth, we continue to add to our liquidity. Long-term debt increased $21 billion driven by funding needs to support the growth in client assets, average global excess liquidity at $942 billion remained strong and up year over year. Shareholders' equity was flat with the fourth quarter around $296 billion. And within that, we returned $6.5 billion of capital back shareholders, with $2 billion in common dividends, and the repurchase of $4.5 billion in shares. It's worth noting that year-over-year equity is up $2 billion and a $10 billion increase in common equity was partially offset by a 28% reduction in preferred stock. Tangible book value per share of $27.12 rose 9% from the first quarter of 2024. Turning to regulatory capital on Slide eight. Our CET1 level increased to $201 billion and the CET1 ratio is 11.8%. This is down 11 basis points and remains well above our 10.7% requirement. You can see in the waterfall, we deployed capital in a number of ways this quarter. In addition to the increased amount of share repurchases, we allocated more capital to our Global Markets business and grew both consumer and commercial loans. Within the ending loan growth, it's worth noting we bought an $8 billion portfolio of residential that's both high and quality and allows good potential to expand relationships with customers beyond those mortgage loans. And we expect these loans to add just over $100 million in NII annually. Supplemental leverage ratio was 5.7% versus a minimum requirement of 5% leaves capacity for balance sheet growth and our $468 billion of total loss absorbing capital means our TLAC ratio remains comfortably above our requirements. As you see on Slide nine, we've now grown deposits for the seventh consecutive quarter on an average basis and we're near $2 trillion euros on an ending
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1,019
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we've now grown deposits for the seventh consecutive quarter on an average basis and we're near $2 trillion euros on an ending basis. Typically, we see some downward pressure on deposits as we move from Q4 to Q1, as commercial clients use their cash to pay bonuses and taxes. And this year, we saw commercial deposits more stable as clients remain highly liquid. In addition, we remain disciplined on pricing as we pass through short rate declines and saw a 24 basis point decline in rate paid in global banking. We saw continued stability around our consumer non-interest bearing balances and as interest rates move lower in CDs and preferred deposits on our brokerage platform, we saw a three basis point decline in rates paid in consumer banking this quarter. To 61 basis points. Overall, rate paid moved 194 basis points in Q4 to 179 basis points this quarter and were lower in every business segment. Let's turn to loans by looking at average balances on Slide ten. And you can see loans in Q1 of $1.09 trillion improved 4% year over year. Driven by 7% commercial loan growth. Excluding commercial real estate, that year-over-year growth was 9%. We noted a modest increase in revolver utilization during the quarter, as clients navigate the current environment. Consumer loans grew modestly year over year with linked quarter movement reflecting seasonal credit card paydowns. And the $8 billion of residential loans we purchased this quarter and that I noted earlier. Those will come onto the balance sheet or they came onto the end of the balance sheet at the end of the quarter. So they don't really impact averages this period and will begin to impact them next.
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Operator: Let's turn our focus to NII performance on Slide eleven.
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Alastair Borthwick: Where on a GAAP non-FTE basis, NII in Q1 was $14.4 billion. And on a fully taxable equivalent basis, NII was $14.6 billion. That's up 3% from the first quarter of last year. We finished at the higher end of our expected range. And NII grew $75 million on a fully taxable equivalent basis over Q4 even as we incurred approximately $250 million headwind from two fewer days of interest accrual. The improvement was driven by global markets activity, as well as deposit favorability and loan growth. And fixed-rate asset repricing also benefited NII. With regard to interest rate sensitivity, on a dynamic deposit basis, we provide a twelve-month change in NII for an instantaneous shift in the curve. That means interest rates would have to move instantaneously another 100 basis points lower than the forecasts already expected and contemplated in the April tenth curve. On that basis, a 100 basis point decline would decrease NII over the next twelve months by $2.2 billion. And if rates went up 100 basis points, again, more than the forward curve, NII would benefit by roughly $1 billion. With regard to a forward view of NII, given the uncertainty of announced tariffs, we've seen expectations for more cuts in interest rates and more variability now in the market expectations for economic growth. So let us provide a few thoughts for you using slide twelve to illustrate. In Q4, we provided our expectation that we could exit Q4 of 2025. With NII, on a fully taxable equivalent basis in a range of $15.5 billion to $15.7 billion. And that included an acceleration of NII growth in the second half of the year. Our assumptions underlying that NII belief then included an interest rate which anticipated one rate cut in the middle of the year and modest loan and deposit growth. And while the interest rate environment has changed a little, our current expectation for the exit rate of NII in Q4 remains unchanged. Using the first quarter 2025 as the base, the waterfall gives you some idea of our assumptions to bridge to
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remains unchanged. Using the first quarter 2025 as the base, the waterfall gives you some idea of our assumptions to bridge to our Q4 2025 expected exit rate. First, we pick up two additional days of interest, one in each of the next couple of quarters. Fixed-rate asset repricing also benefits our NII, it takes into account the impact of the current interest rate curve. There are three primary buckets for that benefit. Securities, mortgage loans, and cash flow hedges. Security pay downs are running about $8 to $9 billion a quarter. Mortgage loans are another $4 to $5 billion a quarter. And each gains a little more than 200 basis points as they're replaced. Cash flow swap repricing benefits are a little more staggered than their roll down and make up the rest of the benefit here. We assume the early April interest rate curve, which reflects four cuts, and a couple are later in the year. So that will have some negative impact near term on our expected NII growth but it improves as the funding costs more fully reflect those cuts. Best proxy for that impact is our asset sense which even below the rates cuts currently in the curve. We provide our best estimate using the timing of those cuts. And at the same time, with lower rates, we would expect just a little more loan and deposit activity and we estimate the NII impact of that growth would offset some of the interest rate impact from lower rates. We already saw modestly better deposit growth in the first quarter than we expected. In addition, we believe our liability-sensitive global market will also likely benefit NII more as we move through the year. And that obviously depends on the way clients choose to trade with us. Bottom line, our fourth quarter exit rate expectation for NII is unchanged to $15.5 billion to $15.7 billion from our previous expectation. And that means we're still expecting strong full-year NII improvement this year of 6% to 7%. Okay. Let's turn to expense. And we'll use Slide thirteen for the discussion. We reported a little less than $17.8
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of 6% to 7%. Okay. Let's turn to expense. And we'll use Slide thirteen for the discussion. We reported a little less than $17.8 billion in expense this quarter. And that included roughly $500 million in seasonal elevation from payroll tax and some markets related revenue-related costs. We also had higher litigation expense to $160 million driven by a recent decision in a long-running matter. And remember, as you think about the expense increase from Q4, that quarter included a $300 million release of accruals for the FDIC special assessment. Expense compared to Q1 2024 is up a little less 3%. Consistent with our full-year 2025 growth expectations and the increase reflects costs of higher sales and trading and wealth management fees and in the investments made to add more sales associates and to support increased technology and marketing costs. Let's move to credit and turn to Slide fourteen. Where our asset quality remains sound. Net charge-offs were $1.45 billion modestly down compared to Q4. This is the fifth consecutive quarter that net charge-offs have hovered around $1.5 billion. The total net charge-off ratio this quarter was 54 basis points flat with Q4. Q1 provision expense was $1.5 billion and matched net charge-offs. Consumer net charge-offs were $1.1 billion consistent with the past few quarters. Now 90% of our consumer net charge-offs are driven by credit card, which highlights the importance of prudence in underwriting that portfolio as we note on Slide twenty-two. On the commercial side, we saw losses of $333 million down modestly from Q4. Near term, we don't expect much change in net charge-offs as you can see improvement in both early and late-stage delinquencies from the fourth quarter. That tells us the net charge-offs could even be a touch lower next quarter on the consumer side. On Slide fifteen, in addition to the improvement in we note the modest changes in other stats for both our consumer and commercial portfolios. Okay. Let's move to the various lines of business and some brief comments
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for both our consumer and commercial portfolios. Okay. Let's move to the various lines of business and some brief comments on their results. Starting on Slide sixteen with Consumer Banking. For clients, Consumer Banking continues to deliver strong organic growth driven by high touch and high-tech capabilities convenience and security. For shareholders through NII in particular, this business is increasingly seeing benefits fall to the bottom line for its high-quality deposit book, with only 61 basis point rate paid on nearly $950 billion of deposits. In Q1, consumer banking generated $10.5 billion in revenue, and $2.5 billion in net income. Revenue grew 3% from the first quarter of 2024 as NII growth was complemented by fee improvement in card and service charges. Expenses rose 6% as we continued our business investment and worked through elevated compliance costs. The organic growth that Brian noted on slide three included nearly 250,000 net new checking accounts this quarter, another strong period of card openings and strong investment account growth. Investment balances grew 9% to $498 billion with full-year flows of $22 billion and market improvement. Consumer banking deposits continued to increase from their mid-August low that was $928 billion it's now at $972 billion pounds on an ending basis. Looking at averages, deposits grew $5.2 billion from the fourth quarter to $948 billion and our rate paid declined to 61 basis points. Finally, as you can see in the appendix Slide twenty-six, digital adoption and engagement continue to improve and customer experience scores rose to record levels illustrating the appreciation of enhanced capabilities from these investments. Moving to wealth management on Slide seventeen, the business had another strong quarter. With a continued increase in banking product usage from our investing clients, the diversification of the revenue in this business continues to grow. The number of clients that have banking products with us continues to grow also and is now approaching
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continues to grow. The number of clients that have banking products with us continues to grow also and is now approaching two-thirds of the client base. Importantly, about 30% of our revenue remains in net interest income which complements the fees earned in our advice-driven model. And those have also grown. Net income of $1 billion rose modestly from the first quarter of 2024 a solid revenue growth was mostly offset by higher revenue-related costs, and continued investments. In Q1, we reported revenue of $6 billion growing 8% over the prior year led by 15% growth in asset management fees. Expense growth of 9% supported both cost of the increase in fees as well as investment in technology and the cost of hiring to add experienced advisors to the platform in Merrill, and the private bank. Average loans were up 6% year over year. That was driven by growth in custom lending, securities-based lending, and a pickup in mortgage lending. Profits were relatively stable compared to Q4 and our pricing discipline resulted in a 25 basis point decline in rates paid. Both Merrill and the private bank continued to see organic growth and produced strong assets under management flows of $79 billion over the past twelve months which reflects a good mix of new client money as well as existing clients putting money to work. We also want to draw your attention to the continued digital momentum that you'll find on Slide twenty-eight. Our new accounts continue to be predominantly open digitally. On Slide eighteen, you see the Global Banking results. And the loan and deposit gathering success of the team. In the first quarter, Global Banking produced earnings of $1.9 billion modestly lower than the year-ago quarter as lower credit costs from CRE office losses were more than offset by higher expense of investment in the business. Revenue of $6 billion was flat to the prior year, as lower NII was offset by roughly $230 million higher other income related to leveraged finance positions. As well as higher treasury services revenue.
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roughly $230 million higher other income related to leveraged finance positions. As well as higher treasury services revenue. Firm-wide investment banking fees were $1.5 billion in Q1. Similar to last year's first quarter. We maintained our number three investment banking fee position and looking forward, we've got a healthy pipeline and our clients are simply waiting on more clarity on trade policy and the regulatory environment before committing to deals. Expense increased 6% year over year driven by continued investments in technology and operations to support clients. On the balance sheet, we saw good client activity. As I noted earlier, we saw good growth in commercial loans, mitigated by decline in CRE loans. And total average global banking deposits are up 9% year over year, where we saw strong growth across all categories from corporate and commercial clients on the larger end to business banking on the lower end. Switching to Global Markets on Slide nineteen. I'll focus my comments on results excluding DVA as we normally do. As Brian said, we continued our streak of strong revenue and earnings performance achieved operating leverage and continued to deliver a good return on capital. In Q1, we earned $1.9 billion and that grew 8% year over year. Revenue again ex DVA, improved 10% from the first quarter of '24, on good sales and trading results and $230 million of other income on leveraged finance positions similar to Global Banking. Focused on sales and trading ex DVA, revenue improved 9% year over year to $5.6 billion. Equities led the way this quarter growing 17% year over year while FIC grew 5%. Equities and FICC both benefited from increased client activity. Among the market volatility. And our continued investments in the business. On slide twenty, we show all other with a loss of $4 million in Q1 and the driver of the year-over-year improvement in expense and net income is the absence of the first quarter 2024 FDIC special assessment. Our effective tax rate for the quarter was 9%, which reflects
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is the absence of the first quarter 2024 FDIC special assessment. Our effective tax rate for the quarter was 9%, which reflects the discrete impact of share-based compensation awards. As a reminder, our tax rate remains well below our typical corporate tax rate driven by tax credits related to investments in renewable energy and affordable housing. Looking forward, as we said last quarter, we expect the tax rate for the full year 2025 be in a range of 11% to 13% excluding unusual items. So let's shift gears to finish and we'll use Slide twenty-one. Over the last couple of weeks, investors have signaled concerns for the bank industry over potential changes in the economy. And in light of that, we added the next few slides to illustrate how much stronger our risk profile and balance sheet are today. For whatever economic outcome we might face. And let me offer three important takeaways as you see the next three slides.
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Lee McIntyre: First,
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Alastair Borthwick: we have a vastly improved risk profile from previous periods of economic dislocation. Second, at the same time, we strengthened the balance sheet by adding billions of capital and liquidity. Third, following fifteen years of operating under responsible growth, our portfolio and our balance sheet are well prepared to support our clients. In various economic outcomes. Now the left side of Slide twenty-one highlights the shift in the loan portfolio to a more balanced mix of commercial and consumer as well as a more geographically diverse mix. Our high-quality commercial loan portfolio at this point is more than 90% investment grade or collateralized and it also includes a more diversified geographic mix as you see at the bottom of the page. At the top right, you see the improved mix toward a more secured collateralized balance of our consumer book. Bottom right illustrates the nine-quarter loss rate and how our nine-quarter, so this isn't annualized, this is nine-quarter stress loss ratios fared in the Fed models and CCAR exams. And we compare quite favorably to peers in each of the past twelve years of exams. CCAR provides investors an annual independent view. Analyze adverse impacts in the most severe circumstances. So just to recap, if you went to the latest results from 2024, those scenarios include a drop of 6% to 8% in real GDP from peak to trough. It includes a rapid increase in unemployment up to 10%, and significant changes in inflation. It also assumes housing prices falling 35%, it assumes short rates basically go to zero and the ten-year goes to 1%. And it assumes bond spreads widen dramatically commercial real estate prices decline 40%, and equity prices would drop by 50% together with significant weakness in international economies. It also assumes the portfolio size doesn't change from any management actions that we might take in that environment. And we obviously do quite well in that CCAR stressed environment. That, I'm gonna stop I'll turn it back to Brian for a couple of
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we obviously do quite well in that CCAR stressed environment. That, I'm gonna stop I'll turn it back to Brian for a couple of thoughts to wrap up.
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Brian Moynihan: Thanks, Alastair. And I'm on slide twenty-two. On that slide, we highlight some of the key balance sheet or asset quality statistics of the company has faced important periods of economic disruption. And we compare those to the current status. On the left side, side of the columns, you can see that the fourth quarter of 2009 illustrates what the company looked like after a couple of years in the financial crisis and after the acquisition of Merrill. Second column obviously is fourth quarter 'nineteen, which represents what we look like heading into the pandemic. And now we show you what the company looks like today. We have a multifarious loan book. Across types of clients geographies, and various asset classes. That holds us in good stead. Total, our consumers loans are down more than $200 billion as home equity loans are down more than $125 billion and credit card loans, unsecured credit card loans are down more by more than $60 billion. This reflected a concentrated effort on us to focus on our relationship loans rather than loans as a product. And deepen those relationships with the highest quality prime credit.
Alastair Borthwick: Customers.
Brian Moynihan: Our wealth management business has doubled in size those consumer categories and the relative exposure to those borrowers in those loans is very secure as they're highly collateralized and the strength of the borrowers underneath the In in in the commercial in the addition to the more geographic dispersion that Alastair discussed, you could also see that the construction lending land development exposures have been greatly reduced.
Alastair Borthwick: At the same time, our equity is $93 billion and higher.
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Brian Moynihan: We At Bank of America, we remain about our strength of our balance sheet. We are well reserved for our portfolio and risk profile. On a weighted basis, including our model reserves, our imprecision reserves, and our judgmental reserves, it positions us at a six per approximately 6% unemployment rate. The current reserve allocation on card is 7.4%, for example. It gets to charge our freight of about 4.4%. When you go to slide thirty-one, you can see some more statistics about our portfolios. Excuse me. Twenty-three, you can see some more statistics about our portfolios. Let's take a deeper look at those. Just a couple of points. On slide twenty-three, you can see that regards to mortgage, between the first and second lien products today, we have a total of about $260 billion. On average, our borrowers have FICO scores above 770, and average debt to income ratios of 35% for the residential mortgage product and 39% for the home equity product. Loan to values also leave us in strong equity positions being below 50%. For comparative purposes, we ended the financial crisis early 2007 and you can see the exposures were more than $400 billion with average FICO scores were fifty-six fifty to sixty points lower and higher LTVs. So $400 billion more in balances, lower credit scores, and higher LTVs. So we've significantly repositioned those portfolios across the last several years. Moving through the other consumer loan types, you can see the high quality of the collateralized securities based asset lending and other portfolios. And on consumer credit card percent. we have about $100 billion in outstandings with a current net charge off ratio, as I said, about four The FICO score of our average borrower is 777. And thinking about exposure, borrowers are less than a current FICO score of 660, We have about 12% exposure. Art is really our only consumer unsecured exposure in the portfolio. As comparison, adding into the financial crisis in fourth quarter, we had $150 billion in credit card balance about one
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As comparison, adding into the financial crisis in fourth quarter, we had $150 billion in credit card balance about one and a half percent. Of one and a half times our current balance of card loans. The average FICO score was fifty FICO points lower, and the unused lines of those books were much, much higher. This strong position allows us to better serve our clients in the times of stress which may come ahead according to our projections. Bank of America stands ready to support them as never before. Whether it's a commercial client when the when she's helped to borrow and navigate the changing economy around the world, whether it's a commercial client needs to reposition their debt structure or move money. To to help participate in the economy. We'll be there for them. If it's a wealthy client and needs advice and counsel on rocky periods or loan to get them through, we're there for them. If consumers need to access to cash or borrowing, we're also there for them. Bottom line, operating the company in this way allows us to stand tall in time to stress. And these slides highlight the importance of having done that across the last many years. A relative importance strength of our company compared to others. Thank you. And now we'll go to questions and answers. Q and A.
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Operator: We'll take our first question from Stephen Chubach with Wolfe Research. Your line is open.
Stephen Chubak: Hi. Good morning, Brian. Good morning, Alasdair. Morning. I appreciate you guys taking my questions. Wanted to start off with one on capital management. Certainly encouraging to see the acceleration, the buyback towards that $4.5 billion level. At the same time, you're still running with more than 100 basis points of cushion I was hoping you could speak to, given the uncertainty in the environment, what level of CET1 you're currently comfortable running with in terms of the ratio, and whether this $4.5 billion buyback level is something that we expect to be sustained over the near to medium term.
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Alastair Borthwick: Yep. So Steve, if you look at what we did this quarter, just take a look at slide eight in the earnings materials. Now here's a quarter where we ended up earning $7 billion and you know, it allowed us to step up the share buyback from $3.5 billion up to $4.5 billion in an environment where we also invested more RWAs in global markets, and into higher loan balances. So not only do we, you know, grow the loans call them organically, but we also purchased a loan portfolio this quarter. So we're sort of growing into our capital at this point. By investing in the business and we still have some flexibility to increase the share buyback. So I don't think we have an ultimate destination in mind right now on CET one. Recognizing that we don't have full clarity yet on all the aspects of capital, and we'd like to see that before we before we determine it. But obviously, as you point out, we've got a lot of flexibility. And we're we're more focused on just make sure that the CET one's in a good place and then grow into the capital base that we have. That's probably the best way to articulate it. It's great. And for my follow-up, just on the outlook for loan and deposit growth. You know, you delivered better growth across both KPIs relative to peers. Somebody could speak to what drove the strength in one q beyond the portfolio purchase you alluded to earlier, And just bigger picture, the outlook for commercial loan growth as tariffs and policy uncertainty certainly raised concerns regarding weakening loan demand. Weaker CapEx, what have you.
Brian Moynihan: That's a Steve. Just Steven, just on the
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Brian Moynihan: That's a Steve. Just Steven, just on the
Alastair Borthwick: I'll give you the broader thing and now so you can talk about some of the specifics. Remember over the last several years, we've been investing in basically building out more commercial bankers across the world. Including build outs in Switzerland and the UK and things like that. We built more commercial loan officers in United States and our our public commercial banking business under Lendinga team. Private bankers and more in the in the wealth management team under Merrill, what we call wealth management bankers, support those teams who've grown them. So those investments sort of, you know, kicking in on that sort of yeah, twenty twenty mile march way, just more of a more of a more of a net keeps driving it through. So that's why you're seeing us sort of do better in the competition just in linked quarter loan growth. We look forward, you know, with all the things you described, the statue changes economy, business views, people draw, in anticipation of tougher economic times. We'll see all that play out. But the real way that the real reason that we're driving our capabilities is you have more capacity and then making that honestly, we're also making that capacity more efficient using some artificial intelligence machine learning to direct that calling capacity, and that's allowed us to take what we call new logos in the commercial business, adding new companies, The first time you're seeing that having started a couple years ago is now maturing in the balances in outstanding switch. It takes a while to bring those clients in, get them underwritten, Yep. They renew. Once every couple years, getting the flow, etcetera. So we those investments are paying off. We expect that to continue across the board.
Stephen Chubak: That's great color. Thanks so much for taking my questions.
Operator: We'll move next to John McDonald with Truist Securities. Your line is open.
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Operator: We'll move next to John McDonald with Truist Securities. Your line is open.
John McDonald: Thank you. Good morning, guys. Thanks for the longer-term perspective on the credit. Just wanted to follow-up that. On terms of the loan loss reserve, what were the dynamics of the setting of the reserve this quarter in terms of any change in weighting of scenarios for the tariffs, and was it set with a three thirty-one view or early April view?
Alastair Borthwick: So John, we said it all the way through the close, but normally we're focused on the data that we have on three thirty-one. And then we have the ability to layer on top after we model our reserves. We have the ability to layer on imprecision and judgmental on top of that. So we did this quarter the same way that we've done in other quarters. We went through and assessed using the blue chip economic indicators, so the consensus view of all of the various macro assumptions. That's sometimes different than others who use their own proprietary. We feel like the right answer is to use the blue chip consensus. It's more independent. And then we've got that as our baseline. And we've got four other scenarios around that. We've got upside, and three downside. And so in this particular quarter, already the blue chip economic indicators have moved down in terms of economic growth. So GDP lower in the baseline. And a little higher on inflation. So that's reflected in the baseline before we even get to the weightings. And then weightings this quarter, we those are unchanged for us. And by the time we then take that modeled answer, and then layer on top of it the judgmental piece all the way through the close, we're reserved closer to an unemployment rate that's right around 6%. In twenty-five twenty-six just to give you some idea. So that should give you an idea. We feel like we're pretty well reserved to this point.
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Brian Moynihan: Hey, John. One of the things we've been looking a lot of sort of what happened because, obviously, CECL came in pandemic hit, sort of the buildup, and things like that. But the the you know, as Alastair said, one of the hard concepts is the baseline that we use continues has moved negative over the last couple of quarters, obviously, due to the outlook here last couple of months and will continue to reflect that. But we have a strong reserve position with that when you add it all up at the 6% implied level. So we feel good.
John McDonald: Thanks. That's helpful. And then on expenses, you previously were looking for the full year expenses this year to be up 2% to 3% over last year. How are you feeling about that? Is that still kinda your current or thinking?
Alastair Borthwick: Yep. That's still our current thinking, John. Mean, I think we said 2% to 3% for the full year. We feel like we're on course there. It might be towards the higher end, but we just gotta see what happens with fees over the course of this year.
John McDonald: Got it. Thanks. We'll take our next question from Jim Mitchell with
Operator: Seaport Global Securities. Your line is open.
Jim Mitchell: Great. Good morning. Maybe, Alastair, you're you're able to absorb four cuts this year. Your assumptions and maintain the four q NII target, which is which is a good thing. But as we think about the full impact of the four cuts, felt in twenty-six and potentially a few more, does that make it a little more difficult to reach that intermediate-term target NIM of 1.3% by the end of next year, or fact that you're getting them out of the way this year is helpful just know, trying to think through that intermediate-term target. Thanks.
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Alastair Borthwick: So Jim, first of all, that target is 2.3, not 1.3. I'm sorry. Yes. Yeah. You're letting us off the hook here. It's easy. Yes. So we're we're aiming at 2.3%, and we still feel like over the course of the next couple years, that's the right answer. Know, for this year's NII, those rate cuts, we got four of them in there. But a couple of them are later in the year. So it it doesn't have a tremendous impact on 2025. It'll be a little bit of a headwind in twenty-six if that in fact is the case.
Brian Moynihan: Right. But, again, we got a lot of time between then and there. I feel like last year at one we thought there'd be one rate cut in the curve. Then there was six. Then we were back to one. So we gotta see how the interest rate curve develops. But our management team's focus and and goal has not changed. Yeah. And, Jim, one thing on the rate sensitivities, remember those are instantaneous drops. And it takes time for the, you know, the fixed our debt portfolio our debt issuance portfolio. Some of it's floating, some of it's fixed. It reprises over time. So if they come more over time, you can't quite acquit it to the instantaneous drop type of things if you got my point at because you have other dynamics which help. So you know, remember that long term, most economists believe that with a inflation coming back towards the target rate, you'd see the Fed funds rate ultimately get down to three, three and a half type of levels, which is more of a traditional normal. It's hard to say in the world we're in now. Level. So if that happens, you know, we feel very comfortable if you look back historically the earnings power of this company and the and the NIM percentages you've talked about. With the Fed funds rate in that range of pushing up 2.3 and beyond strong.
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Jim Mitchell: Okay. Yeah. It makes sense. And and just as a follow-up on just sort of the near term, April, we saw a big jump in volatility. Just any any are you seeing across your business segments, you know, whether we've seen you've seen deposit you know, flight to safety flows or and, you know, the volatility in trading, has that been good volatility, bad volatility, just trying to get a little window into the near term? Thanks.
Alastair Borthwick: Well, we've seen significant pickups in customer activity in global markets. So the environment there remains constructive. We have seen, you know, I'd say continued positive sort of similar to what we would expect haven't seen anything like, you know, if you were to go back couple years around regional banking crisis, then nothing like that. It's been pretty regular way, I would say. We just keep driving the deposits day to day.
Brian Moynihan: And, Jim, you Okay. Type mentioned earlier, but just you did specific ask about, but what's interesting is you watch that that consumer money flow spending. If you take a four-week average, including up to the first twelve days of April, it's running at 5%, so it hasn't fallen off. You gotta be careful just using two weeks because of Easter fell this year versus last year and all that stuff. But, basically, you know, it's it's maintaining that pace. So the consumers are still solidly in the game. What they'll do next different question, but right now, they're still solidly even to the first part of
Jim Mitchell: Okay. Great. Thank you.
Operator: We'll move next to Glenn Shore with Evercore. Your line is open.
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Jim Mitchell: Okay. Great. Thank you.
Operator: We'll move next to Glenn Shore with Evercore. Your line is open.
Glenn Shore: Hi, thanks very much. So another good trading quarter for you guys. But I'm curious, when you when you benchmark yourself, say, to the top peers, you know, there's probably about a $3 billion difference to the to the biggest platforms. I'm just curious if you see those big gaps to peers, are those gaps that you're choosing to pursue? You you mentioned you have the SLR room. You have a great equities franchise. I'm just curious on your approach towards is it a capital thing? Is it a list thing? I'm just curious on the high-level thoughts. Thanks.
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Brian Moynihan: I think yep. Starting a number of years ago, this has been a relentless climb up the ladder and and not overshooting and and having to cut off. So that, you know, three years of year-over-year growth, you know, consecutive quarters that other people don't do because there's more volatility. So Jim and the team are basically building up. So what have we done? More capital. Probably over five or six years, we you know, $300 billion more debt balance sheet capacity even though the this quarter was sixty ish billion dollars. So we keep adding capabilities capacity. But remember, the and we've, you know, on a relentless march, you have fourth third in this category your third, second in this category, keep moving up. And and just keep pursuing it. In some areas like, you know, physical commodities, that's not a business where heavily into. And and we made a decision about that a number of years ago versus, you know, core fixed income where we're stronger and we gain. We've been gaining shares. So the idea is to keep gaining share but at a pace, for lack of better term of the business, which has volatility in a pace that capitalizes that you know, that volume of revenue into the business and then grows from there as opposed to grabs it and gives it back and grabs it and gives it back. It's just the way the gym and the team have driven it, and they've done a frankly, a very good job doing it. And so expect us to keep gaining share. We'll keep closing the gaps that you mentioned, It's getting closer to the you know, third place gap. But you know, in a given quarter, other people may shoot up a little higher because of this element or that element, but our job is to just do because consistent across all the elements that we participate in. And keep driving that, and there's plenty of opportunity ahead. And it's not for lack of capital or lack of risk-taking. They're taking more risk. And and the other major thing is the investment in systems here. Is a competitive moat, frankly, that the amount of work
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risk. And and the other major thing is the investment in systems here. Is a competitive moat, frankly, that the amount of work you have to do to get this all to work, right on a worldwide basis is very few of us can do.
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Glenn Shore: I very much appreciate that. And and similar to what John said, we definitely like to drill down on the extra detail around the credit book and history guide. I'm curious on the right now when you talk about the reserving and you're you took now to give us the the further drill down on on the exposures, Is is it a traditional regular way where marching towards or closer towards our higher likelihood of recession? And Or or have you gone through and assessed the loan book from exposures to this shifting tariff and tax environment, and and that's bringing the higher attention. I hope that the question's clear. I'm just I'm more talking about the the why now and and what's driving the increased attention.
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Brian Moynihan: Well, then why now? Why we put the extra disclosure is just to remind people you know, we actually if you look back, Glenn, we did a lot of this around night, you know, in twenty because of the same discussion came up. And then in twenty-two or three, there was the same discussion about we're heading to their sessions, Consumers are gonna spend down their money. The consumers quit. Turned out not to be true, frankly, in the twenty-two, twenty-three time frame. Consumer held in. So if you look you know, we always are testing every yep, On a continuous basis in a trading book stress test, but, you know, on a quarterly basis, across the things If you think about all the different ways the economy can get knocked into recession or potential recession or lower growth. Remember, the whole world is predicting a lot lower growth this year than last year. That's not new. That's just all the street. Our economists etcetera. So that the growth is slowing down from a 3% growth rate in the third quarter of last year. You have to to one ish, you know, type of numbers. They're a little bit less than one this year here in the blue chip in the in the first quarter. So over two quarters, a pretty good drop. So that's all embedded in it. But while we're trying to give you reassurances or a look at the in-depth is because it's a source of strength for us. And we've been we've been working at that hard to ensure that as we go through a crisis, and we've had a couple bumps in the road, as we go through a more traditional yep, economic downturn, we will be in great shape, and we test that every quarter. In lots of different ways. So but if sit there and say, what happens if tariffs happen? This happens. This happens. It's gonna result in either GDP negative growth higher inflation, which may then cause GDP negative growth, higher unemployment, etcetera. All those are the factors we actually test in granular detail. So it's not necessarily how you get there. It's the outcome of getting there. The GDP fall off, housing
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in granular detail. So it's not necessarily how you get there. It's the outcome of getting there. The GDP fall off, housing price fall off, unemployment levels. That's what we do. And we wanted to make sure we were positioned at the end of the day that we could serve our clients well and not have to be, you know, pulling back. And so that's the underwriting discipline of the last decade holds you in good stead. If, in fact, we do enter a a recession in the future.
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Glenn Shore: Thanks for all that, Brian.
Operator: We'll move next to Mike Mayo with Wells Fargo Securities. Your line is open.
Mike Mayo: Hey, Brian. I hearing this call, and almost sound like it could have been the fourth quarter earnings call. You know, loans are growing, deposits are growing, credit's fine. Consumer spending slowing, but still growing. You're buying back more stock. And I'm just trying to reconcile the $7 trillion of lost stock market wealth with comments from you sounds like you're not blinking. And by the way, I don't think you're alone. It's just teams you know, more upbeat relative to what the stock market's done, and I'm trying to reconcile those two things. So what am I missing or what are you seeing? Or at what point do you say, hey. Wait a minute. This is really might be a a bigger problem.
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Brian Moynihan: I think, Mike, you're laying out the difference between is and could. And might and should in in the future. Right? So, yep, what we're trying to do is make sure people see what is going on today and like you said, for the and that's why you actually split the two pieces of presentation for the first quarter. Everything you said is true. Loans, deposits, credit's good. Charge offs went, you know, down. Delinquencies are down at the end of the quarter versus fourth quarter. You're looking at all that and say, okay. That's that's what we did. If we look forward, you know, our our economists, your economists, I'm sure, are all predicting a slowdown in growth. And the the core question will be when all these different policies and stuff come together and response with the policies by, you know, other trading partners. To the tariff policies by the the policies on deregulation working for that, the tax bill, which comes out. All that will mix together and come to an outcome. And our job is to have positioned the company well and take advantage of the opportunities both that outcome hasn't happened yet. And when it comes to being a good position, And that's why this latter part of this was geared towards showing you the strength of the credit portfolios and and other things. Again, today, you you and I know that the you know, the real risk in a in a balance sheet of a bank is gonna be its credit posture heading into a general recession. Our our colleagues you our have raised their probability reception recession, lowered their growth as have the blue chips. Even if you look at the people we did it. It's a very slight recession, and yeah, we should fare well on that. But we just don't nobody has a perfect yep, a perfect crystal ball, whatever the right word is, to the future. But, you know, we're positioning our comfort for everything, but we don't want people to lose sight of the strong performance of this company and our our team in the first quarter 2025.
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Mike Mayo: Let me take the other side of that. I thought the idea was to make it easier to do business with deregulation. And I you can see the nominations people, and then you get the policies. If that narrative plays out, how do you think it'll be easier to do business at Bank of America and and with your with your customers as it relates to deregulation.
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Brian Moynihan: I think the new administration has made it clear that they're gonna reduce the regulatory burden along two dimensions. Dimension one is, yep, I think you know, less regulations new and getting other regulations off the book and refining based on view that the pendulum is going too far. Is that talking about bank regulations, but it's actually more broad across. The second way is actually reduce the size of the federal administration that brings, you know, the regulatory inquiries and things like that. So we're seeing you know, some relief. We look forward to seeing more relief as as the nominees get in position and and the policy outlines can be then drilled throughout the teams. But you know, it's it's critically important that we get this rebalance. We wanna run a company that is gonna be well well well capitalized, great liquidity, fair to consumers, etcetera, Mike. But sometimes the regulation gets in the way of that and way overshot you know, the issues. And we look forward to having it come back in the middle and, you know, just take the the debate about treasury trading. The SLR requires us to yep, hold capital at a level against riskless assets and treasuries and cap yep. Cash that doesn't make a lot of sense. And and we've been saying that for a long time, and we expect now heard it said, that there'll be relief in that. Will help us provide liquidity to our clients. In good times and times of stress, but you know, that that you remember our cash and our you know, government guaranteed securities and government issued securities is $1.2 trillion of our balance sheet right now, Mike. You know? So you have to think about that in terms of it and and capitalizing that under the SLR. You know, 5% or whatever it is, and that's a big number. You know. And and none of that has any risk attached to it. You just wanna know. And so that's one thing. The second thing, we saw it again this quarter, on some of the expenses is the operational cost to deal with Yep. The regulatory push that happened
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saw it again this quarter, on some of the expenses is the operational cost to deal with Yep. The regulatory push that happened that we tried to talk the last set of administrators into you're going way too far and you've gone past the substance into form, you know, is is a cost that we're gonna see come out of the system and ought to be reinvested in helping our customers and clients grow.
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Mike Mayo: And short follow-up the $1.2 trillion in cash in governments where would that be kind of in a more ideal world and the operating costs How much of that could potentially be saved even if you wanna give some estimate to the industry? Just order of magnitude.
Brian Moynihan: Yep. I'm not sure it would be tremendously different, you know, by hundreds of billions of dollars, but I'd I'd say a few hundred billion of its pure size that we all added to meet meet a bunch of metrics that I'm not sure as important as people may think they are. You know, and and and and that's proved out. So think of that as our long-term debt posture being up higher, etcetera. So you know, our job is to We got $2 trillion of positive, trillion dollars of loans. We need to extract the value of that deposit. You know, our our size ought to be more generated by that question. And less about, well, we want you to just add stuff because we're not sure that the you know, treasury that the market for repo of of asset-backed securities will be available at a time of stress or even treasuries. And so, therefore, you have to hold more capital and more term funding against the those are the things I would change. So you'd probably see it most in the our long-term debt footprint coming down relative size. And and and and our sheer size coming down, I don't know, $150 billion maybe had a Alice should probably be a good guess if we've grown really just fluffed up the balance sheet to make metrics that not that important look good.
Mike Mayo: Alright. Thank you.
Operator: We'll move next to Erika Najarian with UBS. Your line is open. Thank you. Good morning.
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Operator: We'll move next to Erika Najarian with UBS. Your line is open. Thank you. Good morning.
Erika Najarian: Understanding that there's a lot of potential moving pieces in the regulatory agenda or the regulatory agenda, I did notice that at the end of the year, your GSIBs score would indicate that if you didn't take down your exposure this year, you would have a higher GCIB surcharge by January first 2027 from what I understand, all else being equal. You know, I'm just wondering, you know, Brian Alisdair, if your plans are to, reduce this exposure or the message is look, you know, our ROTC is 13.9% and improving. And so know, crossing is not going to be a big deal because of the PPNR and return power that we see going forward.
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Alastair Borthwick: So I think that relates back to I think it was Glenn's question about the markets business. If I remember who asked it. You know, at the end of the day, you most of what drives that change is the markets business. There are other factors, obviously, Erica, but the big factors in market's business. And if they're out there getting market share and getting the return on that, we'll keep we'll keep growing through that. That's in fact why we have gone up. Yeah. The chunk we've gone up. Now go back to sort of Mike's point and frankly, I think, embedding your question. Think about the facts that the G SIP calculations at the time they were set think it was off at twelve data or something like that, 2012 data, The idea, and it's right, in the rules, was that they should be indexed so that our relative position, Bank of America, relative position, to industry and the economy you've bought a we ought to be able to grow. We've had a nominal economy growth of 30% in the last since the pandemic to now just sheer size growth of which there is no adjustment in the G SIP calculations for that. It was in the statute. It hasn't been implemented. You've heard in some of the even discussion by the the Fed that they would index a lot of the one of the proposals was from sort of now forward, which then skips all the growth, our belief is it should be indexed you know, more fairly as designed in the statute because our relative size hasn't grown even though our balance sheet grown. To the the economy or to the industry. So why are we more GSIP sized than we were before? So I think yep, that's the two sides of trade. Yes. We'd let if the market business can get the returns and grow and do it in a way that sticks to the ribs, Jim and the team will grow, and that will probably push our g SIP. But back up and think about the reality of it. You know, you're now looking at Bank of America and our peers circa 2014 fifteen off of 2012 date, if I remember the exact date. And think about the sheer size of the US economy,
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our peers circa 2014 fifteen off of 2012 date, if I remember the exact date. And think about the sheer size of the US economy, probably you know, fifty, sixty percent bigger, and we have not indexed anything for this. And, therefore, we're shrinking our banking size relative to the economy for the same yep. Without kind of the logic behind it, and that's what we've been pushing about. Got it.
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Erika Najarian: And I'll follow-up offline. I just wanted to squeeze my second question in. Follow-up on the net interest income outlook for the fourth quarter. You helped us with the exit points on both balance sheet and net interest margin in the last call. If I recall, you know, it was flat to fourth quarter levels in thousand twenty-four, and I think a two zero five two ten net interest margin. Are those points still you know, still valid in terms of what's underneath the the surface of that four q twenty-five exit NII. Know, obviously, the balance sheet is bigger because of market in the first quarter.
Alastair Borthwick: Yep. I think you've captured it, Erica. You're exactly right. That's we're comfortable with that.
Erika Najarian: Okay. Thank you.
Operator: We'll take our next question from Matt O'Connor with Deutsche Bank. Your line is open.
Matt O'Connor: Good morning. I just want to follow-up on the concept of growing into the capital. Slide eight here, has a really good walk on the capital and the puts and takes. And I guess I wanna hone in on the RWA growth and and just think about that going forward. Obviously, you know, there's some increase in 1Q from seasonal soft end markets. But maybe it won't be as much going forward, and the loan growth might pick up a little bit. What I'm getting at is it's not that clear to me that you're gonna use all the capital that you're generating and the excess from organic growth. And it does feel like the buybacks at some point will will be at a pretty robust pace. So anyway, long story. One question just to summarize, like, talk about the capital consumption in a little more detail from organic growth the airplane buyback? Thanks.
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Brian Moynihan: Matt, think you sort of answered your own question in the question because you could see that $16 billion RWA increase in the quarter where market tends to be bigger just because the nature of it. Yeah. Yeah. So that's on $1.7 trillion, so less than a percent. Growth in RWA. And, you know, the earnings growth through. So we will always always, always deploy capital into the businesses at whatever they need to grow the businesses with the right returns. That that's a given. In fact, the efficiency of our RWA deployment is something we work at all the time, and that's why you can see know, the growth in size relative to RWA, and we think we have room to go on this. Is always less than the overall growth in the in the loans and deposits. And so yeah, we'll continue to work that efficiencies, but you've got exactly right. The capital goes to deploy to support the business. Going at a much the the business's demands for that are much lower rates than the capital accumulation and then we turn around and say, what do we do with it? Well, you have a common dividend, obviously, and then the rest goes to to buybacks. And you saw us step that up this quarter, as Alastair said earlier, to $4.5 billion. This meaning the first quarter. Okay. And then that's helpful. And then just separately, that all other fee line on a consolidated basis, was pretty close to breakeven versus normally a loss. Of some of your tax credits. Is that just some lumpy items like loan sale gains or marks given some of the things that we saw in the marketplace this quarter or one too?
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Alastair Borthwick: Yeah. No. You got that mostly right. The other income line this quarter as in every quarter, it's generally most impacted by what's going on with our tax credit activity and often it depends on the timing of the completion of really long-dated projects. Could be solar, could be wind farms, could be housing. In any given quarter, there can be some timing there where we catch up in the later quarters. But in this particular quarter, in addition to that, we've got you know, the the leverage finance positions that we refer to. We'd written those down in prior quarters. So when we sold them, this period for a gain, that accounts for a reasonable amount of the delta. And then the only other thing you just gotta remember is, you know, we had that legal settlement pretty long-dated one, got that cleaned up. Little bit of Visa b cleaned up this quarter. So there's some one-timers that offset that, but it's probably worth about three cents this quarter just to give you some idea.
Matt O'Connor: Okay. Alright. Thank you. We'll take our next question from Betsy Gray
Operator: with Morgan Stanley. Your line is open.
Betsy Graseck: Hi. Good morning. How are you doing?
Alastair Borthwick: Great. Thanks, Betsy. How are you?
Operator: Excellent. Great quarter. I did have two quick questions. One was on, Brian, earlier in the call we talked about how some of the commercial loan growth was being generated by the investments you've been making in particular one of the areas international. I just wanted to with this tariff overhang that we have, going forward, do you think about that investment spend in the international markets? Do you step it up? Do you pull it back? Is it an opportunity? Is it a threat or risk? Just wanted to understand that you know, angle from you. Thank you.
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Brian Moynihan: So I think a lot of that's to be played out. That's that we would continue to invest where we see the opportunities and where we see opportunity outside the United States is with the teams that we have that have been in these countries Japan for since the day after World War two ended, India for sixty-five plus years. Australia for sixty plus years, European countries for many years. You know, we're deeply embedded in those countries, and the idea was we basically are coming from pure multinational largest companies in those you know, national champions and taking around the world and taking companies from outside that particular country into those countries. Yep. We will then we're now moving down a notch in size. You know, strong, you know, family-owned businesses in the production supply chains business, we understand. And I I don't think that'll change dramatically. The product the goods and products start to be produced, and so we'll continue to work with we're watching our clients and helping them try to figure you know, what this all means to them in terms of supply chain alignment and things like that. So I I think it's yep. It may ebb and flow. But remember, when you then take the other side of where the investment is in United States, you know, that's where it's just a larger factor in terms of the overall commercial business, meaning small business. We're the largest small business lender in the United States. By quite a bit. And those loans are growing. Signing them as small business, meaning FDIC loans under a million, which we both have in our consumer business and our business banking area. And then middle market largest you know, one of the largest lenders in the United States and then large corporate. So we you know, because of a diversity of our company, we'll see yep, what might not be as possible in a place due to dynamics you're describing maybe more possible in in in a in a place like you know, Georgia. So we'll keep playing this out, but the the the goal was to have
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more possible in in in a in a place like you know, Georgia. So we'll keep playing this out, but the the the goal was to have relationship manager investments on a relentless pace to keep adding yep, our team that's dedicated towards handling client relationships. And then, frankly, making more efficient by the use of machine learning, now AI, you know, to make them more and more efficient and also where to call, who to call on on the prospect list we we have. And we're seeing that take hold, and that's where you're seeing these logos just build up and new client acquisition.
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Betsy Graseck: Okay. Thank you. And that was my second question on the small business side. Can you help us understand what you're seeing today from small business? I know you've you are as you mentioned, the largest small business lender and you've had significant loan growth over the past several years in small business. Way ahead appears. And so you you're the closest to these folks in our world, and I would love to understand. How are they thinking about investing in this environment with the tariff overhang. Thanks.
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Brian Moynihan: Betsy, they're they're just trying to figure it out. And so they see the policies along multi-agency regulations, the tariff policy, immigration policies, etcetera, and they look at all of it and say, in tax policy, And so they they're trying to figure out how it affects their business. In the end of the day, today, they're producing the goods and the goods are going out the stream and being sold, but they're trying to figure out how how that relates to it. And there's you know, the concerns, I think, that were interesting is for a while, it was inflation, obviously, coming through last year when that was discussion. Then it, interestingly, flipped to labor again, which was a little bit unique in that they're trying to make sure they get the call qualified employees that need to operate. But if you look about it, they're basically sanguine on the current environment. But they're worried they're worried about how this will affect their businesses. And where they should invest. And I think that's slowing down you know, some of their decision paths right now because they're trying to figure out if my goods and services will be I'd be able to pass to the price. You know, do I need to, you know, change my business plans in terms of growth? Should I buy that piece of equipment? That's why line usage has been relatively muted still and we continue to to try to grow it. Now there's areas which in in our small business growth, which are yep, sort of recession resistant, which is like in health care. We do we have a big business lending to docs in and veterinarians and other people involved in practice. Those things tend to have less impact by the issues at the moment because of services, business, and things like that. So I think it depends on the business, depends on location, depends on whether in services or whether in goods. But right now, if they look at the last quarter, just like we're gonna look at, looks pretty strong, then they're gonna sit there and say, read the papers and see all the things
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like we're gonna look at, looks pretty strong, then they're gonna sit there and say, read the papers and see all the things coming out and saying, should I slow down my decisioning? That, I think, is the worry is because once they talk themselves in slowing down, it'll be a while till they get restarted. Right now, you know, I think it's more thoughts and then worries, and they've gotta see this settle in. And when it settles in, then they know how to run their business. But right now, it's very it's very unsettling for them.
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Betsy Graseck: Thank you.
Operator: We'll move next to Ken Houston with Autonomous Research. Your line is open.
Ken Usdin: Good morning. Thank you again for the interest income outlook slide, the waterfall. I wanted to ask on the fixed rate asset repricing bucket, could you help us understand how much is rolling off each quarter in the HTM securities and mortgage loan books and what you're getting from that? And then also as we get closer to that second half benefit on the cash flow hedges, what type of pickups are you imagining in terms of, like, new rate versus received rate versus what's rolling off? Thank you.
Alastair Borthwick: So, Ken, on hold to maturity, if you look back over the last fourteen quarters, it's sort of been around $8 billion to $9 billion a quarter. It depends a little on the seasonality as we go through the year. So $8 billion this quarter, but maybe $9 billion next quarter and normally, when those are rolling off, we're picking up 200, 225 basis points just to give you some idea. So that's that bucket. Around residential mortgages, let's say we're originating $5 billion a quarter. Typically, we're picking up couple hundred basis points, sometimes more on those. Just depends on prevailing market rates. So think about that being $5 billion at couple hundred basis points or more. And then the cash flow swaps, we'll talk more about those as we go into the second half. But you can think about that as being something where we're probably picking up 150 basis points or so. It just depends depends on any given quarter. So we'll give you a little more guidance as we get closer.
Ken Usdin: Okay. Great. And then second question, you guys did another great job getting deposit cost down twenty basis points for the second straight quarter. As you contemplate this growth that you're seeing and continuing how do you think about, you know, just how much you can continue to reduce rates paid relative to, you know, how you're seeing just the you know, overall cost of funding. Thanks.
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Alastair Borthwick: Yeah. So I don't think we'll have any change in our philosophy there. Felt like when it comes to the commercial and the wealth clients in particular, where they have interest-bearing balances, we just pass through the cuts. And then as it relates to the consumer book, we've got an awful lot of non-interest bearing there, obviously. So really, you're focused there on the piece that's in the CDs and then the preferred deposits. And there again, we tend to pass that through as it comes through. So so it's trickier, obviously, in consumer where we're paying 61 basis points on $950 billion. But even there, just because we we still have some CDs outstanding and we still have some preferred. We're able to take that down last quarter and look to do that again in the future.
Operator: And we'll take our last question from Gerard Cassidy with RBC. Your line is open.
Gerard Cassidy: Hi, Brian. Hi. How are you?
Ken Usdin: Hi there.
Brian Moynihan: You guys did a very good job in giving us the details about what it looked like back in 2009 versus today on slide twenty-two. And if we move up to slide twenty-one, you can see the consumer loan portfolio has obviously been derisked as you pointed out. I'd like to ask a question about is the commercial loan portfolio particularly the growth. Can you guys share with us some of the confidence you have that we're not going to see some issues here you know, particularly you look at the dark blue non-US commercial has grown very, very strongly over this time period. And what can you share with us about the risk in this portfolio relative to maybe 2009?
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Alastair Borthwick: Yeah. So I'll start. Gerard. I'd say we felt like over time as we've become a more global and international company than maybe we were in 2007, it was important for us to diversify the loan book outside of just the US. And it was appropriate because we've got to support clients who are multinationals in the United States operating around the world. And multinationals around the world who also operate and sell into the United States and other places. So that's natural, I think. We kinda supported that over time. That's been a big part of our growth over a fifteen-year period. Now in terms of commercial, if you look at the loan growth overall, I'd say you know, we're we're we're we're pretty diversified in the way we look at that. So all lines of business grew last quarter. So that's small business banking, it's business banking, it's the commercial bank, XCree. It's the Global Corporate Investment Bank. It's Global Markets. And its wealth. Terms of their commercial exposure. So a little bit of it is diversification in all lines of business. And then if you looked at the the book itself, for the most part, as we talked about it secured, It's investment grade. We always think about good client selection as the sort of people who can make it through any and environment. That's where we're investing and partnering. And we've had virtually no charge-offs. So then when you turn to, like, the the global markets business, that again, very diversified, all assets, all client types across things like asset banks and mortgage warehouse and credit financing and subscriptions. So we feel like this book is in very good shape. We feel like they're the right clients. And then, you know, for our teams, it's just about driving the relationship deepening to make sure that we're seeing benefit, not loan portfolio, but in the other things we do across the platform.
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Gerard Cassidy: Very good. Very insightful. Thank you. And then as a follow-up, Alastair, you guys mentioned that the credit card charge off ratio, you know, was a seasonally higher number at just over 4%. And when we go back to the first quarter of twenty-four and twenty-three, obviously, the charge off levels were lower. Can you and especially with the unemployment rate remaining as low as it has over the last couple of years, is the higher level due to some of that FICO score inflation we've heard about during the pandemic? What are you guys, like, account for the number being where it is today versus the last couple of first quarters of, you know, each of those prior years? Considering that the unemployment rate, for example, has not gone up that much?
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Brian Moynihan: Yeah. I think I'd I'd flip it around the other way, Gerard. That that with all the stimulus and all the that, you know, after the pandemic, you the wage growth for inflation, the stimulus that came in just sheer cash, you saw these things drop to levels that we knew wouldn't wouldn't hold. Right? Meaning charge off rates in the card went way down. And all you've seen now is it sort of normalized around where it wasn't and a very good credit period for our company. Yep. And then, you know, 2019 pre-pandemic type of era. So, yep, that's just normalization. I I wouldn't over read that. It's comparative period. So if you look you know, relative to 2019, 2018, you'd seeBrian Moynihan: that those charge off rates run-in three and a half ish, you know, plus or minus percent or similar to we have now. So we feel good about it. The, you know, important thing is you know, if you look at stressing that portfolio like we do you know, you could see that the you know, the losses are projected whether it's in the CCAR process or own internal stress test. You know, if you take it take it across nine quarters, it it doesn't come it's closer to, honestly, the charge off freight we actually underwrote to prior to the financial crisis. We underwrote to, like, a five and a half percent charge our freight in normal times, and then it would go up from there. And so it's a much more core book driven at a very strong performance through crisis. So I I think I I just I think it's just normalizing more to where you know, where where it was in the in the relatively good credit times in 2019. Rather than any significant movement. In fact, we said that as we came through last year over and over again, people kept doubting it. What you've seen is delinquency actually have fallen and it's flattened out. In terms of you have the billion dollar charge off of loan cards.
Gerard Cassidy: Got it. Thank you, Brian.
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Gerard Cassidy: Got it. Thank you, Brian.
Ken Usdin: Okay. Well, thank you. I think that's all our questions. I just wanted to think about the three two or three things. One, thanks to the team for another good quarter. Thank you, and thank you all for participating in our call. Number two, as I said earlier, the story of the first quarter is a strong operating performance. Good organic client activity, growth in revenue and earnings, manage expenses well, and at period of time, we continue to make investments to position the company for the future. On the other hand, we gave you a lot of part of this presentation to show you our multifarious loan book and how that diversity of types of clients and collateral types and geographies and all that would hold us in good stead as not only by our own internal models, but also by the comparison of stress tests. In addition, we talked about how we're well reserved heading into whatever may be in front of us. So our job is to serve our clients in all times, and that's what we plan to do. Thank you.
Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.
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Operator: Hello, and welcome to Citi's Fourth Quarter 2024 Earnings Call. Today's call will be hosted by Jenn Landis, Head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Landis, you may begin.
Jenn Landis: Thank you, operator. Good morning, and thank you all for joining our fourth quarter 2024 earnings call. I am joined today by our Chief Executive Officer, Jane Fraser; and our Chief Financial Officer, Mark Mason. I'd like to remind you that, today's presentation, which is available for download on our website, citigroup.com, may contain forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including those described in our earnings materials as well as in our SEC filings. And with that, I'll turn it over to Jane.
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Jane Fraser: Thank you, Jenn, and a very good morning to everyone. I'm going to start with the macro backdrop and then walk you through our results for the full year. I'll share some thoughts on the progress we're making executing our strategy, and then conclude with why we have decided to adjust our 2026 return target. We entered 2025 with strategic clarity and good momentum across all our businesses. From the global macro perspective, economies have done a good job tolerating hikes from central banks and inflation has clearly been receding. While policies will certainly impact economic activity, whether in the form of tariffs or taxes, 2025 doesn't look that different from 24. The U.S. remains at the heart of the macro picture. Growth is not only being driven by the higher-end consumer, but also by a strong innovative corporate sector. China's growth has been slower-than-expected, but there is still the prospect of further stimulus. Europe continues to underachieve and many emerging markets have re-emerged as bright spots, a trend which certainly benefits us given our global network and deep presence in countries, such as India and throughout the Middle East and ASEAN. I told you, 2024 was a critical year and I'm proud of what we accomplished and how our businesses performed. We finished with a very strong fourth quarter which Mark will detail shortly. For the full year, our net income was up nearly 40% to $12.7 billion. We exceeded our full year revenue target with revenues up 5% ex-divestitures. Fee revenue was up 17% and we saw a smaller impact from Argentina's currency devaluation. We delivered expenses within our guidance and improved our efficiency ratio by 340 bps whilst increasing investment in our transformation. Our RoTCE grew over 200 bps albeit from a low level. Our five core businesses each generated positive operating leverage for the full year which we also achieved at the firm level. Services was up 9% and had another record year despite the low rate environment as a result of new mandates and
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the firm level. Services was up 9% and had another record year despite the low rate environment as a result of new mandates and our emphasis on fee growth. We grew share in both TTS and security services backed by our best fourth quarter in a decade, market was up 6%. The performance of this franchise in the low volatility year shows the benefit of our diversified product mix. Equities was strong throughout and was up 26% in what was a record year for us. Banking was up 32% as we gained share across all three investment banking products and we announced an innovative $25 billion private credit partnership with our long-term client Apollo. Under business leadership, we expect to continue to gain on our competition in 2025 and beyond. 2024 was a turning point for wealth as we sharpened our focus on investments, right-sized the expense base and improved the client experience. Revenue was up 7% for the year including fee growth of 18%. Citigold and Asia were particularly strong and net new investment asset flows grew a very pleasing 40%. We attracted top talent throughout the year in wealth most recently bringing in Kate Moore as our CIO and Anne McCosker as our Head of Lending. This business has tremendous potential with both new and existing clients and we're really leaning into it. USPB revenues were up 6% driven by borrowing across both card portfolios and by fee growth. We announced a 10-year extension of our cobranded partnership with American Airlines ensuring that this valuable relationship enters into its fifth decade. With the acquisition of the Barclays portfolio, we will become American Airlines exclusive partner in 2026 and we expect to deliver more value for our cardholders and high returns for our shareholders as a result. We grew our tangible book value per share by 4% and ended 2024 with a CET1 ratio of 13.6% approximately 150 bps above our regulatory capital requirement. After repurchasing $1 billion in common shares during the fourth quarter, we returned almost $7 billion in capital to our common
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repurchasing $1 billion in common shares during the fourth quarter, we returned almost $7 billion in capital to our common shareholders in 2024. Even how committed we are to returning capital, I am particularly pleased to announce that our board authorized a $20 billion share repurchase program. You can see the very tangible progress we're making in executing the strategy that we laid out at our Investor Day three years ago. We have materially simplified our firm since then. We exited consumer businesses in nine countries and near completion of wind downs in three and are on-track to exit the final two. This includes Banamex, which we legally separated from our institutional business in December. We're now fully-focused on getting ready to IPO, with the timing heavily dependent on regulatory approvals and market conditions of course. To align our structure with our strategy, we went through a significant simplification of our organization, removing management layers and the regional construct. This has accelerated decision-making and made us a better partner to our clients. We have strengthened our culture by better aligning compensation with our shareholders' interests, enhancing our scorecards to ensure we're delivering for clients. We attracted top industry talent throughout our organization and that includes new leaders around my table for banking, wealth, and technology. We have raised the bar on what we demand from each other and what we expect to deliver to our clients. We have continued to innovate to improve the client experience and our efficiency. We are now live with Citi Payments Express in 18 countries and have converted 4 million retail bank customers to our simplified banking platform in the U.S. We accelerated our use of AI arming 30,000 developers with tools to write code, launched two AI platforms to make our 143,000 colleagues more efficient. The investments we're making to modernize our infrastructure, streamline processes and automate controls are changing how we run the bank. We
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we're making to modernize our infrastructure, streamline processes and automate controls are changing how we run the bank. We consolidated our balance sheet reporting to one unified ledger. We implemented a cloud-based solution for risk analytics to better value trading assets. We have closed out three longstanding consent orders. Our capital, liquidity and reserves are robust. Our focused strategy, infrastructure, and targeted client selection have all reduced our risk profile significantly. We have made considerable progress on our transformation. While there are areas that are more advanced, there are others where we still have a lot more work to do, particularly around data and regulatory reporting as last summer's regulatory actions reinforced. We have reviewed the entire data program and made changes to its governance and structure as well as increased the level of investment. As CEO, I want this company set up for long-term success and to ensure that we have enough capacity to invest for that. In terms of expense guidance, therefore, most of the sales from the org simplification and stranded costs will be used to fund the additional investments we need to make this year in both transformation and technology. As a result, we expect our total expenses in 2025 to be slightly below the 2024 level and to deliver another year of positive operating leverage. We expect our elevated expense level to be temporary and for it to keep coming down beyond 2025. However, when we take the required investments into account, we now expect our 2026 RoTCE to be between 10% and 11%. The 2026 RoTCE is a waypoint. It is not a destination. Our intention is to continue to improve returns well above that level and we are accountable for doing so. We are relentless in our determination to run the bank more efficiently, fulfill Citi's potential and meet the expectations of our shareholders. Before I turn it over to Mark, I'd like to acknowledge the catastrophic wildfires in Los Angeles. Many of our clients and several of our
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turn it over to Mark, I'd like to acknowledge the catastrophic wildfires in Los Angeles. Many of our clients and several of our colleagues have lost their homes and we will do whatever we can to help them recover from this devastating event. They and their loved ones are in all of our thoughts at Citi. Now, over to Mark.
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Mark Mason: Thanks Jane and good morning everyone. I am going to start with the fourth quarter and full year financial results focusing on year-over-year comparisons unless I indicate otherwise. I will also focus on our current expectations for 2025 and 2026. On Slide 7, we show financial results for the full firm which reflect improved performance both in the quarter and the year. As a reminder, in the fourth quarter of last year, revenues were significantly impacted by Argentina currency devaluation. Adjusted revenues and non-interest revenues for the full firm and services are shown in the appendix of the earnings presentation on Slide 36. This quarter we reported net income of $2.9 billion, EPS of $1.34 and RoTCE of 6.1% or $19.6 billion of revenues generating positive operating leverage for the firm and in each of our businesses. Total revenues were up 12% driven by growth in each of our businesses and a smaller impact of Argentina currency devaluation. Net interest income excluding markets was roughly flat with growth in USPB and wealth offset by declines in corporate other and banking. Non-interest revenues excluding markets was up 40% driven by continued strong fee momentum across services, banking and wealth along with lower partner payments in USPB as well as a smaller impact of Argentina currency devaluation. And total markets revenues were up 36%. Expenses were $13.2 billion, down 18%, largely driven by the absence of the FDIC special assessment and restructuring charge in the prior year. Excluding the impact of the FDIC special assessment and divestiture related impacts, expenses were down 7% driven by the absence of the restructuring charge in the prior year and savings associated with our organizational simplification partially offset by higher volume related expenses. Cost of credit was $2.6 billion, largely consisting of cards, net credit losses and ACL build. At the end of the quarter we had over $22 billion in total reserves with a reserve to funded loan ratio of 2.7%. And on a full year
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end of the quarter we had over $22 billion in total reserves with a reserve to funded loan ratio of 2.7%. And on a full year basis, we delivered $12.7 billion of net income with an RoTCE of 7%. On Slide 8, we show full year revenue trends by business from 2021 to 2024. This year we delivered $81.1 billion of revenue, up 5% on an ex-divestiture basis, driven by growth in each of our businesses and a smaller impact of Argentina currency devaluation. Services revenues increased 9% to $19.6 billion benefiting from a smaller impact of Argentina currency devaluation, fee growth and higher deposit volumes. Markets revenues increased 6% to $19.8 billion primarily driven by growth in equity, which had its highest annual revenue in a decade and spread products. Banking revenues increased 32% to $6.2 billion, largely driven by growth in Investment Banking with fees up 42%, as we gained approximately 50 basis points of share on an increased wallet. Wealth revenues increased 7% to $7.5 billion, primarily driven by a 15% increase in non-interest revenue, as we continue to grow client investment assets. USPB revenues increased 6% to $20.4 billion, driven by growth in cards, as we continue to see strong customer engagement and an increase in interest earning balances as well as lower partner payments. Overall, this year demonstrates another year of performance consistent with our medium-term target of 4% to 5% annual growth and the value of our diversified business model. On Slide 9, we show the full year expense trend from 2021 to 2024. Excluding the impact of the FDIC special assessment, our full year expenses were $53.8 billion in-line with our target. Expense reduction was driven by savings related to our organizational simplification and stranded cost reduction, as well as lower restructuring and repositioning charges. Organizational simplification, stranded cost reduction, as well as efforts to drive efficiencies across the businesses contributed to a net decline of roughly 10,000 direct staff. These savings were mostly
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drive efficiencies across the businesses contributed to a net decline of roughly 10,000 direct staff. These savings were mostly offset by higher volume related expenses, as well as investments in the transformation and other risk and controls and the civil money penalties. As you can see at the bottom of the page, we spent $2.9 billion on transformation this year, which includes investments in our infrastructure, platforms, applications and data. Transformation investments were up 1%, driven by an increase in certain programs including data largely offset by a reduction in the transformation bonus award. And we spent $11.8 billion on technology, focused on digital innovation, new product development, client experience and other areas such as cybersecurity. Turning to Slide 10, we provide details on our $2.4 trillion balance sheet which decreased 3% sequentially largely driven by the impact of foreign exchange translation. In the fourth quarter, we deployed some of our excess liquidity into loans while maintaining 116% LCR and $933 billion of available liquidity resources. Our $1.3 trillion deposit base remains well diversified across regions, industries, customers and account types. We maintained strong capital ending the year with a preliminary 13.6% CET1 capital ratio, approximately 150 basis points above our regulatory capital requirement of 12.1%. For the year, we returned nearly $7 billion in the form of common dividends and repurchases to our shareholders. Turning to the businesses on Slide 11. We show the results for services for the fourth quarter and full year. Services revenues were up 15%, driven by a smaller impact of Argentina currency devaluation and reflecting continued momentum across security services and TTS, both of which gained share this year. NIR increased 61%, driven by a smaller impact of Argentina currency devaluation as well as continued strength in underlying fee drivers such as U.S. dollar clearing, commercial card spend, cross border transactions, and assets under custody and
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fee drivers such as U.S. dollar clearing, commercial card spend, cross border transactions, and assets under custody and administration. NII was roughly flat as the benefit of higher deposit volumes was offset by the impact of lower interest rates in Argentina. Expenses increased 1% driven by continued investment in technology and platform modernization partially offset by productivity savings. Cost of credit was $112 million with a net ACL build of $84 million and net credit losses of $28 million. Average loans increased 5% primarily driven by continued demand for export and agency finance as well as working capital loans. Average deposits increased 4% as we continue to see growth in operating deposits. Services generated positive operating leverage and delivered net income of $1.9 billion and $6.5 billion for the year and continues to deliver a high RoTCE coming in at 29.9% and 26% for the year. On Slide 12, we show the results for markets for the fourth quarter and full year. Markets saw its highest fourth quarter revenue in a decade and increased 36% with broad-based gains across all products. Fixed income revenues increased 37% driven by rates in currencies which were up 39% and spread products and other fixed income up 30% both reflecting increased client activity. Rates and currencies also benefited from a conducive trading environment compared to a challenging prior year quarter. Spread products and other fixed income was driven by credit and mortgage trading as well as higher securitization volume. Equities revenues increased 34% driven in part by strong execution of strategic client transactions in cash equities and momentum also continued in prime with balances up approximately 23%. Expenses decreased 8% primarily driven by lower legal expenses and productivity savings. Foster credit was $134 million driven by a net ACL build primarily related to spread products. Average loans increased 6% primarily driven by asset-backed lending in spread products as well as margin loans in equities. Average trading
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increased 6% primarily driven by asset-backed lending in spread products as well as margin loans in equities. Average trading account assets increased 15% largely driven by client demand for U.S. treasuries and foreign government securities. Markets generated another quarter of positive operating leverage and delivered net income of $1 billion and $4.9 billion for the year and delivered an RoTCE of 7.4% and 9.1% for the year. On Slide 13, we show the results for banking for the fourth quarter and full year. Banking revenues were up 27% largely driven by investment banking with fees up 35% as we saw growth across all products. ECM was driven by continued investment grade issuance momentum and increased leverage finance activity. ECM saw strong issuance activity particularly in follow on and convertible instruments. In M&A, growth was driven by continued strong client engagement as well as the completion of previously announced acquisitions given the more conducive macro environment. For the year, we gained share across regions, products and several sectors including healthcare and technology. Corporate lending revenues excluding mark-to-market on loan hedges, decreased 24%, driven by lower revenue share and volumes partially offset by a smaller impact of Argentina currency devaluation. Expenses decreased 9%, primarily driven by benefits of headcount reduction, as we right sized the workforce and expense base, partially offset by higher volume-related expenses. Cost of credit was a benefit of $240 million, driven by a net ACL release of $247 million, primarily driven by improved macroeconomic conditions. Banking generated positive operating leverage for the fourth quarter in a row and delivered net income of $356 million and $1.5 billion for the year and delivered an RoTCE of 6.5% and 7% for the year. On Slide 14, we show the results for wealth for the fourth quarter and full year. As you can see from our performance this quarter, we are making good progress against our strategy and expect that momentum to
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As you can see from our performance this quarter, we are making good progress against our strategy and expect that momentum to continue. Revenues were up 20%, driven by a 22% increase in NIR, as we grew investment fees with client investment assets of 18% including net new investment assets of $16 billion. NII increased 20%, driven by higher average deposit spreads and volumes. Expenses decreased 3% driven by the continued benefit of headcount reductions, as we right-sized the workforce and expense base. End of period client balances increased 8%, driven by higher client investment asset flows and market valuation. Average deposits increased 3%, reflecting the transfer of relationships and the associated deposits from USPB, partially offset by a shift in deposits to higher yielding investments on Citi's platform. Average loans decreased 1%, as we continued to optimize capital usage. Wealth generated a pretax margin of 21% and another quarter of positive operating leverage, delivering net income of $334 million and $1 billion for the year and delivered an RoTCE of 10.1% and 7.6% for the year. On Slide 15, we show the results for U.S. Personal Banking for the fourth quarter and full year. U.S. Personal Banking revenues were up 6%, driven by NII growth of 5% and lower partner payments. Branded cards revenues increased 7% with interest earning balance growth of 7%, as payment rates continue to normalize and we continue to see spend growth, which was up 5%. Retail services revenues increased 7%, driven by lower partner payments and interest earning balance growth of 3%. And retail banking revenues were roughly flat, as the impact of higher deposit spreads was offset by the impact of the transfer of relationships and the associated deposits to our wealth business. Expenses decreased 2%, driven by continued productivity savings, partially offset by higher volume related expenses. Cost of credit was $2.2 billion, largely driven by net credit losses, as well as a build primarily for volume growth. Average deposits
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credit was $2.2 billion, largely driven by net credit losses, as well as a build primarily for volume growth. Average deposits decreased 18%, largely driven by the transfer of relationships and the associated deposits to our wealth business. USPB generated another quarter of positive operating leverage and delivered net income of $392 million and $1.4 billion for the year and delivered an RoTCE of 6.2% and 5.5% for the year. On Slide 16, we show results for all other items which includes corporate other and legacy franchises and excludes divestiture related items. Revenues decreased 34%, primarily driven by net investment securities losses as we reposition the portfolio, higher funding costs and close, exits and wind outs. Expenses decreased 51%, primarily driven by the absence of the FDIC special assessment and restructuring charge in the prior year as well as the reduction from the closed exits in wind down. And cost of credit was $397 million with net credit losses of $257 million and a net ACL build of $140 million primarily driven by Mexico. Turning to Slide 18, where I will walk you through our current expectations for 2025. As a reminder, what underpins our current expectations is a reflection of a number of scenarios that include different macro and capital market environment. And based on what we know today, we expect revenues to be around $83.5 billion to $84.5 billion, a roughly 3% to 4% increase year-over-year. We expect a continuation of the NIR ex-markets momentum we saw this year driven by investment banking as we continue to gain share in the areas of strategic focus such as healthcare, technology, as well as leverage finance and sponsors assuming a constructive industry wallet. Wealth, supported by a continued focus on growth in client investment assets and banker productivity, which will drive investment revenue services as we execute the strategy we laid out at our Investor Day in June, expanding our leadership position with large institutions and growing our market share with commercial
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Investor Day in June, expanding our leadership position with large institutions and growing our market share with commercial clients in TTS. And in security services, continuing to gain share through investments in our digital and data capabilities while deepening with asset managers and asset owners. Turning to Slide 19, we expect NII ex-market to be up modestly this year. However, there are several tailwinds and headwinds that I will walk you through. Looking at the left hand side of the page, we expect most of the increase to come from volume growth and mix, primarily driven by higher loan volumes in USPB, mainly in cards and deposit volumes in services. We expect the continued benefit from lower yielding investment securities rolling off and being repriced into higher yielding assets such as cash, loans and securities. Partially offsetting these tailwinds are several headwinds including various scenarios around lower rates both in U.S. and non-U.S. Which we expect to be mostly offset by repricing actions across the franchise as well as the potential impact of card late fee reduction and FX. Turning to Slide 20, we expect expenses to be slightly lower than $53.8 billion for 2025. Our expectations reflect continued benefits from our organizational simplification, reduction in stranded costs, and productivity savings from our prior investments. However, offsetting most of these benefits are increased investments in the transformation, technology and the businesses as well as higher volume related expenses. Embedded in our outlook for the year is roughly $600 million for repositioning, which remains elevated, as we continue to reduce stranded costs, drive efficiencies across the businesses, and as benefits from investments in transformation and technology allow us to eliminate manual processes. As Jane said, we recognize that, our expense base remains elevated and we remain very focused on bringing down our expenses each year, while ensuring that, we have enough capacity to invest in the company. Now turning to
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on bringing down our expenses each year, while ensuring that, we have enough capacity to invest in the company. Now turning to Slide 21, I will talk you through our expectations going forward. As we enter 2025 and think forward to 2026, we continue to have a clear path to improve returns. Having gone through another robust planning process and having provided revenue and expense targets for 2025, we want to update you on our 2026 RoTCE target range. In 2026, we expect continued revenue growth from both NII and NIR, with drivers largely consistent with recent performance. We expect expenses to decline from 2025 and are targeting an expense level below $53 billion. The reduction in our expense base will come from a decrease in legacy and stranded costs, a more normalized level of severance, and an increase in productivity savings from our prior investments. We will maintain strict discipline on the entire expense base looking for more opportunities to drive further efficiencies, as we go into 2026. We also remain laser-focused on continuing to optimize RWA, but as you know, the future of capital rules and therefore requirements remain uncertain. In light of all of this, we are now targeting an RoTCE in the range of 10% to 11% in 2026. We're committed to driving positive operating leverage and improving our returns every year, for both the firm and the businesses and we will do so in a sustainable way, which will set this company up for long-term success. With that in mind, as part of the $20 billion share repurchase program, we plan on buying back $1.5 billion of common stock in the first quarter. As we take a step back, 2024 represents another year of solid progress and a set of proof points towards improving firm-wide and business performance, as well as continued execution against our transformation. And as we enter 2025, these priorities remain critical, as we continue to make progress on improving our returns. With that, Jane and I will be happy to take your questions.
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Operator: [Operator Instructions] Our first question will come from Jim Mitchell with Seaport Global.
Jim Mitchell: Good morning, everyone. Just I think as Jane noted, it seems like a material driver of the reduction in the OCC target in '26 is expenses. I think you kind of backed off the lower end of that given higher investments in the transformation, but also talked about it being somewhat temporary. So when we think about and we appreciate the below 53 for '26, but how much more is there to go beyond that in terms of eliminating parallel running parallel systems, reduce consultant spend and all that stuff? Is there still that path to a 60% or lower efficiency ratio?
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Jane Fraser : Well, Happy New Year, Jim. I know you want to talk about the guidance, so let me put it into context here. Last year you've heard me be very clear about our two priorities. First one is driving the business performance and the second is executing the transformation. You've seen this quarter, you've seen last quarter, you've seen the full year, our businesses are delivering the progress we wanted them to. The strategy is working. We change the business mix, we're generating more fee based revenues. You see that in services with NIR up 37% this year, wealth NIR up 15%, IBCs up 35%, an important part of the mix around the quality of our earnings. We said services is a crown jewel. It's delivered growth, high returns, it's taken share. It's a crown jewel. We made a strategic plan well and you've seen us very steadily prove out why we can be a force globally with a clear path to delivering the financial performance that we said we would do. We've consistently delivered on our revenue and expense targets. And I see a lot more opportunity and more upside to strengthen our business performance. We're very tangibly getting after it. We're pretty excited by it. The second priority, transformation. I got to tell you, I'm broadly pleased with the progress we've made in risk and compliance and accountability. I'm excited by the work we've got going on in controls for the business as well at the moment. We've been very transparent. Data was an area we have more work to do in. Last year, as you know and then as part of the annual planning process, we took a big step back to reassess our plan. And I decided along with Mark and the management team, we needed to expand the scope and accelerate some of the work to satisfy our regulators' expectations. I'm confident that the decision to do that, it was the right one. It's the right one for our transformation efforts. It's certainly the right one for the firm overall. I could have taken a short term decision to cut other investments that are important for our long term
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for the firm overall. I could have taken a short term decision to cut other investments that are important for our long term investment and competitiveness. I'm just not going to do that. You shouldn't want me to do that. And as I said in the opening comments, this ‘26 target is a waypoint not the final destination.
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Mark Mason : And if I could add.
Jim Mitchell: Yes, please Mark.
Mark Mason: Yeah, thanks. I just want to address the second part of your question, Jim, in terms of the path to less than 60%. I think Jane framed it out quite nicely in that, we're building a franchise that will have continued and sustainable top line revenue momentum. We are focused on driving out the inefficiencies and stranded cost and legacy franchise expenses from the organization and the benefits from these investments we've made in the transformation will yield a lower cost structure over time as well. And so the combination of those things will get us to that targeted operating efficiency as we come out of 2026 at less than 60%. So yes, there is still a path and we are focused on that path.
Jim Mitchell: Okay, great. That's very helpful. And then just maybe pivoting to the buyback rate to see the $20 billion authorization. Obviously, can't help but ask about beyond 1Q. If we do sort of get this more certainty, maybe no increase in capital requirements, does it -- does that start to help you may be at least temporarily lower the buffer to take advantage of your trading below tangible book and getting the accretion and accelerating the buyback? Or, how do you think about the rest of the year on the buybacks?
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Mark Mason: Look, I'll make a couple of comments. One, we're very pleased to have announced the buyback program at $20 billion. I think in many ways that is a demonstration if you will, of continued confidence in the earnings generation and momentum that we have around that, as well as the recognition that we are trading below book and not where we want to be. And you've heard both Jane and I, speak to the importance of increasing and doing more in the way of buybacks. We've increased that to $1.5 billion. I think that supports that same degree of confidence that we have in the momentum. We are constantly looking at every year on an annual basis, as we go through our planning process at the management buffer that we have of 100 basis points. And despite the last couple of quarters at running above the 13.1%, our target is the 13.1%. And so, as we get -- as we go through the balance of the year, as we get clarity on reg rules and what have you, you will see us continue to that 13.1%. Obviously, the two important characteristics that we keep or drivers that we keep in mind is, the opportunity to invest more in the business at accretive returns and where we're trading and the need to do more buybacks in order to reflect the underlying value. So target is 13.1%, we continue to look at that management buffer as the regulatory environment evolves and we will continue to do more in the way of capital actions as that makes sense.
Operator: Our next question comes from the line of John McDonald with Truist Securities.
John McDonald: Thank you. Mark, just wanted to follow-up on your answer to Jim right there. So when you look at the 10% to 11% RoTCE target for 2026, is that kind of assuming you'll be around the target or like using the 13.1% as the target and then longer-term you hope to bring that target down as rules get clarified and the franchise gets simplified?
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Mark Mason: John, good to hear from you. In fact, yes, the 10% to 11% RoTCE target we've set for '26 does assume that we are running and using a 13.1% CET1 ratio. Obviously, there will be an SCB that comes out sometime later this year. The rules are continuing to evolve and what have you and we'll factor those in, as we know more about them. But yes, it does assume the 13.1% which is our management target, if you will, for CET1.
John McDonald: Okay, great. And then my next question is, could you clarify what you're expecting this year for card net charge-offs? I understand, the quarterly cadence has seasonality, but for the full year expecting the charge offs to be in the range of last year's guidance. Can you just kind of clarify that, and then maybe just talk about provision build, which you had a lot of in 2024 and whether that could slow down, as the maturation of balances slows down?
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Mark Mason: Sure. In terms of the net credit losses and the forecast that we have, we are expecting that, the net credit losses will be at the high end of the range that we've given. In the case of branded cards that 3.5% to 4% is the full year range that we've given. In the case of retail services, it's 5.75% to 6.25%, excuse me. And so right now, retail services is at that high end at 6.28% for 2024. We'd expect it to stay at that high end, although I'm sorry. And then on branded cards, we're at 3.64% we'd expect it to creep up to about the 4% level over the course of the year. But full year NCL rate and we know that there's seasonality through the quarters. And so you'll see movement through the quarters based on that dynamic. And then just in terms of the provision build, there are a couple of drivers there. One is obviously volume and we do expect to see volume growth in USPB. So that will be an important factor in how the CECL calculations are done. And then the second driver is obviously as we run models and the models have they have a base scenario, they have a downside and upside scenario depending on the broader macro factors, unemployment, GDP, etcetera, etcetera and are waiting towards the likelihood of high or upside or downside scenario. Those factors become important considerations in the provisioning. And so that's how we think about that going into 2025. I hope that helps.
Operator: Our next question will come from Mike Mayo with Wells Fargo.
Mike Mayo: Hi. Just a clarification. So you are guiding for three consecutive years of lower expenses, including that $600 million reposition this year. So they were down in ‘24, you're guiding them lower in ‘25, and you guide them lower in ‘26 again. And you're also guiding for three consecutive years of higher revenues based on what you said. I didn't say that in the written materials, but I think I heard you say that Mark. So three years of lower expenses, three years of higher revenues through at least 26%. Is that correct?
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Mark Mason: No, I mean, I think you described it correctly like we're seeing continued momentum on the top line and we're focused on continuing to bring our expenses down just as we did in '24, a tad bit in '25 and then more in '26.
Mike Mayo: All right. Then I guess this is for Jane. Well that beat haggis on toast if you achieve that, but I'm wondering why that efficiency might not improve even more. If you have $5 billion of stranded costs and transformation costs in 2024 and some of that goes down, I heard you're investing in tech and transformation and volume and the businesses and there's always a trade-off between the bottom line results you show today and the growth you show in the future. And it seems like you're going to get this done, the lower expenses, why you're leaning into a little bit extra growth. So talk about that trade off and where you're leaning in for growth a little bit more.
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Jane Fraser : First of all, I'm a little disturbed by your comment about haggis on toast, it's haggis with mashed potatoes and whiskey, just to be clear for everyone. It's Robert Burns night coming up soon. On expenses, Mike and everyone expenses are a focus not just for Mark and I but for the entire management team. We're making sure that focus and discipline is really getting installed and instilled into the DNA of Citi. And you've seen that as you've referenced. We've been meeting our expense guidance over the last couple of years. We've been driving positive operating efficiency. We're all very focused on improving our operating expense base. Consolidating technology, the simplification work, automation, getting different utilities put in place rather than fragmented around the firm using AI tools now, our location strategy, right? So that core operating expense base is something that we're really looking at how do we drive to be more efficient, more modern and getting it to the level it should be, for the revenues that we generate. We all want transformation to get done quickly and we want it to get done right. That is why our expenses are temporarily elevated to make the investments that are needed there. This is not all run rate. As you say, as CEO, I will not sacrifice the right long-term investments in our growth and competitiveness for short-term expediency. This is a waypoint, it's not a destination and we know what we need to do. We've got our arms around all of this with execution.
Operator: Our next question will come from the line of Betsy Graseck with Morgan Stanley.
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Operator: Our next question will come from the line of Betsy Graseck with Morgan Stanley.
Betsy Graseck: Hi, good morning. Jane, just to follow-up on what you mentioned. As you do execute, we all expect or at least, I do that the market will be giving you credit for that execution, and meaning multiple should increase. I'm a little bit -- I have a few questions here on the buyback, because right now, today, as we all know, you're trading blow book. It has got to be, buying back stock has got to be the most accretive use of capital today. And why wait on the buyback when you can lean into it today and keep your 2026 guide? I mean the old guide was 11% to 12%, RoTCE, new guide 10% to 11%. I'm kind of confused why you don't pull that lever more aggressively because buying back the stock, the accretion to tangible book, it's got to be the easiest thing to do to help that RoTCE go up when you compare and contrast against all the hard work you've been doing, which will obviously be very important to getting the RoTCE up. But why not lean more into that buyback? And can you give us a sense of the timing of that $20 billion?
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Jane Fraser: Yes. Betsy, I love the passion. I've got to say, I can hear the determination in your voice. I think it's the same determination we feel. Look, we're very committed to returning capital to shareholders period or full stop. We've got a $20 billion buyback program. As Mark said that is reflective of the growing earnings power that we have and our confidence in the path ahead. We've been increasing the amount of capital turn over the last few quarters, and we -- I'm also happy to see a more aggressive Basel III scenario firmly off the table. We have nonetheless a 13.1% CET ratio that we put in the plan that can change over time as well. But there's not complete certainty around where the capital requirements are going to go. We hope there will be a holistic one that is reflective of the risk profile of the bank that's been improving significantly over the last few years. So we have some great growth opportunities. I look at the different areas. I'm excited by what we see in wealth. We've got a great runway with our clients who want to do business with us in banking. We've got some very important investments and investment agenda that we're putting in to help us continue growing the bank, gaining competitiveness in a responsible way. I'll just conclude with exactly your point. The bar is high on those investments, right? We don't make them unless we see extremely attractive marginal RoTCE and there's a lot of things we say no to in order to put the $20 billion program in place. In terms of timing, like our peers, we're not committing to this particular timeframe from this, but you can see our commitment. You can hear our commitment.
Operator: Our next question will come from the line of Ebrahim Poonawala with Bank of America.
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Operator: Our next question will come from the line of Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: Hey, good morning. I guess maybe Jane, I want to follow-up on a couple of segments. I think you said 2024 turning point for wealth and you've seen very steady progress on the RoTCE in wealth. Just talk to us in terms of [Indiscernible] has been in the seat for a year now, you've seen progress, what needs to happen? Just talk to us a little bit about the franchise positioning competitively both in the U.S. and abroad as you think about going head to head with some of your global peers and where are the most likely growth opportunities over the next year or two?
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Jane Fraser : Yes, so my vision is that we become a global leader in wealth management. There are not many firms that have the globality of Citi. We have all the assets especially the client relationships all around the world, which we just not tapped for investments in the past. It's a big opportunity. We have $5.3 trillion off from existing clients. I think the fact that I find interesting is 55% of it, it's almost $3 trillion with affluent clients in our branch network in America, in the U.S. We're also very well-positioned to capture new wealth. Just think about what Citi does in terms of our footprint, our capabilities really supports wealth creation from the commercial bank, our investment banking side, markets obviously servicing it too. These are all great feeders for us to strengthen wealth relationships with our clients. To report in Andy. Andy greatly sharpened the focus on the investment business. This is where we see this big upside. He's been building a differentiated value proposition around wealth creation. He's been leveraging a lot of the leading capital market capabilities, the different relationships we have with PE firms, asset managers around the world, get a great platform in place. And importantly, improving our client experience, again particularly around investments and asset allocation, performance etcetera. What else I've got to love is the surgical approach that he's taking to the expense base and driving productivity, something that we're doing across the firm. I'm also excited by the talent he's bringing in. The market leaders like Kate Moore and Keith Glenfield in the investment space. And we've made a lot of investments in training and building this investment culture that we didn’t have before. So to your point, the proof points are working. Q4 revenue up 20%, operating margin at 21% on its way to 25% to 30%, 10% RoTCE on its way to 15% to 20%. These last few quarters, you've just seen us on that March and the number I'm most excited by net new investment asset inflow of $42
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last few quarters, you've just seen us on that March and the number I'm most excited by net new investment asset inflow of $42 billion up 40% year-over-year. The strategy is working. We're going to be a leader in wealth, the growth opportunities Asia, U.S, Middle East, all the places where we are with our existing clients and the new wealth generators of the future.
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Ebrahim Poonawala: If I can draw a parallel segment with the RoTCE is about 5% to 6% last few quarters, there you brought in a [Vivek] Agarwal from JPMorgan. Just give us a sense of could we see a similar trajectory in that business over the next 12 months and where the opportunities are to improve their ROE?
Jane Fraser: Yes. Absolutely, we have a strong performance, the strategy we have in place is delivering nicely. If you look at the revenues, the investment banking fees, positive operating leverage all through the year and gaining share, all three products, gaining share in all three in all of the geographies we're in. I'm really excited and happy to see the healthcare and the technology at two areas that we've been investing heavily behind. And you're also seeing us playing a leading role in some of the key transactions, the biggest transactions last year, Mars, Kellanova, single advisor, big role in Boeing, and then just this week, the J&J acquisition of Intra-Cellular. The deals that matter playing a leading role in. So when this joined, the mandate a bit similar to Andy, become a top three investment bank, deliver the full potential of One Citi to our clients. So we've got a lot of upside there, instilling some more discipline in capital allocation, client coverage, some of the cross firm linkages. We're getting a lot more from our people. We've been bringing in some great new talent. We've also been cutting some of the unproductive spend. I think what you can see is, we're just on a path of systematically growing our wallet. We'll be improving our operating margin, generating higher returns that should be your expectation over the next couple of years of what you'll see from us. As we head into great environment in 2025, it should be pretty conducive for a lot of client activity. I'm very confident we've got the -- we're well positioned. We've got the groundwork done to take advantage of it.
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