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2024-10-15 08:30:00
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Bank of America Corporation
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Alastair Borthwick: Thank you, Brian, and I'm starting on Slide 5 of the earnings presentation. We'll touch on more highlights noted here as we work through the material, and I'd just add that we delivered solid returns with a return on average assets of 83 basis points and return on tangible common equity of 12.8%. So let's move to the balance sheet on Slide 6, where you can see that the balance sheet ended the quarter at $3.3 trillion of total assets, up $66 billion from the second quarter, as global markets client demands expanded and commercial loans grew $16 billion in the quarter. Otherwise in the quarter, the investments of our excess liquidity saw a $10 billion reduction in hold to maturity securities, and the combination of shorter-term liquidity investments of cash and available for sale securities were relatively flat for the second quarter. On the funding side, global markets grew to support balance sheet needs of our clients and total deposits grew $20 billion on an ending basis. It's noteworthy that our average deposits are now up for the fifth consecutive quarter. Liquidity remains strong with $947 billion of global liquidity sources, and that was up $38 billion compared to the second quarter. Shareholders' equity was up $2.6 billion, with common equity up $4.6 billion and a preferred redemption driving a $2 billion decline in preferred equity. The increase income and equity compared to Q2, included $5.6 billion in capital returned to shareholders, partially offsetting our earnings, and it included an improvement in AOCI driven by an improvement from cash flow hedges given the drop in long-term rates in the quarter. $5.6 billion in capital distributions includes $2 billion in common dividends and the repurchase of $3.5 billion in shares. Tangible book value per share of $26.25 rose 10% from the third quarter of '23. And turning to regulatory capital, our CET1 level improved to $200 billion and the CET1 ratio was 11.8%. And that remains well above our new 10.7% requirement as of October 1. Risk
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to $200 billion and the CET1 ratio was 11.8%. And that remains well above our new 10.7% requirement as of October 1. Risk weighted assets increased modestly, driven by both lending activity and global markets needs to support clients and our supplemental leverage ratio was 5.9% compared to the minimum requirement of 5%, which leaves plenty of capacity for balance sheet growth. Our $463 billion of total loss-absorbing capital means our TLAC ratio remains comfortably above our requirements. So let's dig a little deeper on deposits and the growth from the second quarter using Slide 7. Here, we show you deposits and rates by line of business. Average deposits grew $45 billion, or 2% year-over-year, and they increased modestly linked-quarter. Notably, quarter-over-quarter increases in rates paid continue to slow again this quarter, rising 7 basis points to 210 basis points. Consumer Banking increased modestly, driven by product mix and higher rate product offerings. And Global Banking rate paid increased modestly driven by growth in interest bearing balances. It's worth noting that wealth management declined a basis point. We acted quickly following the September 50 basis point rate cut in our wealth business and our Global Banking business, and since late in the quarter, only a small portion of those cuts are reflected. Total rate paid for all deposits from these actions is expected to fall below 2% later in October, as the fuller effect of the pass-throughs occur. Let's turn to loans by looking at average balances on Slide 8. Loans in Q3 of $1.06 trillion improved 1% year-over-year driven by solid commercial loan growth as well as credit card and vehicle loans. Overall, commercial loans grew 2% year-over-year. And importantly, this included a drop in commercial real estate loans of 6%. Commercial loans, excluding commercial real estate, grew 3% year-over-year and were up 6% annualized from the Q2. Consumer banking loan growth was driven by credit card, small business and vehicle borrowing, and the overall consumer
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902
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Bank of America Corporation
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the Q2. Consumer banking loan growth was driven by credit card, small business and vehicle borrowing, and the overall consumer growth was muted by a decline in mortgage balances as pay downs exceeded originations in a higher rate environment. Let's turn our focus to NII performance and Slide 9. So note that our trended investment of excess deposit slide is in our appendix on Page 21. Deposit levels were $855 billion in excess of loans at the end of Q3 and continue to be a good source of value for shareholders. Nearly $625 billion or 52% of our excess liquidity is in short dated cash and AFS securities. The longer dated lower yielding hold to maturity book continues to roll-off, and we reinvest that in higher yielding assets. The blended yield of cash and securities on Page 21 remains well above our deposit rate paid. So going back to Slide 9, regarding NII on a GAAP, non-FTE basis, NII in Q3 was $14 billion and on a fully tax equivalent basis, NII was $14.1 billion. On our Q3 earnings call last year, we first provided our expectation that the Q2 would be the trough and then we would begin to grow in the Q3 of '24, marking an inflection point for NII. And that's what you see this quarter. NII increased by $252 million from the Q2 driven by a number of factors. Global Markets activity and pricing, fixed asset repricing and one extra day all benefited NII, while higher funding costs partially offset those benefits. A 50 basis point rate cut in September also negatively impacted NII. With regard to a forward view of NII, there are obviously several variables at play in the Q4, and we still expect Q4 NII to grow, and we expect it to be $14.3 billion or more on a fully tax equivalent basis. Now we note the following assumptions. First, we assume that the forward curve on October 10, is the one that materializes, so that includes a 25 basis point cut in November and another 25 basis points in December. We also assumed very modest balance increases in both loans and deposits in Q4, building off the activity seen in Q3.
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Bank of America Corporation
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December. We also assumed very modest balance increases in both loans and deposits in Q4, building off the activity seen in Q3. Last quarter, we told you we expect about $20 billion in the aggregate of fixed rate loans and securities to reprice on a quarterly basis, and those are expected to reprice into higher yielding assets and provide a benefit to NII for many periods ahead. And as described previously, we expect to see roughly $200 million benefit in Q4 from the BSBY alternative rate transition. So we think this sets us up well for 2025. With regard to interest rate sensitivity on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift above or below the forward curve. On that basis, a 100 basis point increase would benefit NII by $1.8 billion, while a decrease of 100 basis points would decrease NII over the next 12 months by $2.7 billion. Okay, let's now turn to expense and we'll use Slide 10 for the discussion. We reported $16.5 billion in expense this quarter, up 1% from the second quarter, driven by the revenue improvement in three primary areas that Brian noted earlier. Investment banking, investment broke - and brokerage fees and sales and trading revenue all have more activity and incentive variability than other revenues, and they were up 3% in aggregate versus the second quarter and up 13% year-over-year. In Q3, our headcount of 213,000 was up a little more than 1000, and this quarter we saw the departure of roughly 2,000 summer interns and we welcomed roughly 2500 college graduates from the nearly 120,000 applications received. Regarding a forward view in Q4, we don't expect much change in our headcount, and with continued investments we expect expense to be in line with Q3 at $16.5 billion. As we look into 2025, with an expected return of NII growth and through our expense discipline, we expect a return to operating leverage, an improvement in our efficiency ratio. Let's turn to credit on Slide 11. And the good news is there's not a lot to report here compared to
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in our efficiency ratio. Let's turn to credit on Slide 11. And the good news is there's not a lot to report here compared to the second quarter. Net charge-offs of $1.5 billion were flat compared to Q2. We've seen consumer losses in a pretty tight range for a few quarters now. Outside of that, we saw lower losses from office exposure and otherwise we had two somewhat unrelated commercial losses. The net charge off ratio was 58 basis points, down one basis point from Q2. Provision expense was unchanged from Q2 at $1.5 billion as reserve levels remain constant. And with regard to reserve levels on a weighted basis, we remain reserved for an unemployment rate of 5% by the end of 2025 compared to the most recent 4.1% rate reported. On Slide 12, we highlight the credit quality metrics for both our consumer and commercial portfolios, and there's nothing really noteworthy to highlight on this page. So let's move to the various lines of business and some brief comments on their results, starting on Slide 13 with consumer banking. Consumer banking continues to lead the company in organic growth, and this included another strong quarter of net new checking growth, another strong period of card openings and investment balances for consumer clients, which climbed 28% year-over-year to a record $497 billion. It also included 12-months of strong flows at $29 billion in addition to market appreciation. As noted earlier, loans grew nicely year-over-year from credit card and vehicle as well as small business, where we remain the industry leader. One highlight to note, our Practice Solutions Lending Group for doctors and dentists and related professionals saw loans grow 11% year-over-year. All of this organic growth helped to drive $2.7 billion in net income in Q3. So reported earnings remained strong, declining 6% year-over-year as revenue declined from lower NII, partially offset by higher card income. With the trajectory shifting in NII, we should see earnings in this business begin to shift as well. Expense rose 5% as we
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With the trajectory shifting in NII, we should see earnings in this business begin to shift as well. Expense rose 5% as we continued our business investments. And those investments included those in our people, including the announcement of moving our minimum wage to $24 per hour and that raises the minimum annualized salary for our associates to nearly $50,000. As you can see on the appendix Page 25, digital adoption and engagement continue to improve and customer satisfaction scores remain near record levels illustrating the appreciation of enhanced capabilities from our continuous investments. Bank of America's 23 million Zelle users are up 10% in the past 12-months and their volume usage is now up more than 20%. Customers are now using Zelle at nearly 3x the rate they're writing checks, and Zelle usage has meaningfully surpassed the combination of checks written and ATM withdrawals. Moving to Wealth Management on Slide 14. We produced good results, reflecting healthy organic growth and client activity with increased banking activities of our clients and the impacts of increased market levels together with strong assets under management flows. With a continued increase in banking product usage from our investing clients, the diversity of our revenue base continues to improve. More than 60% of our wealth clients now have banking products with us and 30% of our revenue is now in net interest income to complement the fees earned in our advice model. Net income rose from the third quarter '23 to $1.1 billion this year. In Q3, we reported revenue of nearly $5.8 billion growing 8% over the prior year, led by 14% growth in asset management fees that Brian highlighted earlier. Expenses growth reflects the fee growth and other investments for our future growth as we continue to grow our advisor force through hiring of both experienced advisors and graduates from our training program. We welcomed 5,500 Merrill and Private Bank net new households this quarter and more than 1/3 of those Merrill openings were driven by
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906
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5,500 Merrill and Private Bank net new households this quarter and more than 1/3 of those Merrill openings were driven by graduates from our training program. The business had a 25% margin and generated a strong return on capital of 23%. Average loans were up 3% year-over-year, driven by growth in custom lending and a pickup in mortgage lending. Both Merrill and the Private Bank continue to see healthy organic growth, producing strong assets under management flows of $65 billion year-over-year, which reflects a good mix of new client money as well as existing clients putting money to work. We should also highlight the continued digital momentum that you'll find on Slide 27. As an example, three quarters of Merrill Bank and Investment accounts were opened digitally this quarter. On Slide 15, you see Global Banking results. This business produced earnings of $1.9 billion down 26% year-over-year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 6%, driven by the impact of interest rates and deposit rotation. In our global treasury services business, fees for managing the cash of clients continue to offset some of the NII pressure from higher rates. Investment banking had a strong quarter, growing fees 18% year-over-year to $1.4 billion, led by debt capital markets fees, mostly in leveraged finance and investment grade. We finished the quarter strong, maintaining our number three investment banking fee position. What began as a slow quarter this summer gained some momentum through September and the pipeline looking forward looks solid. An increase in provision expense from last year was driven by the previously noted commercial and CRE losses. Expense increased 7% year-over-year, including continued investments in the business, particularly around technology. Switching to global markets on Slide 16. I’ll focus comments on results excluding DVA as we normally do and the team continued their impressive streak of
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on Slide 16. I’ll focus comments on results excluding DVA as we normally do and the team continued their impressive streak of strong revenue and earnings performance. They achieved operating leverage and continued to deliver good return on capital. Earnings of $1.6 billion grew 23% year-over-year and return on average allocated capital was 14%. Revenue again, ex-DVA improved 14% from the third quarter of last year as both sales and trading and investment banking fees for institutional clients improved nicely year-over-year. Focusing on sales & trading, ex-DVA revenue improved 12% year-over-year to $4.9 billion. FICC increased 8% while equities increased 18% compared to the third quarter of '23. FICC revenues remained strong growing over both the prior year and the second quarter, driven by momentum in currencies trading. Equities had a record third quarter driven by strong trading performance in derivatives and cash. Year-over-year expenses were up 6% on revenue improvement and our continued investment in the business. Finally, on Slide 17, all other shows a loss of $295 million. Revenue was lower and included a charge to other income of roughly 200 million related to Visa's increase in its litigation escrow account. The decline in expense was driven by reduced costs of a liquidating business and lower legal expense. Our effective tax rate for the quarter was 6% and excluding discrete items and the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been approximately 24%. So that's where I'll stop, and with that we'll open it up for Q&A.
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Bank of America Corporation
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Operator: [Operator Instructions] We'll take our first question from Jim Mitchell of Seaport Global.
Jim Mitchell: Hi, good morning. I guess I'll ask the NII question. Alastair, you talked about still feel comfortable troughing in the second quarter, poised to grow. So can you maybe give us a little bit more on - based on the forward curve, any kind of rough thinking on how NII, the trajectory from here beyond 4Q? And what kind of growth you may be thinking about in '25? Just any kind of bigger than a bread box conversation would be helpful.
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Bank of America Corporation
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Alastair Borthwick: I think if we went back to three quarters ago, we sort of saw this trough appearing in the second quarter. And we felt like as the deposits were beginning to find a floor, we'd be in a position where we could begin to see NII growth. So obviously, that happened in Q3. And at this point, we feel like we're in a good position to do that again in Q4. We'll provide guidance, I think, for 2025 when we get back together again a quarter from now. Part of the reason we try not to do it 15 months in advance is because an awful lot moves with the rate curve. Remember, this year, at one point, we had six cuts another point, we had one cut. And even this past quarter, I think the market was surprised with an extra cut. What we're focused on then is just driving the underlying organic growth. So deposit growth, we're getting to a point now we've had five quarters in a row. Global Banking is back to normal seasonality. Wealth is flattening out. And Consumer is slowing and is in a place now where we think we're pretty close to finding that floor. So deposits in a good place, the rotation is slowing. We've got a little pickup in loan growth this past quarter, that's good. We've got the fixed rate asset repricing over time from which we'll benefit, and we've got some cash flow swaps resetting as well. So look, we're in a position where we're we believe we're going to grow NII again in the Q4. That's going to set us up, I think, quite well in terms of 2025. And importantly, we've acted fast with that first couple of rate cuts, so feel like we've put ourselves in a good position to grow from here.
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2024-10-15 08:30:00
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Bank of America Corporation
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Jim Mitchell: Okay. That's helpful. And maybe just a follow-up on the deposit question. You guys had really strong growth in net new checking accounts, but consumer deposits still shrinking a little bit. Do you see any change in behavior since the rate cuts? Or how are you thinking about consumer deposit growth and wealth too? I guess we're seeing commercial growth, but sort of those other pieces on the retail side that have yet to sort of inflect, how are you thinking about that?
Brian Moynihan: If you look across the last several weeks, the wealth management has basically been flat at that $280-odd billion level, Jim. And the consumer business bounces around, it will move $10 billion on a payday to give you a sense. But basically, the major moves are over and we're now about to around [9.35 to 9.40] on a given day. Importantly, the non-interest bearing piece going back to your generation new checking accounts seems to be stable. Much of the movement in the consumer business writ large has been for more interest rate sensitive clients with higher balances having moved and you're seeing that also slow. So we feel good about the stability of consumer at this point. And we can the deposits new accounts we're putting on today are the future of the franchise and that's what we keep building towards. So we're investing to generate those accounts that are primary accounts in the household and start with an average balance of $5,000 to $6,000 and move up to $7,000, $8,000, $9,000 over time. So feel good about it. One thing, Jim, just as you think about it, remember that we're sitting with consumer, we want to basically $750 billion in balances to the $940 billion level now, which is a significant difference in the earnings power of that business.
Operator: We'll take our next question from Gerard Cassidy of RBC. We'll move next to Betsy Graseck of Morgan Stanley.
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Operator: We'll take our next question from Gerard Cassidy of RBC. We'll move next to Betsy Graseck of Morgan Stanley.
Betsy Graseck: Just to follow-up on this last thread of questions. Two things, one, the deposits, how much do you feel that the rate environment has impacted you in terms of the deposit growth that you've generated here and the degree of shrinkage rate that you've seen in some of the businesses? Is it rate driven, do you think?
Brian Moynihan: I guess, Betsy. In the end of the day, remember that we've grown deposits for four straight quarters. What is rate driven is at the margins consumer customers that have $300,000, $500,000 have moved, have less than their deposit accounts. Honestly, the pre-pandemic, when the aggregate hole is up. So think about that. The constant customers that have been with us since then, so. And so the movement now is just pumping around based on seasonal flows of people paying taxes and people having spent money in the summer and paying down the bills from that and things like that. So we feel there's stability on the consumer side, stability on the wealth management side, including the movement of the higher end balances in the market. And a lot of that pricing on both those businesses adjusts automatically given the rate cut. And then on commercial balances, that's just evidence of the buildup of cash and corporate balance sheets and the activity levels of those customers. So we feel good across the board, and basically for several quarters in a row, we continue to grow the balances. The rate impacts really the higher end balances because remember, noninterest bearing and the consumers and low interest cost checking is driving a lot of the value and is a stable balance.
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Bank of America Corporation
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Betsy Graseck: Right. And I know last quarter we were talking a lot about the sweeps and that whole pricing dynamic. Anything this quarter to say about that, reflecting on how you indicated in the slide, you're at 3.13%. It came down one basis point. I mean, it's like de minimis, right? So just the underlying question here is, are we past this whole sweep thing?
Brian Moynihan: We've fully affected that through our custom basis. If that's a question asked.
Betsy Graseck: Okay. And then the other question I had just was on the global banking. Alistair, you mentioned that corporate loan demand picked up late in the quarter. Maybe, you could give us some color on what's driving that. Is that mainly a function of the M&A picking up and the legs that you see to that demand would be really helpful to understand.
Alastair Borthwick: Yes. So look, we've obviously seen pretty modest loan growth over the course of the past year. And it's modest loan growth that we've put in our forward NII guidance, but we were pleased to see a little bit more loan growth at the end of the quarter there. But that's why you see the balances up a little more end of period than perhaps the prior quarter and the last two quarters have been better than the previous quarters. So I don't know if that's early to call it a streak, but we're obviously pleased to see it. It's been pretty consistent across our small business, our business banking, our commercial banking clients. And I'd say we're not really seeing revolver utilization picking up yet. Probably, too early for that. Rates haven't come down that much or hadn't come down till really late in the quarter. So that potentially is a place for some upside in loan growth over time, but we haven't put that in our guidance at this stage.
Operator: We'll take our next question from Glenn Schorr of Evercore.
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Bank of America Corporation
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Operator: We'll take our next question from Glenn Schorr of Evercore.
Glenn Schorr: Hi. Thank you. One quick follow-up on the NII front. I'm just curious, current duration of the securities portfolio and maybe a fixed and floating mix split, how you're thinking about that short duration as the forward curve starts to play out?
Alastair Borthwick: Yes. So not a great deal of change, Glenn, for us in terms of the securities portfolio from what we said before. Obviously, the hold to maturity continues to run-off. I think it's now 13 quarters in a row, another $9 billion or so this quarter, which allows us to reinvest at higher yields. So that remains basically our first thought with respect to the investment strategy is just allow that to continue rolling down. And we're going to continue to prioritize supporting loan growth for our clients. And you can sort of see that HTM run-off over time, funding the loans growth that we've had over time. Then whatever's left over from deposits growing, we're normally putting into cash and cash equivalents or we're paying down expensive short-term liabilities. So if you look, you'd see that we've allowed about $15 billion or so of Institutional CDs to roll-off this quarter. And at the margin, we're taking a little bit of 1-year to 3-year fixed rate, maybe $10 billion or $20 billion in the last couple of quarters. But remember, we're trying to balance capital, liquidity, earnings and it's less about a rate view and it's more about just how the portfolio composition is changing over time.
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Bank of America Corporation
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Glenn Schorr: Fair. Good color. I appreciate it. Wanted to maybe get a little bit more color. In the opening remarks, you mentioned the 10th straight quarter of quarter-on-quarter improvements in markets revenue. It's clear to see. Can you remind us exactly where you've been investing the lion's share of both people and balance sheet? And is that an ongoing process that we can obviously, we can't get a quarter every single quarter, but meaning, is this an ongoing capital effort to continue to boost results across markets?
Alastair Borthwick: Yes. Well, look, we pointed out before and I think you see it again in our results this quarter. If you look at the organic growth highlights on Page 3, you'll see pretty good growth in each of our four big segments. Markets is no different in that regard relative to the other three and that we continue to invest in that business. I wouldn't pick out any particular area in Fixed Income or Equities for people investments. I think as Jimmy DeMare has highlighted, it's about for us filling gaps with existing clients and making sure we're there for them over time. So, we've added people across the various businesses. And then with respect to balance sheet, it's a little bit of RWAs, as Brian highlighted. It's a little bit of liquidity, allowing us to support the financing businesses. And I'd say we're benefiting from the fact that we've got a leading sales and trading franchise in each of the major elements of fixed income and equities that allows us to capture the benefits of having a diversified business with an organic growth strategy.
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Brian Moynihan: I think, Glenn, it's if you've been following our company for a long time and it's been 5, 6, 7 years where we started saying our position was set in the business, so we could start to grow keeping it balanced to the overall company. So that $800 billion to $900 billion of balance sheet in the market every day in the security with Jim and the team, they do a great job turning it over, managing the risk well of ours, well managed, you can see the no trading losses for many, many quarters in a row or one maybe. And so the way they're running it this long-term investment in this business requires investment around data, controls, measurement, financial reports nonfinancial reports, trade reports billions of trades a day reported. So it's a business where we think we have a very good position because of talent and the team does a good job, but it's not something we decided to do yesterday, it's about a long-term build that we've been building and growing and keeping a balance in the rest of the company, so and it continues to do good job.
Operator: We'll take our next question from Matt O'Connor of Deutsche Bank.
Matt O'Connor: Good morning, guys. I was wondering if you could talk about the outlook for share buyback. You did $3.5 million this quarter, obviously, generate a lot of capital has excess capital and sort of the outlook for loan growth is for some, but not at times, yes.
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Alastair Borthwick: No change to the capital strategy. Obviously, what's become very clear over the course of the past year is we've got the capital. So we built the capital over time to make sure that we were in a good position for Basel III final as originally proposed if it were put together today. And we have the time to build more over time because after dividend, you're talking about 30 basis points of capital generation every quarter. So we're waiting at this point to see the final rules as they come out. That's going to allow us to give you a much more precise answer over time. And the waterfall of priority remains exactly the same. It's number one, we got to support the clients. You saw that last quarter with the loan growth. That's always going to be our priority to support the clients, invest in the future of the business. Number two, we want to maintain and grow the dividend over time. We've added another 8% to the dividend this quarter and we want to make sure that we're in a great place to hurdle the regulatory minimum. So we feel good there. And then number three, we'll use what's left to return it to you, the shareholder. This quarter, that's another $3.5 billion. That's on top of the $3.5 million last quarter. So we're in a good position, I think, to support the future growth of the company and to continue to buy back shares over time.
Matt O'Connor: Okay. And then just a different topic. You guys have talked about this concept of the normalized net interest margin of about 2.3%, now a couple of few years. Any updates on the timing of that? And then I think a lot of that is being driven by the fixed rate asset repricing. But how the lower its impact. Can you reach that level with a curve, for example?
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Alastair Borthwick: Yes. Well, look, the most important thing is we've got to get back to growing NII and we've been saying that now for three quarters believing that Q2 would be the trough. So we demonstrated the growth this quarter. We're in a good position to do it again next quarter. And we're on the path. We're poised to improve with NII from here. It's a grind every quarter. We've got to continue to grow the deposits. We've got to grow the loans. We've got to make sure that we think about pricing across the board. You are right to highlight we've got some attractive fixed rate asset repricing over time. We've got some reinvestment over time. And then obviously, we have to watch what goes on with the rate curve when this is a surprise like an extra 25 basis points that will flow through the entire fourth quarter, it might set us back a few weeks. But we just keep doing what we're doing. The organic growth is going to fuel the net interest income growth over time. And then NII will be an output and NII will remain our focus.
Operator: We'll take our next question from Mike Mayo of Wells Fargo.
Mike Mayo: I guess I'm asking the same question each quarter, but it's because the efficiency ratio seems to be getting worse. So reconciling Slide 4 with Slide 10, once again Slide 4 is your digital adoption slide, which shows 75% to 90% adoption in all of your lines of business and the trends are all getting better, so much more of a digital company. And then we look at Slide 10 and your efficiency ratio is 65% versus 64% last quarter versus 63% a year ago with non-comp expense up this quarter. So when we get back to those days when we count the number of quarters of consecutive positive operating leverage and kind of what's the disconnect here?
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Alastair Borthwick: Yes. Okay. So look, that's what we're focused on is getting back to that operating leverage, Mike. The pressure right now is coming largely from incentive comp related to the fee businesses. So think about sales and trading up 12%, investment banking up 18%, asset management up 14%. If you look at Wealth Management alone, we're talking about $200 million there just in that segment alone. So that's good investment and it's good return. I think if you strip that out, you see we're doing pretty well in an inflationary environment. We expect good fees from here. We expect the good expense that comes with that. And then it's about managing the rest. It's about operational excellence. It's about the digital. And as the NII shines through together with the fees and as the credit costs continue to normalize, we think we're in a good position to deliver operating leverage again. So we're looking forward to getting back to that period, and it's just about grinding out NII growth at this point.
Mike Mayo: And when do you think the NII shining through will help that inflection? Is this a fourth quarter event? Is it next year? And can you give us a sneak preview for next year on what you're thinking just because it's been a little bit of a slog admittedly with the headwind from NII?
Alastair Borthwick: Yes. Well, look, I think, again, this is one of those things where we got to see the deposits turn around in all of the businesses and we got to make sure that we're we've got the NII trajectory. But we kind of feel like that's going to be a 2025 operating leverage question, and we'll be able to update you, I think, with some precision as we get into the fourth quarter. Some of that's going to depend on the rate curve. We just and we'll play it by year as we go through.
Operator: We'll take our next question from Vivek Juneja of JP Morgan.
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Operator: We'll take our next question from Vivek Juneja of JP Morgan.
Vivek Juneja: Alastair, just wanted to go through the waterfall slide you had in the Q2 deck or NII. Obviously, you've got the day count and you've talked about the business hedge benefit coming on. Can you talk through the other pieces that you had on that slide since the slide was not this quarter?
Alastair Borthwick: Yes. I think if you were to look we haven't updated it here because we're trying to get the 6 month forward view back at the time, and it was just helpful to do it that way. Now we're just giving the 3 months, we just figured we would give you the overall guidance. You're going to see the same component parts, Vivek, as we laid out there. So largely speaking, I'd say Q3 laid out the way that we thought it would and Q4 is setting up pretty much the same way also. We're going to get some benefit from the BSBY transition feeding back into the P&L. We're going to get some benefit from the fixed rate assets repricing over time. Some of that comes from things like mortgage, residential mortgage on our books, some of it comes from CVL. Some will come from HTM securities rolling off and reinvestment and we'll get some benefit from cash flow swaps. So that remains something that's sort of underlying all of the quarters going forward. And then the remaining piece is the part that we work so hard on. It's the growing deposits, growing low in since the organic growth showing forward and coming through in the numbers versus what happens with the rate curve. So I think as we get together in Q4, we'll probably give you a pretty good sense for what that looks like as it goes through 2025.
Vivek Juneja: And Alastair, what about the two pieces? So you have had $225 million negative impact from rate cuts, obviously, more there and at the Global Markets NII. Any color on those two components?
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Alastair Borthwick: I'd say on the rate cuts, if you were to go back to when we provided Q3 guidance at the time we said one cut in September, one in October, one in November. And as it turns out, we all know that there were two cuts in September. That extra cut flows all the way through the fourth quarter. It's not just two weeks in the quarter or six weeks since the full quarter. So that's an additional headwind, if you like. So that obviously hurts overall. Global Markets is liability sensitive and they've continued to grow their loans. So I think if the rate cuts hurt us a little bit more in that original waterfall, you get a little bit of that back in Global Markets NII. So that probably answers those two elements.
Operator: We'll take our next question from Sharon Leung of Wolfe Research.
Steven Chubak: I'm calling in for Steven Chubak. Just on the security side, I know last quarter, you had laid out the repricing tailwind of about 300 basis points on securities, a little bit less on the loan side. Can you just give us an update on what those figures fit today?
Alastair Borthwick: Yes. I'd say I just used probably 250 on the securities, probably 250 on the mortgages, probably 100 on the CVL, that probably gets you in the right ballpark shared.
Steven Chubak: Perfect. And then just another quick follow-up on the securities portfolio. I know you guys are seeing some repricing tailwinds there, but have you ever given any thought on like doing a bigger repositioning action just because the market seems to be responding favorably to some similar actions of some of your peers?
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Alastair Borthwick: So at this stage, we don't see any need for that. Remember, most of our securities in the available for sale. We've got those held at this point in treasury swap to floating. And we feel like if you look at the NII sensitivity of the company over time, it's come down with the composition of our portfolio. So we feel like we're in a good position at this point to grow NII, grow earnings and we obviously start with a very good base of liquidity and capital. So no plans to reposition any at this point.
Operator: We'll take our next question from Erika Najarian of UBS.
Erika Najarian: I appreciate that you want to wait until January, Alastair, to give us NII update given how much is changing or how much has been changing in the curve. So maybe I'm going to ask this this way. You've talked about hedges in the past in terms of the sensitivity of your floating rate loans, specifically in commercial. As we think about forecasting for whatever rate curve turns out and we think about your floating rate loans ex card, should we assume a similar sensitivity or on the way down is on the way up excluding BSBY? Or will the hedges, essentially give you some floor and that your sensitivity to repricing going forward, again, ex BSBY is not as significant as it was on the way up?
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Alastair Borthwick: Yes. So I think it's okay to start with the same sensitivity on the way down as up because the company is largely speaking positioned in the same way. At the same time, you put your finger on it, we are going to benefit from repricings over time. And we mentioned last quarter and we've talked about already on this call the fact that we've got the various securities and the various new originations that replace those loans that are maturing. So that remains the case. And then we've got some cash flow swaps, a number of them are pointed against the commercial. And as we particularly as we get into the third quarter and fourth quarter of '25, you you'll see a benefit in commercial yields there because those ones are at lower rates and they will be repriced in Q3 and Q4. So a little bit of cushion there. That's one of the reasons that as we look forward into NII, we can sort of see how this repricing that's taking place remember, we're coming off of a period now with a long period, 15 years, of a very, very low set of yields. And we're coming back now to something where you can really see the full value of our deposit base. And it takes a while. It's quarter-by-quarter. We just got to let it develop over time.
Erika Najarian: And my follow-up question is, clearly, you have one of the best views on deposit behavior in the US. And it's been so long since we've seen a neutral rate that's not zero. I guess it’s a two part question. The first is, should we similarly assume the same ability to recapture, on deposit repricing on the way down as it was on the way up in terms of the same deposit beta? And as we think about 2025 that may have better loan growth, where do you think if we if our neutral rate is 2.75%, 3%, where does Bank of America's natural deposit costs fall relative to that?
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Brian Moynihan: Erika, I think you have much discussion over the last couple of years about betas and everything. But if you look where we sort of stand at the end of Q3, the difference between fed funds and the total interest bearing cost of our deposits is around 250 basis points, almost 260 basis points. If you think if you looked at Q2 in '19 when the fed funds hit the highest rate in the last cycle, that difference was 160 basis points, 170 basis points. So there's a fund what you're pointing out, leave aside betas and everything else, there's a fundamental difference of 100 basis points in spread against the interest bearing side and we take the noninterest bearing piece that obviously has a bigger impact. So this will settle in, but you are right for the -- and you've been around this industry for a long time. So if you go back and think about when the Fed's funds rate was sustained in the 2.75%, 3%, 3.25% level, this industry was able to make more money due to the extra value of relative to the last 15 years of the noninterest-bearing deposits in the consumer businesses and the small business in the core commercial business and wealth management business. So we feel good about positioning. We feel good about our deposit makeup, which is driven by core operating activity, the primary household and the consumer side the operating accounts and the businesses, the small businesses and even the wealth management. So see you will see more value. I'm confident and that's what we're looking forward to as the rate structure settles in. And so the key to your point, is not the path of '25 of whether the cuts come in one quarter or another quarter. The key that I think is different is the blue-chip economists, your economists, I'm sure and our economists they all predict that we'll end up with a terminal rate at a 3% level as opposed to the past cycles where we didn't ever get there and rates were starting to be cut at the end [19].
Operator: And we'll take a follow-up question from Gerard Cassidy of RBC.
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Operator: And we'll take a follow-up question from Gerard Cassidy of RBC.
Gerard Cassidy: I apologize for missing that earlier queue. Alastair, you touched on the Basel in one of your comments regarding how you're good position from your capital standpoint from the original proposal. Can you give us any color on what you guys have seen from that presentation that Vice Chair Bar gave earlier in the quarter, what your views are -- where you might come in? I think they said there was an average increase of capital for the group of about 9% and how you might stack up against that?
Brian Moynihan: Yes. I'm not sure we have enough detail, Gerard, to give you a specific at this point. When the reproposal comes out, what we're told is it will not only be about it repropose the whole entire picture, including the changes outlined by Chair Bar speech, but you could take up for granted that, that was more favorable than the original proposal. So therefore, we'll benefit from it. And once we see something that's a little more detail, we might be able to give you a better estimate, but it's favorable to us.
Gerard Cassidy: I see. And Brian, do you think that could step up your activity of returning more capital as it comes in better than expected, you would take that as an opportunity maybe to return more capital to shareholders?
Brian Moynihan: In the end of the day, we have excess capital based on the estimates of the old one. So yes, it would at the margin. But remember that at the end of the day, Gerard, we are sending capital back to shareholders because of the fact that the franchise generates activity without using a ton of capital and grows its loans, in deposits, the earnings, et cetera. So we will continue to be discipline with the capital and the capital return, and we'll continue to return more of it if more is available, we're sitting with a fair amount of excess over the current set of rules. And if a new set of rules are more favorable than the original proposal that would set us up better, no question.
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Gerard Cassidy: Great. And then just as a follow-up, you guys have been building out your obviously branch banking system throughout the country in markets in which you don't have a big presence. Can you just give us an update on how that is progressing? And what are you seeing that makes you -- because you've got great consumer numbers, you got great read on your customers. What really makes you guys excited that this is really the way to go, a combination of the digital and these branches?
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Brian Moynihan: Well, I think if we look at markets, we just celebrated 10 years in Denver from the first opening, which is the first among the first five markets we went after. And so if you look at this market, as I always look at the FDIC data and you kind of look at it last couple of years, it's kind of chopped up because of the stimulus and everything. But you see continued progress by us in all these markets moving from nowhere to into the 10th, 7th, 8th and we keep building that out. What that does is we believe in high touch, high-tech across all individuals and even small businesses and even a little bit in the middle market. And what we mean by that is for even wealthy customers, there are times when they need to utilize a branch. And if you have no branch in Denver or Columbus or Indianapolis or Minneapolis or etcetera, it's a little hard for them to get the full experience. So, we've done that. Now, as we think about it, we had extreme discipline. We're going after this to build out markets to a level we feel comfortable that we have the market covered. And so, instead of putting one in every place, we're trying to build out a network in a place like Columbus where I think we have 15, 20 branches now. And that allows us to build the business. We already have a major Merrill presence there. We already had commercial banking presence there. This allows us to build underneath it. And so that's why you're seeing our deposits in those branches push past $100 million per branch, which is much different than we see in others doing it because of density and capacity and the digital and the prior customer base for lack of a better term that we now can get more from. So, the team is doing a good job. We expect you have to go down both paths, but at the end of the day, we're trying to get coverage in the top markets across the country so that we cover the American population in an efficient and effective way. And the truth of the matter is even though we're 54% sales across all the businesses in consumer all
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and effective way. And the truth of the matter is even though we're 54% sales across all the businesses in consumer all different types of products, a lot of the checking sales only digital are about in the 30s as opposed to the 50s, which means people still like to walk in a branch and start a relationship and that's why we're there.
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Operator: And this does conclude today's Q&A. I'd like to return the call to Brian Moynihan for closing comments.
Brian Moynihan: Thank all of you for joining us. We operated well in the quarter delivering $6.9 billion of earnings after tax, $0.81 a share. As we told you, we continue to see good health in asset quality overall and good spending behavior by the consumers consistent with a solid economy. We told you a couple of things in the past that NII would hit an inflection point in the second quarter. It's done that. We told you that we continue to see the ability to drive operating leverage in the future. Now we can see as NIA starts to pick up and that will drive the efficiency ratio and operating leverage. We continue to grow organically across the board and we continue to return capital to you as we did $3.5 billion this quarter. So, thank you and look forward to talking next quarter.
Operator: This does conclude today's Bank of America earnings announcement. You may now disconnect your lines and everyone have a great day.
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Operator: Good day, everyone, and welcome to the Bank of America Earnings Announcement. At this time all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Lee McEntire of Bank of America.
Lee McEntire: Good morning. Welcome. Thank you for joining the call to review our second quarter results. Our earnings release documents are available on the Investor Relations section of the bankofamerica.com website and they include the earnings presentation that we will make reference to during the call. I hope everyone has had a chance to review those documents. 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 and SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on our website. So with that, let me turn the call over to Brian. Thank you.
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Brian Moynihan: Thank you, Lee, and good morning and thank all of you for joining us today. Before I begin today, I just want to reflect a second on the horrible events this weekend. We at Bank of America are clear that there's no place for political violence in our great country, and we continue to wish the former President Trump a speedy recovery. And our thoughts, of course, go out to the victims and their families and others impacted by this terrible event. With that, let's turn attention to the results for the second quarter of 2024 at Bank of America Corporation. This quarter, we achieved success in a number of areas, underscoring the benefits of our diversity and the dedication of our team to deliver responsible growth. Our organic growth engine continues to add customers and activity to all our businesses, even as we see the drop in net interest income this quarter. I'm starting on slide two. Our net income for the quarter was $6.9 billion after tax or $0.83 in diluted EPS. Attesting to the balance in our franchise, the earnings were split evenly, half in our consumer and GWIM businesses, which serve people, and the other half in our institutional-focused business global banking and markets. We grew revenue from the second quarter of 2023 as improvement in non-interest income overcame the decline in net interest income. Fees grew 6% year-over-year and represented 46% of total revenue in the quarter. Our strong fee performance was led by a 14% improvement in asset management fees in our wealth management businesses. We grew investment banking fees 29% year-over-year and saw sales and trading revenue increase 7%. Global Markets had its 9th consecutive quarter of year-over-year growth in sales and trading revenue, a good job by Jimmy DeMare and his team. Card and service charge revenue also grew by 6% year-over-year in our Consumer business. Much of this fee growth is a result of our intensity around organic growth, and is a testament to the diversity of our operating model. Now on to slide three. Organic
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our intensity around organic growth, and is a testament to the diversity of our operating model. Now on to slide three. Organic growth has been driven by several key factors. First, we focus on our customers. We continue to place them at the center of everything we do. Consumer led the way in delivering solid organic growth with high-quality accounts and engaged clients. For the 22nd consecutive quarter, we had significant net new consumer checking accounts. We expanded our customer base and our market share. Specifically, we added 278,000 net new checking accounts this quarter, which brings our first six months of 2024 to more than 500,000. In wealth management, we added another 6,100 new relationships this quarter. In our commercial businesses, we added 1,000s of small businesses and 100s of commercial banking relationships. This has led to now managing $5.7 trillion in client balances, loans, deposits, and investments across the consumer and wealth management client segments. In those areas, we saw flows of $58 billion in the past four quarters. Our emphasis on personalized financial solutions and superior customer service has strengthened customer loyalty, attracted new clients across all our businesses. Our focus on providing liquidity and risk management solutions to our institutional clients positions to continue to gain more share of the wallet as well. Second, we continue to deliver innovative digital solutions. One of the primary contributors of both attracting and retaining customers to our platforms is our digital banking capabilities for our clients across all the businesses. Our fully integrated consumer banking investment app drives the utility for our customers across their investment and consumer accounts. Our use of stats are strong proof points. Our second language capabilities in our consumer businesses further enhance our customers' capabilities. You can see the continued digital growth in the slides on pages 26, 28, and 30 in the appendix. A couple highlights. Our consumer mobile banking
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digital growth in the slides on pages 26, 28, and 30 in the appendix. A couple highlights. Our consumer mobile banking app now serves more than 47 million active users. They logged in 3.5 billion times this quarter. We also continue to see more sales through the use of our digital properties. Digital sales represented 53% of our total sales in the past quarter in our consumer businesses. 23 million consumers are now using Zelle. They send money on Zelle at nearly 2.5 times the rate they write checks. And, in fact, more Zelle transactions -- send transactions take place than a combination of customer ATM transactions, cash withdrawals, and tellers. Simply put, Zelle has become a dominant way to move money. In our wealth management business, we are seeing more banking accounts being opened to complement the investment business those clients do with us. Importantly, these clients are also recognizing the ease of our digital banking capability. 75% of our new accounts and our Merrill teammates were open digitally. 87% of our global banking clients also are digitally active. We have innovated and significantly streamlined service requests by enabling clients to directly initiate and track transaction inquiries within our awarded CashPro platform, using AI to accomplish that. Third, we continue to make core strategic investments in our businesses. We're not complacent with the success you see on this page. We continue to strategically invest in our core businesses. A few examples, while we have the leading retail deposit share in America, we continue to invest and have opened 11 new financial centers this quarter -- in this first-half of the year and renovated another 243. This is an investment in both our expansion markets and our growth markets. In wealth management, we continue to invest in our advisor development program. It's grown to 2,300 teammates, allowing us to continuously add more than -- teammates to our 18,000 strong best-in-class financial advisory force across all our wealth management businesses.
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more than -- teammates to our 18,000 strong best-in-class financial advisory force across all our wealth management businesses. We're also adding teams of experienced advisors strategically in areas across the country. In our banking teams, we continue to add to our regional investment banking team. We now have more than 200 regional bankers across the country to better serve our commercial clients, and they complement our industry coverage to our corporate clients. In our global markets business, we continue to extend balance sheet to our clients in adding expertise and talent to continue to lead our market share improvements seen over the last several years. We also have increased our technology initiatives and expect to spend nearly $4 billion on technology initiatives this year. We have focused projects around artificial intelligence enhancements with both clients and our teammates. A recent example of our use of AI is our advisor and client insights tool. We've delivered more than 6 million insights here today to our financial advisors, providing them proactive reasons to engage our clients. AI has moved from cost savings ideas to enhancing the quality of our customer interactions. Fourth, organic growth is driving integrated flows across our business. We invest heavily in each line of business that compete in the markets based on their particular customer segment. But importantly, we also invest across our lines of business to knit them together and gain market share in the local markets. It's a differentiated advantage for us, our banking leadership position across our businesses and our nationwide franchise. For example, we leverage our franchise by connecting business customers with wealth management teams. Our teams across all our businesses have made 4 million referrals to other businesses in the first six months of this year. Next, we drive efficiency and effectiveness, and that's through our operational excellence platform. We continue to invest heavily in the future of our franchise and growth,
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that's through our operational excellence platform. We continue to invest heavily in the future of our franchise and growth, while we also have to manage expenses day-to-day. Our focus on operational excellence has enabled us to hold our expense growth up to 2% year-over-year, well below the inflation rates. We continue to work to achieve operating leverages as NII stabilizes and begins to grow again. As you look at it now, Alistair will explain later, a fair portion of the year-over-year increase in expense is due to the formulaic incentives of wealth management due to the peak growth of that business. And last, our capital strength allows us to deliver for all our stakeholders. Our capital remains strong as we held our CET1 ratio at 11.9% this quarter. We grew loans, increased our share repurchases to $3.5 billion and paid $1.9 billion in dividends. Average diluted shares dropped below 8 billion shares outstanding. In addition, we also announced our intent to increase our quarterly dividend 8% upon board approval. Note that with 11.9% CET1 ratio, we remain in a solid excess capital position, both above the current regulatory requirements and the increased requirement to 10.7% beginning in October as a result of the recent CCAR exam. Let's turn to slide four. A couple things to note here. First, we've noted for several quarters that the second quarter NII would be the trough for this rate cycle. We expect NII to grow in the third quarter and fourth quarter of this year. Alistair is going to provide you some points in detail about the path forward. One of the important contributors to that change is deposit behaviors of our customers. On slide four, you'll note that average deposits grew 2% year-over-year and increased modestly linked quarter. The second quarter, in reality, is typically a heavy outflow quarter. We have a lot of customers who pay a lot of taxes in that quarter. Quarter-over-quarter increases in rates paid continue to slow again this quarter across all businesses except for wealth management. And
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increases in rates paid continue to slow again this quarter across all businesses except for wealth management. And we show you that on this page, slide four, by line of business. While wealth business deposit rates have moved higher with continued rotation, we expect those rates to begin to stabilize and the rate of quarterly change to decrease going forward. Turning to slide five, in previous calls, many of you asked questions or commented upon the question about consumer net charge-offs and when would they stabilize in the second-half of 2024. That expectation we have remains unchanged as well. This quarter's net charge-offs were 59 basis points. And for context, this is a stabilization of the rate. I would just remind you that prior to this quarter, I have to go all the way back to 2014 to see a charge-off rate of that high. And that's near when we were still emerging from the financial crisis. On slide four, we highlight the 30 and 90-day-plus credit card delinquency trends, which showed delinquencies have plateaued for the second consecutive quarter. This should lead to stabilized net credit losses in credit card in the second-half of the year. At the bottom of the page, note a couple of facts. First, on the payment rates. This is the rate of paydown on balances in a given month remain 20% above index to the pre-pandemic levels, even while our card customers have plenty of capacity to borrow. And importantly, because we're relation-based businesses, look at the right-hand slide at the bottom of page five. There you can see our deposit investment balances of our customers, who also have a card with us, remain 25% above their pre-pandemic levels, illustrating continued health of these customers. So if you think about consumer credit, the card charge-offs drive it, and they flattened out in terms of delinquencies, and we expect an improvement in the second-half. With regard to commercial real estate, our usual CRA credit exposure slide is included in our appendix. We continue to aggressively work through our
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real estate, our usual CRA credit exposure slide is included in our appendix. We continue to aggressively work through our loans in our modest CRA office portfolio. We saw a decrease in all the categories, a decrease in reservable criticized loans, a decrease in NPLs, and a decrease in net charge-offs. This supports our previous expectation that net charge-offs in the second-half of 2024 will be lower than the first-half of 2024. Our second quarter performance highlights Bank of America's ability to generate strong, sustainable growth through a combination of customer-centric strategies, innovation, strategic investments, and a commitment to a strong balance of risk and reward. We call that responsible growth. We're confident that focused approach will continue to drive long-term success and create value for you, our shareholders. Now I will turn it to Alistair for additional results.
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Alastair Borthwick: Thank you, Brian, and I'm going to start on slide six of the earnings presentation. I'll touch on more highlights noted on slide six as we work through the material. I just want to say upfront that we delivered strong returns with return on average assets of 85 basis points and a return on tangible common equity of nearly 14%. So let's move to the balance sheet on slide seven, where you can see we ended the quarter at $3.26 trillion of total assets, relatively unchanged from the first quarter. And not much to note here apart from a mixed shift of lower securities balances, mostly offset by an increase in reverse repo and modest loan growth, as well as global markets client activity. On the funding side, deposits declined $36 billion on an ending basis, reflecting typical seasonal customer payments of income taxes. And as Brian noted, average deposits were still modestly higher. Liquidity remained strong with $909 billion of global liquidity sources that was flat compared to the first quarter. Shareholders' equity was also flat compared to Q1, as earnings were offset by $5.4 billion in capital distributed to shareholders and a $1.9 billion redemption of preferred stock in the quarter. The $5.4 billion of capital contributions included $1.9 billion in common dividends and the repurchase of $3.5 billion in shares. AOCI improved modestly in the quarter and tangible book value per share of $25.37 rose 9% from the second quarter of last year. In terms of regulatory capital, our CET1 level improved to $198 billion and the CET1 ratio was stable at 11.9%. This 11.9% ratio remained well above our current 10% requirement, as well as our new 10.7% requirement as of October 1, 2024. Risk-weighted assets increased modestly and that was driven by lending activity. Our supplemental leverage ratio was 6% versus our minimum requirement of 5% and that leaves plenty of capacity for balance sheet growth. And our $468 billion of TLAC means our total loss-absorbing capital ratio remains comfortably above our
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balance sheet growth. And our $468 billion of TLAC means our total loss-absorbing capital ratio remains comfortably above our requirements. Brian already covered deposit trends, so let's turn the balance sheet focus to loans and we'll look at average balances on slide eight. You can see average loans in Q2 of $1.051 trillion. They improved 1% year-over-year, driven by 5% credit card growth and modest commercial growth. The modest improvement in overall commercial loans included a 2% increase in our domestic commercial loans and leases, partially offset by a 4% decline in commercial real estate. Middle market lending saw an uptick in the quarter, and we saw good demand in our wealth businesses from custom lending. These areas of growth were largely offset by continued paydowns from our larger corporate clients on interest rate sentiment. Consumer growth was driven by credit card borrowing, and while home lending balances were flattish, originations picked up a bit this quarter. Lastly, and on a positive note, loan spreads continued to widen. As we turn our focus then to NII performance and slide nine, note that we moved the slide we typically use to talk about excess deposits to the appendix on slide 22, so you can see that there. Our excess deposit levels above loans remained high at $850 billion and continue to be a good source of value for shareholders. 52% of our excess liquidity is now in short-dated cash and available for sale securities. The longer-dated, lower-yielding hold-to-maturity book continues to roll off, and we reinvested again this quarter in higher-yielding assets. The blended yield of cash and securities continued to improve in the quarter and is now 160 basis points above our deposit rate paid. Regarding NII, on a GAAP [Technical Difficulty]
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Operator: To all locations on hold. Please remain on line, we are experiencing a technical difficulty. Please remain on line. You will hear music for just a moment.
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Alastair Borthwick: [Technical Difficulty] will materialize. And this now includes three interest rate cuts, starting in September, another in November, and one more in December. And the waterfall shows an estimated impact of those rate cuts to our quarterly NII. The next couple of categories are a result of natural management of interest rate risk in a balance sheet mixed with fixed-rate assets and variable-rate assets. And our balance sheet is split roughly half and half. So we take in liquidity from customers that we use to fund our assets, and then we store excess liquidity in cash and securities. We have fixed assets that mature and pay down, and those supply cash that then gets put back to work on the balance sheet and reprices over time. And we have two basic categories of fixed assets that mature and pay off, and those are securities and loans. On securities, you can see we've got about $10 billion a quarter of cash coming off of our securities portfolio, and we gain roughly 300 basis points of improvement on those assets when we put that money back on the balance sheet. On loans, between resi, mortgage, and auto, we've got another roughly $10 billion, which reprices with a little less yield improvement than securities. And between the securities and loans, we expect a fixed-rate asset repricing adds about $300 million to our quarterly rate of NII as we get to the fourth quarter. On the variable rate asset side, and to protect from down moves in rates, we hedge some of that with cash flow swaps. And those typically roll off in any given quarter and get replaced over time. So included in the cash flow hedges is an impact of cessation of BSBY as an alternative rate. If you recall, we took a charge in the fourth quarter of ‘23. It was $1.6 billion, and we said that would come back to us through time. And beginning in November, we start to see the benefit coming back into NII. And in Q4, that's about $200 million. That Q4 partial quarter benefit will grow by a slightly smaller sequential NII benefit in Q1
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in Q4, that's about $200 million. That Q4 partial quarter benefit will grow by a slightly smaller sequential NII benefit in Q1 ‘25. And then it begins to taper off heading into 2026. In addition, we've got about $150 billion of received fixed cash flow hedges, protecting us from short rate moves moving over. Most are hedging floating rate commercial loans. And the cost of those hedges is reported as contra revenue in commercial loan interest income. These hedges have a weighted average life of just over two years. And they've got an average fixed rate of approximately 250 basis points. So starting in the second-half of 2025, we begin to get some additional NII tailwind, because the cash flow hedges with lower fixed rate likes where we receive, those will begin to roll off, and will likely replace those at higher current market rates at the time. The actual size of the tailwind we'll get from the expiration of those swaps will obviously be highly dependent on the level and the shape of the yield curve at the time of those maturities. And that stretches out over the course of the next four years. Okay, a couple other points to make. You'll note we don't expect much movement around our modestly, liability sensitive global markets NII activity. And lastly, our forward view has an expectation of low-single-digit growth in loans, low-single-digit growth in deposits, with continued slowing of rate paid movement through the back half of 2024. And you can see our expectation of the combined impact here as well. This last element is the one that has the most potential variability. And obviously, it will depend upon actual deposit and loan growth, and pricing and rotation. Okay, let's turn to expense and we'll use slide 11 for the discussion. We reported $16.3 billion of expense this quarter. And that's more than $900 million lower than Q1, which included $700 million for the FDIC special assessment. Not including the FDIC assessment, expenses were lower than Q1 by $229 million, driven by seasonally lower payroll tax
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Not including the FDIC assessment, expenses were lower than Q1 by $229 million, driven by seasonally lower payroll tax expense. Compared to Q2 ‘23, we're up less than 2%. And that increase is equal to the incentives paid for improved fee revenue. Incentives for our GWIN business alone are up $200 million year-over-year. And that's obviously an expense we're happy to pay when we have a 14% improvement in fees for assets under management. Our second quarter headcount number included welcoming a diverse class of nearly 2,000 summer interns we hope will join us over the course of the next year or two upon their graduation. And absent those interns, our headcount fell by nearly 2,000. In the third quarter, we expect to add approximately 2,500 college graduates for full time. More than -- and that's from more than 120,000 applications received, showing that we remain an employer of choice for talented young people. Expense levels for the rest of 2024 are expected to bounce around this second quarter level, given the higher fee revenue and investments made for growth. So let's now move to credit and we'll turn to slide 12. There was little change in our asset quality metrics this quarter. Provision expense was $1.5 billion. That was $189 million higher than Q1, driven by a smaller reserve release in Q2. Net charge offs of $1.5 billion were little changed, with a small increase in credit card, mostly offset by lower commercial real estate office charge offs. On a weighted basis, we remain reserved for an employment rate of nearly 5% by the end of 2025, compared to the most recent 4.1% rate reported. The net charge off ratio was 59 basis points, largely unchanged for Q1. On slide 13, we highlight more credit quality metrics for both our consumer and commercial portfolios. Consumer net charge-offs increased by a modest $31 million versus the first quarter from the flow-through of higher late-stage credit card delinquencies from Q1. Highlighting the change in direction of delinquencies, consumer 90-day-plus delinquencies
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credit card delinquencies from Q1. Highlighting the change in direction of delinquencies, consumer 90-day-plus delinquencies declined in 2Q by $57 million. Commercial net charge-offs were relatively flat as lower commercial real estate losses were mostly offset by a small increase in other commercial loans. Our office losses went from $304 million in Q1 to $226 million in Q2. Other commercial real estate loan losses were simply one hotel. Okay, let's move to the various lines of business and some brief comments on their results, and I'll start on slide 14 with consumer banking. For the quarter, consumer earned $2.6 billion on continued strong organic growth, and reported earnings declined 9% year-over-year as revenue declined from lower deposit balances, compared to the second quarter of last year. Customer activity showed another strong quarter, net new checking growth, another strong period of card openings, and investment balances for consumer clients, which climbed 23% year-over-year to a new record $476 billion. That included 12 months of strong flows at $38 billion in addition to market appreciation over the time. As noted earlier, loans grew nicely year-over-year from credit card, as well as small business where we remained the industry leader. The team held expense flat year-over-year, reflecting good work with continued business investments for growth, offset by the operational excellence work to improve processes and move more of our transactions to digital. And as you can see on the appendix page 26, digital adoption and engagement continue to improve, and customer satisfaction scores remain near record levels, illustrating customer appreciation of our enhanced capabilities due to our continuous investment. Moving to wealth management on slide 15, we produced good results, and those included good organic client activity, market favorability, and strong AUM flows, and this quarter also saw good lending results. Our comprehensive suite of investment and advisory services, coupled with our commitment to
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also saw good lending results. Our comprehensive suite of investment and advisory services, coupled with our commitment to personalized wealth management planning and solutions, has enabled us to meet the diverse needs and aspirations of our clients. Net income rose 5% from the second quarter of last year to a little more than $1 billion. In Q2, we reported revenue of $5.6 billion, growing 6% over the prior year. As Brian noted, a strong 14% growth in fee revenue from investment and brokerage services overcame the NII headwind. Expense growth reflects the fee growth and other investments for future. The business had a 25% margin, and it generated a strong return on capital of more than 22%. Average loans were up 2% year-over-year, driven by strong growth we're seeing in custom lending and a pickup in mortgage lending. Both Merrill and the Private Bank continue to see good organic growth, and they produced strong assets under management flows of $58 billion since last year's second quarter, which reflects a mix of new client money, as well as existing clients putting more of their money to work. I also want to highlight the continued digital momentum in this business, and you can find that on slide 28. On slide 16, we turn to Global Banking results. And here, the business produced earnings of $2.1 billion, down 20% year-over-year, as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 6%, driven by the impact of interest rates and deposit rotation. The diversified revenue across products and regions reflects the strength of our Global Banking franchise. In our GTS business, fees for managing the cash of clients offsets a lot of the NII pressure from higher rates, and clients are accessing the capital markets for their capital needs instead of borrowing. Investment banking had a strong quarter, growing fees 29% year-over-year to nearly $1.6 billion, led by debt capital markets fees, mostly in leveraged finance and
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growing fees 29% year-over-year to nearly $1.6 billion, led by debt capital markets fees, mostly in leveraged finance and investment grade. And we finished the quarter strong, maintaining our number three investment banking fee position globally. A solid start to 2024 has left us in a good position, with top three rankings now in North America, Latin America, and EMEA, and number six in APAC. And we're seeing strong performance in important industry groups as well. An increase in provision expense from last year was driven by the commercial real estate net charge-offs I discussed earlier, and expense increased 3% year-over-year, including continued investment in the business. Switching to Global Markets on Slide 17, I'll focus my comments on results, excluding DVA as I normally do. The team had another terrific quarter as we generated good revenue growth and achieved operating leverage and continued to deliver a solid return on capital. Earnings of $1.4 billion grew 19% year-over-year, and return on average allocated capital was 13%. Revenue, and again, this is ex-DVA, improved 10% from the second quarter of 2023. Focusing on sales and trading, ex-DVA, revenue improved 7% year-over-year to $4.7 billion, and that's the highest second quarter in over a decade. FICC was down 1%, while equities increased 20% compared to Q2 '23. FICC revenues remained strong, and versus Q2 '23, they were modestly lower, driven by a weaker macro trading quarter in FX and rates, and that was largely offset by better commodities and mortgage trading. Equities was driven by strong trading results in derivatives and cash equities. Year-over-year expenses were up 4% on revenue improvement and continued investment in the business. Finally, on Slide 18, all other shows a loss of $0.3 billion, and that was little changed year-over-year, as lower expense was offset by lower provision costs as a result of reserve changes. Our effective tax rate for the quarter was 9%, and excluding discrete items and the tax credits related to investments in
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Our effective tax rate for the quarter was 9%, and excluding discrete items and the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been 25%. And with that, I think we'll stop there, and we'll jump into questions.
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Lee McEntire: All right, Alistair, Brian, I just wanted to -- I did hear some feedback that maybe the audio from the call got interrupted for a moment. So at the point at which it got interrupted, I just want to reiterate a couple of points that Alistair was making. If you go back to slide nine, where I think we lost the audio, was where we started beginning a discussion about the performance from Q1 to Q2 of net interest income. That was driven by higher funding costs and the rotation of deposits seeking higher yield alternatives. And while higher again in Q2, both the rotation and the rate paid increases did continue to slow down. On the slide 10, I think the only points that I would make that Alistair began to discuss there was, we are just reiterating our expectation that quarter two would be the bottom for the NII in the rate cycle that we have been in. And our trajectory remains the same, the belief that our NII will begin to rise in Q3 compared to Q2 and then rise again in Q4. We provided the range of expectations that Alistair covered. And we expect Q4 NII to be around the $14.5 billion level, plus or minus. That would be approximately 4% to 5% higher than this quarter's NII. And he began that discussion by making sure that you know that we pick up an extra day of net interest income in the Q3, providing about $125 million of additional NII that also carries through into Q4. You see that on the slide. It also assumes that the current forward curve will materialize. That says that interest rate cuts will start in September. We will expect another one in November and December in the curve. And the waterfall includes an estimated impact of those rates to quarterly net interest income. And so then we started the discussion. He began the discussion on the fixed asset repricing, which then I think is where the audio picked back up again. And so we're happy to answer some questions on that. I know you'll have questions, but just wanted to recover that point, those points for you.
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Operator: [Operator Instructions] We'll take our first question from Glenn Schorr of Evercore.
Brian Moynihan: Good morning, Glenn.
Glenn Schorr: Hi, thanks very much. Hello there. And definitely appreciate slide 10 a lot. I know you would have given us the 2025 NII guide if you wanted to give us one, so feel free to give that if you want, but that's not my question. My question is, given all the pieces of the puzzle that you gave us expectations for modest loan and deposit growth and slowing deposit-seeking behavior, if you get that 4% pickup from 2Q to 4Q this year that you're expecting, right now or at least recently, consensus had NII looking flattish with that fourth quarter number, and that doesn't make a lot of sense given all the pieces. So maybe if you can just comment directionally if you don't want to give the number of, does it make sense to you that we'd collectively be expecting flat NII with your higher fourth quarter number?
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Alastair Borthwick: So, Glenn, you're right. We're probably not going to give guidance around 2025 for all the reasons that you would expect. What we're trying to do here is reinforce for everyone what we've been saying from the beginning of the year, and that is we think Q2 is the trough, and we believe from this point we're in a good position to grow. Now, when you look at some of the elements of this bridge, you'll draw your own conclusions with respect to fixed-rate asset pricing is going to persist for some period of time, and you'll be able to draw your own conclusions, but I just want to point out we've been pretty clear on our guidance for Q1 and Q2. We've always felt like this would be the trough. We feel like Q3 and Q4 are likely to be better. You can see our work here. We've laid it all out. Nothing's really changed in terms of that. And the most important thing I think for everybody here is we feel like 2024 is a really foundational year. It's this twist period where we just got to get through the last of the deposit rotation, and we're establishing a foundation for growth from here, so that's what we're trying to convey.
Glenn Schorr: Maybe I could just ask a follow-up on deposits within the wealth business. You have $4 trillion of client assets. I'm curious if you break out the split between brokerage and advisory accounts. Do you hear me okay? I'm hearing tons of feedback. Sorry, okay so $4 trillion in client assets -- great $4 trillion in client asset in wealth. I'm curious if you can give us the split between brokerage and advisory. And the reason I'm asking is, I'm curious how you've been handling rate paid on cash and advisory accounts and whether we should expect any behavioral changes following the recent wealth news. Thanks a lot. Sorry for the feedback.
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Alastair Borthwick: Look, Glenn, I'm not sure that distinction would be the distinction I'd look to. We've gone through a massive change in cash infused in the economy and withdrawn now under monetary policy, and so as we stabilize, our instructions to our team are to grow our deposit base a little bit faster than economy. That means you have to price across the board to achieve that. And what -- if you look at the slide four or five where I showed you sort of the change, what you see is the wealth management business takes a little bit longer because those clients have more investment cash with us, not what you're thinking investment accounts puts in their money, how they think about cash, they don't need for daily cash flow, and they move that around. That largely is over. And if you look in the last four or six weeks, we're seeing those deposits in that business bounce around the $280 billion level, not a lot of movement. And it'll keep moving in and out depending on customers paying down their income taxes, taking more risk in the market and all those things, but the deposit pricing changes that we made to ensure that they were at a platform they could grow, having been as high as $350 billion down to $280 billion were made in the quarter and all through the P&L.
Glenn Schorr: Okay, fair [Technical Difficulty] on advisory. Thanks.
Brian Moynihan: Sure. Next question.
Operator: We'll take our next question from Jim Mitchell of Seaport Global.
Jim Mitchell: Hey, good morning. Maybe just a quick follow-up, and I don't need to beat a dead horse on NII, but can we just -- can you just help us think through the puts and takes on, you have rate cuts at the end of the year. Forward curve implies more next year. As that cumulative impact starts to hit next year. I guess, what gives you confidence that this is sort of a trough? What are all the puts and takes that we should think about in how we model the NII for next year when we think about the forward curve and that impact?
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Alastair Borthwick: Jim, I think this bridge probably is all the right inputs for any given year. I mean, we've chosen to do it for 2024. We've already -- we've always resisted going out too far for the very simple reason that there's so many variables and they start to multiply with one another. If you think about even the rate cut one here we're using the three cuts, September, November, December. If I did this as of Wednesday of last week, there would have been two. Earlier in the year, there were six. So, since we don't know what that path looks like, it's very challenging then to provide guidance for '25 at this stage. What we're laying out here is, these are the component parts. We're going to get some benefit from fixed rate asset pricing over time. We're going to get some benefit in the immediate term from the BSBY cessation and that leading back into the P&L. As that rolls off, we'll get benefit from cash flow hedges repricing. And then we use the forward curve same as you do for the rate cuts. We benefit a little bit from global markets liability sensitivity. And then that final piece is the piece that we're trying to drive in terms of organic growth. We're trying to drive this loan growth, we're trying to drive the deposit growth. And as Brian pointed out, it's been a pretty unusual period in history, where we've had an enormous change in the rate structure and in the fiscal stimulus and the effects now fading away to something more normal. But that last box will come down to your assumptions versus our assumptions. And we will update you as we go through the next couple quarters, and we'll give you a better sense towards the end of the year.
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Jim Mitchell: Okay, that's all fair. And maybe just on the growth piece, maybe deposits seem to have bottomed for you guys in the second quarter of last year, you've had good growth, I think Brian pointed out, even with the tax headwind this quarter, you grew sequentially. So good performance, but still pretty modest. How are you thinking about the growth trajectory from here, I guess, as we think about, does it accelerate with rate cuts in your view? What are the dynamics are you thinking about that's returning to the historical kind of mid-single-digit deposit growth within BofA and the industry?
Alastair Borthwick: Well, I think Brian covered slide four, that top left chart gives a sense for what's going on with the growth, that's average growth over time there. We've had four quarters in a row, so we feel good about that part. Q2 does tend to be a slower quarter just with all the tax payments. So we think deposits will do better over time, particularly as we get past peak Fed funds. We feel like the pricing and rotation, you can sort of see it in our numbers, they're slowing. So we're getting towards the end there. We're getting towards the end of QT. So we're not quite finished on all of those things yet. I'd be careful about getting too excited about deposit growth, but we feel like we're doing okay so far, we just got to keep driving that.
Jim Mitchell: Okay, thanks for taking my questions.
Operator: We'll take our next question from Mike Mayo of Wells Fargo Securities.
Mike Mayo: Hi, I'll start with a simple question. You mentioned loan spreads have improved. Why is that? Where is that? Do you expect that to continue?
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Alastair Borthwick: Loan spreads have improved for us, Mike, over the course of the past I think it's now eight or nine quarters. It's primarily in the commercial businesses. And it's largely because we have to price the balance sheet for the returns that our shareholders expect. And that's true, I think, for the industry. And we've been quite purposeful in that regard. So we've tried to balance price spread and growth over the course of time, but it's primarily a commercial phenomenon at this point. And I would expect that to continue for the foreseeable future, but it's a competitive environment, we've got to see.
Mike Mayo: Okay. You gave us slide 10, a lot of details there. You talked about September rate cuts, the fixed asset repricing, securities repricing, loans repricing, mortgage and auto, swaps maturing, November, we see fixed cash swaps and whole litany of stuff. But I think when you put it all together, what it's led to is a net interest margin of only 1.93%. In fact, I think your yield on your assets is below Fed funds right now. So would you agree that you're under-earning with that NIM of 1.93%? And I know I've asked this question before, but you always have to mark-to-market. What is a normal NIM? I mean, you were 2.5% in 2017, you were 3% in 2004. And I know the composition has changed and everything, but what's a normal NIM? And what do you think is a normal return on tangible common equity through the cycle? Thanks.
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Alastair Borthwick: So I'd say right now in terms of the 1.93%, we feel like we are under earning. We feel like that number is going to go up over time. It'll go up as net interest income goes up. But additionally, I think the balance sheet is likely to stay kind of flattish here. So the numerator is going to grow, the denominator is going to stay pretty tight here. So we think we're under-earning there. We think through a cycle, we got to get back to a more normal number like 2.30-ish over time. That takes a while. It's a grind, Mike, quarter-after-quarter, so that's where we're headed. And in terms of return on allocated capital, right now we're right around that 14%. We want to be 15% or higher for our shareholder. A lot of it is because we've accrued an awful lot of capital over the time -- over the course of time in advance of any potential capital changes. And the other final thing I'll just remind you is, we're a little different than some of the regional banks in that we've got an enormous global markets business. And that obviously makes an impact on the headline NIM number.
Mike Mayo: Okay. And then just, I wasn't clear, you said net charge off in the second half should be less than the first half. And I wasn't sure if that related to cards or I wasn't sure what you meant by charge off.
Brian Moynihan: Mike, that was me. And basically what I'm saying is you plateaued in terms of the delinquencies, which means the second-half is pretty well determined, as you know, because it's just a march from [36 to 90] (ph) to 180. And it'll be -- the charge off rate will be flattish. We're kind of back to normal 3.80% or so. We underwrite to actually have a higher charge off rate, quite frankly, in that intolerance, but that 3.80% is kind of where we see it since 3.80%.
Mike Mayo: Okay, so credit card charge off should flatten or decline in the second-half relative to the first-half?
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Mike Mayo: Okay, so credit card charge off should flatten or decline in the second-half relative to the first-half?
Brian Moynihan: Exactly. Yes, remember, if you think about all the charge offs, that's not -- that's the dominant part of it on the consumer side by a lot. And then the commercial, we spoke to the question of CRE office, which has been dropped quarter to quarter. We expect the second-half to be better also.
Mike Mayo: All right. Thank you.
Brian Moynihan: Yes.
Operator: We'll take our next question from Steven Chubak of Wolfe Research.
Steven Chubak: Hi, good morning.
Alastair Borthwick: Good morning, Steve.
Steven Chubak: Good morning, guys. So I wanted to ask just on -- just building on some of the NIM questions from earlier, a lot of that's been focused on asset repricing, both loans and securities. I was hoping you could speak to the opportunity to potentially optimize some of your higher cost funding. And just given multiple sources of NIM improvement, looking beyond ‘24, how should we think about the pace of NIM build as we -- I know it's a longer timeline to get to the 2.30 to 2.40, but just how to think about the expectations around the NIM trajectory beyond ‘24?
Alastair Borthwick: Well, your first point is a question of can we pay down some of the higher cost securities? The answer to that is yes. And that would be an expectation of ours as part of this. We've got some shorter dated CDs that can roll off. We can replace those or not. We have shorter dated debt. We've taken our long-term debt footprint down as we've continued to build the strength of the company. So there's a lot of different ways. It doesn't have to be securities reinvestment. It can be paying down higher cost liabilities as well. So we've got a lot of different ways that we can use, quote, the reinvestment, if you like, around the fixed rate. And then what was the second -- the second question was over what time period we expect to build?
Steven Chubak: It's really about the NIM trajectory beyond ‘24.
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Steven Chubak: It's really about the NIM trajectory beyond ‘24.
Alastair Borthwick: Yes. So, look, we're obviously on it right now. We feel like this is the trough. We're trying to build it from here. We'll make meaningful strides on that through 2025. That's where we're going.
Steven Chubak: Great. Thanks for taking my questions.
Alastair Borthwick: Welcome.
Operator: We'll take our next question from Betsy Graseck of Morgan Stanley.
Betsy Graseck: Hi. Good morning.
Alastair Borthwick: Good morning, Betsy.
Brian Moynihan: Good morning, Betsy.
Betsy Graseck: So, yes, another question on NII. Alastair, I did -- I think, hear you correctly when you said that as you go into the second-half of ‘25, there's going to be incremental benefits coming from swap roll-offs. Did I hear that right?
Alastair Borthwick: Yes, that's correct. Second-half '25. So as we get closer, we'll be able to give you some kind of bridge like this that allows you to see what that looks like. But it's just -- it's a year out right now.
Betsy Graseck: Yes, for sure. But I'm just wondering, is there anything that's -- like, I guess what I just would like to understand a little better is how the swap book is impacting slide 10. And then is it gradual into the second-half of '25 or is it a switch on in 3Q? Just understand how the swap book is playing into this thing.
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Alastair Borthwick: Yes. The -- yes. So the part that's important for slide 10 around the second half of this year is just the BSBY piece. It's not from cash flow swaps. Any cash flow swaps we have that roll off in the course of the next 12 months really, they're all kind of current coupon-ish, because anything that we did there was to do with LIBOR cessation or whatever. And so, they all got re-coupons. So I wouldn't worry about that. In the second-half and onwards, some of the older, longer-dated things, they've got the lower coupons. So that's when you know the BSBY number over time will disappear, but in the second half of '25, the cash flow number will begin to appear. So -- and we'll give you a sense for what that looks like over time, Betsy.
Betsy Graseck: Okay, got it. And then on the far right-hand side of slide 10, you've got the yellow box, $50 million to $200 million. Could you just give us a sense as to what's the inputs to the $50 versus the $200, just so we can be able to track it as we go through the rest of the next two quarters?
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Alastair Borthwick: Yes. We're essentially using four variables. We're thinking, what will the loan growth be. What will the deposit growth look like. What will be the rotation between non-interest bearing and interest-bearing, and what will be any pricing changes we need to make, right? Then rotation pricing are pretty closely interlinked, that you could even call them the same thing. If you use more conservative numbers, you get towards the lower end. If you use slightly more constructive numbers, you get towards the higher. I think the point we're trying to convey is this last part, this yellow box is always the unknowable at the beginning of the quarter, where we're projecting. The pieces in the green, we kind of feel like we know what those look like. That's pretty predictable at this point, but we've got a little more certainty around that. So, the teams, we got 213,000 people, who are working really hard to try and make that dotted yellow box at the higher end. But obviously, it depends on our assumptions and it depends on our actions.
Betsy Graseck: Super. Thank you so much for the color.
Operator: We'll take our next question from Erika Najarian of UBS.
Erika Najarian: Hi, good morning. Just my first question is trying to square, what you're telling us on the net interest income trajectory in the setup versus your disclosure. So, Alastair, you told us about, as a response to Glenn's question, the benefit from fixed asset repricing, cash flow hedges repricing in the second-half of '25. And when I look at table 40 from your queue, in both a parallel shift and a steepener scenario, down 100 is negative to net interest income? Is it because this is a 12-month look and like you pointed out, in the second-half of '25, you have underwater cash flow hedges that are rolling off. In other words, as we go through 2025, do you get less asset-sensitive? And additionally, what is the notional on those cash flow hedges that you're talking about?
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Alastair Borthwick: Yes. So the asset sensitivity that we disclose is meant to give a sense for what happens if nothing changes, it's totally static. So that's one difference. Number two, it's off of the future curve. So it's a 100 above whatever or below whatever the future curve is. So, I think it's a really helpful thing for sort of short-term moves and rates. Like take, for example, that orange box on page 10, it's helpful for something like that, but it's less helpful in terms of a predictor of where 2025 NII would be, because there's so many other inputs, Erika, over time.
Erika Najarian: And just what's the notional of the cash flow hedges that you're referring to?
Alastair Borthwick: Over time? Let's say, about $150 billion -- about $150 million.
Erika Najarian: And how much of that starts rolling off in the second-half of 2025?
Alastair Borthwick: Well, I think about it like this, you can almost think about it like it's like $10 billion or so every quarter. It's just that the ones that roll off for the first -- next 12-months, they're all kind of current coupons, so they won't really have any impact. Once you get into the second-half of 2025, they're a little bit lower rated. So that's when you begin to get some benefit there. And then I think probably Lee can give you more of the details following.
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Erika Najarian: Got it. And if I could just slide in one more question on the normalized NIM, Q3 and Q4 clearly is much higher than where you are now. Alastair, you mentioned we should assume a flattish balance sheet, but I think I had conversations with the company before in that half of that path between 19-ish to [2.3 to 2.4] (ph) has to do with balance sheet efficiency. And I'm wondering if you could carry out the balance sheet efficiency with and keep your balance sheet flattish? In other words, you know, obviously what the market is going to do is take your earning assets today and you know, apply two, three, five and say, okay, over time, whether it's ‘26 or ‘27, this is what BofA can earn under a normalized curve? I'm wondering if that's the right math to do, or should we expect some shrinkage of the balance sheet if you can -- that's part of the path for?
Alastair Borthwick: Yes. I think what will happen is the underlying growth of the company will still be there, but we have some things that we know, just like Steve asked that question, is there any higher rate, shorter-dated stuff you'd like to pay off? Yes, there will be overtime. So I think we've got some ability to almost like self-fund the first $100 billion, $150 billion of growth in terms of earning assets. So that's why we're saying that'll keep the denominator down while we're growing the numerator.
Erika Najarian: Okay, thank you.
Operator: We'll take our next question from Ken Usdin of Jefferies.
Ken Usdin: Hey, thanks. Good morning. Hey, Alastair, I just wanted to ask you a little bit more on the securities portfolio side, because you also have $180 billion or so of pay-fixed swaps on the AFS book. And so, we know about the HFS -- HTM maturity schedule, but how do you look at that AFS book and how much are those pay-fixed swaps currently in the money and kind of like how you're just thinking about that side of the portfolio as well? Thanks.
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Alastair Borthwick: Yes. Just remember, those are received fixed. So remember that there -- remember that is when we put the AFS in our portfolio, it's so that we've got a group of securities that are sitting there. They're typically treasuries. We swap them to floating, so that they look like they're cash as far as we're concerned. We don't have to worry about -- in fact, then to regulatory capital flowing through. And they just to us, they just look like cash equivalents. So that's how we think about it, Ken.
Ken Usdin: Okay. And then just how do you manage that going forward with regards to, like the rate forecasts? Do those come off as the securities book matures or?
Alastair Borthwick: Well, I mean, it's less of an interest rate call for us. It's more of going back to this concept of we've got $1.9 trillion of deposits and we've got $1.05 trillion of loans. So we've got $850 billion of excess. So when the excess comes in, we can do a variety of different things. We'd love to put it in loans, but that's always our first -- that's our first love. But in the absence of that, we're going to put it in cash or we're going to put it in available for sale, probably swap to floating for the most part. And we can choose to put things in hold to maturity if we choose to. But obviously, right now, we feel like we want hold the maturity just continuing to pay down. That's what's been happening over the course of the past 11 quarters. We're just going to keep going with that. So no particular changes to our philosophy around available for sale.
Ken Usdin: Okay. And a quick one on expenses. I believe you said that costs are kind of hang in here at around the $16.3 that was reported. And so just kind of any color on puts and takes here, just is that better kind of revenue-related comp against your ongoing efficiencies? And just how do you think about longer-term expense growth again? Thank you.
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Brian Moynihan: Sure, Ken. If it -- I think honestly, the second quarter is sort of emblematic if you think about last year's second quarter. And this year's second quarter, we went from -- we went up by $300 billion -- $300 million, excuse me. As Alastair said, $200 million was just wealth management incentive comp and other growth was really other incentive comp. So the idea, the pressures we face now are really more due to fee growth in the businesses, which typically have a tighter correlation between fees and expenses and incentive comp related to those fees. So that -- as Alastair said, that's not a -- that's a good expense growth is what you want. It does grow and it grows at a good rate. Headcount is basically been bounced around relatively flat. We're 212 million this quarter and even adding a bunch of summer teammates. We were 215 last year. This quarter, the same summer teammates included. So managing headcount, redeploying people. We have the huge -- the cleanup stuff going on. We have the new initiatives going on, or freeing up work and moving it over. So we feel good about managing the company and that's against inflation rate wages at 3% or 5% going on inflation in all the services we buy in the third-party markets, obviously, that the world experiences. So we feel good about how we're managing expenses. The key is pretty simple. As you -- all the revenue side equation that, yes, Alastair has been talking about their colleagues on NII and stuff is that lifts and expenses stay relatively flat, you start moving towards positive operating leverage. We were minus 1% or something like that this quarter, kind of hanging in there. And we'll expect that to go back to the five-year track we had all the way up until the pandemic hit and things got thrown in the sun.
Q – Ken Usdin: Thanks, Brian.
Operator: We’ll take our next question from Gerard Cassidy of RBC.
Q – Gerard Cassidy: Hi, Brian. Hi, Alastair.
Brian Moynihan: Hi, Gerard.
Alastair Borthwick: Hi, there.
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Q – Gerard Cassidy: Hi, Brian. Hi, Alastair.
Brian Moynihan: Hi, Gerard.
Alastair Borthwick: Hi, there.
Gerard Cassidy: Brian, you talked -- and Alastair, both of you talked about the excess deposits. I think it was Slide 22 you pointed to. Can you share with us as you go forward and assuming the Federal Reserve does cut interest rates, I know you put, I think, free Fed fund rate cuts in your Slide 10. But as we go out into the end of '25, the forward curve is calling for obviously more rate cuts. Could you tell us how you expect to price your deposits as rates continue to follow with this excess deposit level? Can you be more aggressive in lowering your deposit costs?
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Brian Moynihan: Yes. I think that's very business and more importantly, customer-specific views, Gerard. So we think of our deposit strategies in the context of how our customers utilize our services. And so, if you think about the parts that priced up in Global Banking or the investment-related cash in the Consumer business and Wealth Management, that will come back down as rates come, because the short-term equivalents come down, some is absolutely mechanical because it's actually priced to meet a money market fund equivalent that will happen. And so, yes, I think if you think about us being all in, if you look on that slide at 203 basis points, there'll be some pickup as rates come down in those higher things. The zero interest balance accounts are low-interest checking. You know, they don't really move because there's zero interest or low interest, so they'll be kind of static, but they're still extremely valuable in the current context. So when you think of all the consumer, I think 60 odd basis-points or something, that's driven by the fact that we have $40-odd million transactional primary checking accounts that is growing at $1 million a year, meant, multiple years in a row, $900,000 a million a year that are maturing from $3,000 up to $7,000 or $8,000 in balances as people mature the relationship with us, that's where the tremendous value in the deposit base this company goes. And so if you think about $1.91 trillion having grown $100 billion almost from the trough, you think about it growing linked-quarter, multiple quarters in a row, you think about even as we look now to buy the balances above that amount. Yes, that -- those are good dynamics. So we think about it, but it will move. But if you remember, part of our deposit pricing is never going to move to zero.
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Gerard Cassidy: Right, right. No, no doubt. And those are the golden deposits. And one other question on slide 10 and also I think if I recall your first quarter queue, you guys indicated you were asset sensitive. I would assume that this slide 10 also shows that with the three rate cuts, Alastair, what would it take to move to a more neutral position on the balance sheet or even a liability-sensitive position should the Fed really get into a rate-cutting environment?
Alastair Borthwick: Yes. So this is -- this shows that we're asset sensitive. That's why the red box obviously is bigger than the green box. It's the market specifically that's liability sensitive. So we're still asset-sensitive, Gerard. What it would take for us is either we can have a lot more rotation into interest-bearing or we could buy some short-dated duration, fixed-rate. So those are the two alternatives. And if you look at the course of time, if you were to go back to our queues over time, you'd see that we've become less and less rate-sensitive overtime. We've really narrowed the corridor of whether rates go up by 100 or down by 100, what could that outcome look like? Narrowed that pretty substantially over time because we're trying to lock in rates here, recognizing that NII is up $4 billion or $5 billion over the course of the past several years per quarter.
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Brian Moynihan: Yes. The last thing I'd say, Gerard, for a person who's been around this business as many years as you have, this has been a very abnormal rate environment for the last 15-years or so. And if you get to where you have a one Fed funds rate 3.5, which is what our experts predict, it sort of stops out at the ability to bring the asset sensitivity tighter and tighter is there because you actually have room to move down without hitting zero floors and stuff. So there's -- and so stability during time periods of which the rate environment doesn't flip around. And then secondly, a higher nominal rate environment allow you to manage to that outcome because part of the other outcome for us is just as rate -- the rate structure is nominally very low is the zero floors kick-in and that creates a amount of sensitivity that over time will go away if rate structure is higher. That makes sense to you?
Gerard Cassidy: Yes. No, it does. Thank you. And just Brian or Alastair, one last quick question. I noticed in slide 25, your home equity loan balance has actually increased. I think that's the first time in maybe over two years or three years. Was there a new program or what are you seeing that drives that? And that -- and should that or can that continue as we go forward into '25? Thank you.
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Brian Moynihan: Yes, I think it just reflects that the people have locked in low-rate loans and now that they want to borrow. It's an expensive view because they've got a fixed-rate mortgage loan and they've got a home equity sitting on top of why wouldn't they use it. I like it for it was only two years. It's been four years or five years since that balance went from $30 billion started declining, so it's good to see. I'll note at the bottom of that page, if you look at year-over-year mortgage production $5.7 billion and $5.9 billion and you look at home equity line production, which is new originations in the boxes, solid. But it is nice to finally see that the actual balances have stabilized and we'll see -- they're kind of flattish, they're not really growing, but it's nice to see them not just keep coming down and hopefully, they'll start to be utilized. Our expectation would be, they will be as consumers over time want to take out part of the equity in their home at a rate that is reasonable, but doesn't require to refinance the whole first.
Gerard Cassidy: Great. Thank you, again, Brian.
Operator: We'll take our next question from Vivek Juneja of JPMorgan.
Vivek Juneja: Hi, thanks for the questions. Just a little color on non-interest-bearing deposits. When you look at an average basis, the decline has clearly slowed sharply. Period end was down at a faster rate. Is that just the noise around end of 1Q? Or what are you seeing as you look sort of month-by-month? Is that truly slowing or yes -- and talk to it a little bit by customer segment, if you can, please?
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Alastair Borthwick: Yes. I think, Vivek, you're catching two things. First one is it is slowing, that rotation is slowing and we would expect that because at the end of the day, this is mostly cash in motion, it's transactional accounts, that's why it's non-interest bearing. And the answer why it's a little different this quarter is because of the seasonality of tax payments. For anyone who has a big tax payment due, they frequently just allow it to, they may pull it out of their brokerage account, put it into their -- they may put it into their non-interest-bearing and then they're wiring it out from there. So that's, again, an example of money in motion, but that's what's going on this quarter.
Vivek Juneja: A quick one, Visa B derivative gains, did the -- did you have anything in your equity derivatives trading revenue this quarter?
Alastair Borthwick: Nothing to highlight, nothing to note. That's a position we sold years ago and anything that's happened with Visa would just unwind on the balance sheet. We've recycled it, so it shouldn't have any impact to revenue.
Vivek Juneja: Thank you.
Operator: We'll take a question from Matt O'Connor of Deutsche Bank.
Brian Moynihan: Good morning, Matt.
Matt O'Connor: Good morning. How are you guys thinking about kind of targeted capital levels going forward? Obviously, we're still waiting for final rules. Maybe there's a little more volatility in your SCB than you would have thought, but you still got a nice buffer? And then I guess one last piece I was thinking is the remixing of the balance sheet that's been commented kind of throughout this call over time probably causes a little creep in RWAs, right, like loans higher than, say, securities. So lots of excess capital, but some puts and takes and how are you thinking about it between now and when we get final guidelines?
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Brian Moynihan: The first thought, I think we always want to use the capital to grow the business. So if we need to use it to support RWA growth for loans or something, that's a good outcome and that's what we want to do first. Second, we maintain the 11.9% quarter-to-quarter with a little bit RWA increase, I think that would be emblematic. And we bought $3.5 billion, paid out $1.9 billion in dividends. So you'd expect that kind of to continue on in terms of that basic idea of we don't need a lot of capital to grow, because the RWA demands are met with a fairly straightforward amount. We're earning a nice amount of dollars and we'll deploy it back in the dividend and the buybacks. Well, our job is to maintain -- our view is we will maintain a 50 basis point type of management buffer to whatever the requirements are. The volatility, well, there's a whole different discussion on that in terms of the wisdom of that. But the reality is the volatility is absorbable, because you have time to plan into it and get done within a race we've seen. So whether we agree with the volatility or not, we've easily absorbed it and the new rule is coming out. We'll see what happens and we'll adjust. But just think of this as basically a requirement of 10.7 under the new SCB plus 50 is 11.2. Maybe you get a little tighter if you feel you got great insight to what happens next year. And then I think the finalization of all the three will come through and we'll see what that is and see how that all correlates to the various aspects. But we feel good about where we are and expect that all current earnings are basically available to support the growth we're talking about in the current economic environment. That's relatively modest need, but really the rest of it just goes plowing back to you.
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Matt O'Connor: Okay. And then just to summarize that, I mean, do you think about bringing down the 11.9 to 11.2 kind of in the near term or to make it obvious, like, wait -- that's a little bit more theoretical and wait for the capital rules to play out?
Brian Moynihan: I think we just -- we need to see how the next 60, 90, 120 days play out. We heard a lot of discussion about the timing of a re-proposal or not, et cetera. So we had a lot of flexibility and -- but we continue to focus on shareholder value creation and all of that. But I think we're in a critical spot for the industry in terms of learning the outcome of a lot of these things over the next short period of time here.
Matt O'Connor: Okay. Thank you.
Operator: That concludes our question-and-answer session for today. I'd be happy to return the call to Brian Moynihan for closing comments.
Brian Moynihan: Thank you, operator. Thank all of you for joining us today. Obviously, a lot of focus on NII, and we gave you the Slide 10 to give you the bridge. Alistair answered a lot of the questions, Lee's here to answer it. The key is to understand what's driving that, which is deposit performance, which is stabilized and starting to grow for like six quarters in a row now, loan growth very low, but just staying positive. Those are going to drive the value of this franchise, and that's going to grow with buyer customers. That's coupled with strong fee performance this quarter in terms of wealth management fees, investment banking fees, consumer fees, even growing global payment services fees and of course, the great work done by our markets team. So that leveled with flattish expenses, gives us a chance to start driving operating leverage again in the company. And that generates a lot of earnings, a lot of excess capital, and we put that back in your hands. So thank you for your time and attention. We look forward to talking next quarter.
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Operator: This does conclude today's Bank of America earnings announcement. You may now disconnect your lines. And everyone, have a great day.
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Operator: Good day everyone and welcome to the Bank of America earnings announcement. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing the pound key. Please note this call may be recorded. I’ll be standing by if you should need any assistance. It is my pleasure to turn the conference over to Lee McIntyre, Bank of America.
Lee McIntyre: Good morning. Thank you Liam. Welcome and 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, and that includes the earnings presentation that we will be referring to during the call. I trust that everyone’s had a chance to review the documents. I’m going to first turn the call over to our CEO, Brian Moynihan, for some opening comments before Alastair Borthwick, our CFO discusses the details of the quarter. Before they begin, let me just remind you 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 and our SEC filings that are available on our website. Information about non-GAAP financial measures, including the reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. With that, I’ll turn the call over to you, Brian. Thanks.
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Brian Moynihan: Thank you Lee, and good morning to all of you, and thank you for joining us. I am starting on Slide 2 of the earnings presentation. We once again delivered a strong set of results in quarter one. We reported net income of $6.7 billion after tax and EPS of $0.76. This included the additional expense accrual for the industry special assessment by the FDIC to recover losses from the failures of Silicon Valley Bank and Signature Bank. This lowered our quarter one EPS by $0.07. Excluding that expense, net income was $7.2 billion and EPS was $0.83 per share in quarter one. Alastair is going to walk you through details of the quarter momentarily, but first let me give you a few thoughts on our performance. We delivered good improvement in our fee-based business, driven both by continued organic growth and good market conditions. Investment banking saw a nice rebound this quarter. We delivered nearly $1.6 billion in investment banking fees and grew 35% from the first quarter 2023. Matthew Koder and the team have done a great job delivering market share growth. In addition, our results reflect the benefits of investments made in our middle market investment banking teams and dual coverage teams. Matthew has utilized [indiscernible] power wisely to grow our middle market team from 15 bankers in 2018 across a dozen cities, to more than 200 bankers in twice as many cities today. Both groups work with our commercial bankers and wealth management advisors in those cities to deliver for our clients. Investment and brokerage services revenue across Merrill and the private bank grew 11% year-over-year in quarter one to nearly $3.6 billion. Continued investments in our advisor training programs and digital delivery for our clients as well as positive market helped us deliver strong revenue. Asset under management flows were $25 billion in the quarter. Sales and trading excluding DBA delivered its eighth consecutive quarter of year-over-year revenue improvement. At $5.2 billion, this is the highest first quarter
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its eighth consecutive quarter of year-over-year revenue improvement. At $5.2 billion, this is the highest first quarter result in over a decade. We have allocated more balance sheet invested in talent to build our [indiscernible] for the last five years in this business. Those investments plus the intensity of the teams under Jimmy DeMare’s leadership have resulted in good momentum and market share improvement. From a balance sheet perspective, we entered the quarter expecting modest moves in loan growth and a decline in deposits - those were our expectations. What we actually delivered was growth in ending deposits of more than $20 billion. Ending loans were down modestly due to the expected credit card seasonality, otherwise loans were pretty stable. This balance sheet performance along with our continued pricing discipline allowed us to deliver better than expected NII performance. We told you last quarter that we expected NII to decline from the fourth quarter of 2023 to the first quarter of 2024, a decline of about $100 million to $200 million. We actually reported today NII of $14.2 billion - that was $100 million higher than quarter four, exceeding our guidance. We continue to deliver strong expense management. Year-over-year expenses adjusted for the FDIC assessment was up a little less than 2% - that compares to the 4%-plus inflation rate. We also continued to invest in our company while managing those expenses. We had several categories with stronger fee-based revenue in the first quarter this year. This drove higher formulaic compensation and processing costs of the increased activity. Fees and commissions were up 10% year-over-year. We are happy to pay for that revenue and deliver more earnings to the bottom line because of it. How did we do all that and hold expenses under the inflation rate? Well, we remain focused on three primary drivers at Bank of America. First, our operational excellence platform continues to deliver and improve processes. These savings from that growth help fund the future
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operational excellence platform continues to deliver and improve processes. These savings from that growth help fund the future growth in the company and lower the risk. Second, we managed headcount as we eliminated work. Recall, we noted an expectation in January of last year that our headcount would be down throughout the year. Our headcount at the end of first quarter 2024 was down by more than 4,700 people from the first quarter 2023. It declined 650 people just from the end of 2023. The digitization activity is also driving ongoing expense cost savings, customer retention and market share improvement, driving across all three factors. It also supports the ever-increasing volumes of client activity with little increased cost. I would highlight our continued capital strength with common equity Tier 1 capital of $197 billion. That amount of capital is $31 billion over the current regulatory minimums for our company. That capital has allowed us to both support our clients and return $4.4 billion to shareholders this quarter in share repurchases and dividends. Let me highlight a few points on our organic growth before I pass it over to Alastair. Now I’m turning to Slide 3. You can see on Slide 3 the highlights of quarter one successful organic activity across the businesses. We continue to invest and enhance our digital platforms. We provide our customers with convenient and secure banking experiences. By leveraging our technology and continuous investment in that technology and putting customers at the center of everything we do, we have successfully deepened our relationships and expanded our customer base across all our businesses. In consumer, we had added 245,000 net new checking accounts this quarter. This completes 21 straight quarters of net additions. Dean Athanasia, Aron Levine and Holly O’Neill helped drive that business for us and continue to perform well, driving strong performance across our consumer franchise. These checking balances continue to drive the performance of our consumer deposits.
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performance across our consumer franchise. These checking balances continue to drive the performance of our consumer deposits. These checking additions are important for many other reasons. On average, 68% of our deposit balances have been with us for more than 10 years; 92% of the customer checking accounts are primary checking accounts in the household, meaning that they’re the core operating account for the household for their financial lives. When we on-board a client, we start a long-term valuable relationship. About 60% of our checking accounts customers use a debit card and on average they do about 400 transactions per year on that card. The new checking accounts have traditionally opened savings accounts, about 25% of the time within a few months of opening that checking account. Opening a new checking account on average brings about $4,000 in balances below our averages, but that continues to grow and within a year, it’s two times that amount. Likewise when we open a new savings account, it on average brings about $7,000 in balances. This also deepens by about two times during the year. Investment relationships and credit card account openings continued to be strong in the first quarter as well. While we believe some of these statistics are best in class, rest assured there are plenty opportunities for further growth in our franchise and our company. As we think about our global wealth team led by Eric Schimpf, Lindsay Hans and Katy Knox, that team added 7,300 net new wealth relationships with Merrill and the private bank. Our advisors opened 29,000 new bank accounts in the quarter with our customers, deepening their relationships. More than 60% are investing clients in Merrill and 90% of our private banking clients now have a core banking relationship with us. In addition, across our wealth spectrum we saw $60 billion in total flows over the last year. As you can see on this slide, we now manage more than $5.6 trillion in total client balances across loans, deposits and investments, and consumer and
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slide, we now manage more than $5.6 trillion in total client balances across loans, deposits and investments, and consumer and wealth management. When we move to global banking, we added more new relationships in this quarter than we did in last year’s first quarter. We also increased the number of solutions per relationship with preexisting clients. Just like in our consumer business, we have seen good growth in customers seeking the benefits of both our physical and our online capabilities and also the care of our talented relationship managers, who provide financing solutions and advice for our clients with global needs. A couple other points I’d make on our digital success. Erica, our virtual banking assistant, reached a key milestone of more than 2 billion interactions since its introduction about six years ago. It took four years to reach 1 billion interactions; it took just 18 months to reach the second billion. In August, we extended Erica’s reach and launched Erica in our global treasury services business and CashPro. Erica has resolved 43% of the CashPro chat inquiries automatedly, demonstrating more and more clients are able to self-solve. This is a great example of best practices being shared across the scale of our company. Second, as an example of our digital success, Zelle continues to grow. It wasn’t long ago that we noted that the number of Zelle transactions in a quarter had surpassed the number of checks written. Shortly after that, Zelle transactions reached two times the number of checks written. This quarter, Zelle transactions have now passed the combined number of checks written plus the amount of cash withdrawals from tellers and from ATMs. That is a rapid adoption and represents continued cost savings and convenience and security for the customers. These stats and others are included in our quarterly activity for our digital banking progress. That’s included in Slides 20, 22 and 24. I encourage you to read them. They show our market-leading efforts representing billions of dollars of
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in Slides 20, 22 and 24. I encourage you to read them. They show our market-leading efforts representing billions of dollars of our investment over the years, and we are continuing to drive growth with expense growth under control. The solid earnings results achieved this quarter are a testament to the dedication and talent of our 212,000 people who work here and deliver for our customers every day. I thank them for another great quarter. With that, I’ll turn it over to Alastair.
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Alastair Borthwick: Thank you Brian. I’m going to start on Slide 4 of the earnings presentation. Brian covered much of the income statement highlights and he noted the difference in our reported results and the results adjusted for the FDIC assessment, so I’m not going to repeat that; I’d just add that we delivered strong returns. On a reported basis, our return on average assets was 83 basis points, and return on tangible common equity was 12.7%. When adjusted for the FDIC assessment, our efficiency ratio was 64%, ROA at 89 basis points, and ROTCE at 14%. Let’s move to the balance sheet on Slide 5, where we ended the quarter at $3.27 trillion of total assets, up $94 billion from the fourth quarter, and the bulk of that increase was in global markets to support seasonally elevated levels of client activity. Outside of the global markets activity, we’d highlight both the $23 billion growth in deposits and the $20 billion decline in cash levels. With that increase in liquidity, you’ll also note that debt securities increased $39 billion, which included an $8 billion decline in hold-to-maturity securities and a $47 billion increase in AFS securities. Those are mostly hedged U.S. treasuries added with yields effectively at cash rates. At $313 billion, our absolute cash levels remain higher than required. Liquidity remains strong with $909 billion of global liquidity sources, and that’s up $12 billion from the fourth quarter and remains $333 billion above our pre-pandemic fourth quarter ’19 level. Shareholder equity increased $1.9 billion [indiscernible] earnings, as they were only partially offset by capital distributed to shareholders, and AOCI was little changed in the quarter. During the quarter, we paid out $1.9 billion in common dividends and we bought back $2.5 billion in shares, which more than offset our employee awards. As part of those share awards in the first quarter, we announced our seventh consecutive year of share and success compensation awards, covering more than 95% of our associates and further
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our seventh consecutive year of share and success compensation awards, covering more than 95% of our associates and further aligning their interests with shareholders. Tangible book value per share of $24.79 is up 9% year-over-year. Looking at regulatory capital, our CET-1 level improved to $197 billion from December 31, and the CET-1 ratio was stable at 11.8% and remained well above our current 10% requirement. We also remain quite well positioned against the current proposed capital rules as our CET-1 level is also above the 10% requirement even when we include estimated RWA inflation from those new proposed rules. Risk-weighted assets increased modestly, driven by client activity in global markets, and our supplemental leverage ratio was 6% compared to a minimum requirement of 5%, which leaves capacity for balance sheet growth. At $475 billion of total loss absorbing capital, our TLAC ratio remains comfortably above our requirements. Let’s turn our balance sheet focus to loans by looking at the average balances in Slide 6. Average loans in the first quarter of $1.048 trillion were flat compared to the fourth quarter, and they improved 1% year-over-year as solid credit card growth was partially offset by declines in securities-based lending. Commercial loans grew modestly year-over-year. We experienced modest improvement in revolver utilization in commercial lending in the first quarter, and that’s being offset for the most part by pay downs as larger client financing solutions are being met through capital markets access. Lastly on a positive note, loan spreads continued to widen. Moving to deposits, we’ll stay focused on averages on Slide 7, and relative to pre-pandemic Q4 2019, average deposits are still up 35%. Every line of business remains well above their pre-pandemic levels and consumer is up 32%, with checking up 38% driven by net new checking accounts added, as Brian noted earlier. Linked quarter total average deposits remained steady at more than $1.9 trillion. The total rate paid on consumer
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earlier. Linked quarter total average deposits remained steady at more than $1.9 trillion. The total rate paid on consumer deposits in the quarter was 55 basis points, and while the rate increased nine basis points from the fourth quarter, the pace of increases continues to slow. The mix of low rate and high quality transactional accounts keeps the rate paid low. Wealth management and global banking also saw a slowdown in the increases in their rate paid and slowdown in the rotation out of non-interest bearing accounts in the first quarter. Focusing for a moment on ending deposits and movement from the fourth quarter, this quarter we delivered good deposit growth. Total deposits grew $23 billion and are now $100 billion above their trough in mid-May of 2023. Consumer banking deposits saw growth in both consumer interest-bearing and non-interest bearing. Global banking continued their more normal pattern of deposits seen for the past five quarters and up more than $30 billion over the last year. Deposit growth exceeded loan growth for the third straight quarter and our excess of deposits over loans expanded to $897 billion, and that’s nearly two times the $450 billion we had pre-pandemic. You can see that on the upper left-hand side of Slide 8. We continue to have a mix of cash, available-for-sale securities and held-to-maturity securities, and this quarter our combination of cash and AFS is now 52% of the total $1.2 trillion noted on this page. You’ll also notice the continued change in mix of the shorter term portfolio as we again lower cash and increase AFS securities that are mostly hedged and at similar yields to the cash. Note also the hold-to-maturity book continues to decline from pay downs. In total, the hold-to-maturity book is now down $96 billion from its peak and consists of about $122 billion in treasuries and about $458 billion in mortgage-backed securities, along with $7 billion of other securities. Lastly, a blended cash and securities yield of 360 basis points continued to rise and remained
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$7 billion of other securities. Lastly, a blended cash and securities yield of 360 basis points continued to rise and remained about 168 basis points above the rate we paid for deposits. The replacement of lower earning assets into higher yielding assets continues to provide an ongoing benefit to NII. Let’s turn our focus to NII performance using Slide 9, where you can see on a fully tax-equivalent basis NII was $14.2 billion. Good deposit growth provided a strong start to the year for NII, and as Brian noted, NII of $14.2 billion increased by $100 million from the fourth quarter. That compares to our expectation and guidance of a decline of $100 million to $200 million, and that would have resulted in NII this quarter of $13.9 billion to $14 billion, so we did quite a bit better than we had originally expected. The improvement in quarterly NII in Q1 compared to Q4 included the benefits of higher yielding assets and improvement in global markets NII, partially offset by higher deposit cots and one less day in Q1 than 4Q23. Deposit balance activity more generally also aided in the beat versus our expectations. As we look forward for Q2, we expect some modest impact of lower deposits in wealth management as client make their seasonal income tax payments, and we expect global markets NII to decline mostly seasonally a little bit as well, so we expect second quarter NII could approach $14 billion on an FTE basis. Further, we continue to expect that Q2 will be the low point for NII and we expect the back half of 2024 to grow. Compared to our guidance last quarter, we’re obviously growing off a larger base of NII after having outperformed in the first quarter. With regard to that forward view, let me just note a few other caveats. It includes our assumption that interest rates in the forward curve at the end of the quarter materialize, and at the end of first quarter there were still three cuts expected this year, starting in June. Our forward view also includes an expectation of low single-digit loan growth and some
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expected this year, starting in June. Our forward view also includes an expectation of low single-digit loan growth and some moderate growth in deposits as we move into the back half of 2024. Given our recent deposit and loan performance, we continue to feel good about these assumptions. Turning to asset sensitivity and focused on a forward yield curve basis, our sensitivity to the plus and minus-100 basis points parallel shift in the forward curve at March 31 remains well balance. Let’s turn to expense, and we’ll use Slide 10 for that discussion, where we reported $17.2 billion expense this quarter including the FDIC assessment. Adjusted for the assessment, expenses were $16.5 billion and the increase over the fourth quarter included a little more than $400 million in seasonal payroll tax expense, as well as higher revenue-related costs and, to a lesser extent, annual merit increases and other annual awards, like sharing success awards provided this quarter. $16.5 billion was just a little above our forecast for Q1 which we made last quarter, and the increase is driven by better than expected fee revenue across wealth management, investment banking, and sales and trading, and as Brian said, that’s a trade-off we’re more than happy to make, bringing more earnings to the bottom line. While expense is up almost 2% from last year, we simply remind you inflation is up by more than 4% and we’ve increased our investment, and we’re paying for the revenue growth, so we think it represents good work by our teams. As we look forward in Q2, we expect a decline from the Q1 level as we typically see about two-thirds of the Q1 elevate payroll tax expense come back out, and the remainder of the year expense is expected to trend down. Continued digital engagement savings and operational excellent initiatives should help us offset other cost increases for people and technology through the back half of the year. Turning to credit on Slide 11, provision expense was $1.3 billion in the first quarter, and that included $179 million
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year. Turning to credit on Slide 11, provision expense was $1.3 billion in the first quarter, and that included $179 million of reserve release due to a modestly improved macro environment outlook as the baseline consensus expectations improved from the fourth quarter. On a weighted basis, we remain reserved for an unemployment rate of nearly 5% by the end of 2025 compared to the most recent actual 3.8% rate. Net charge-offs of $1.5 billion increased $306 million from the fourth quarter, driven by continued credit card seasoning and commercial real estate office exposures as swift revaluations from current appraisals and resolutions drove higher charge-offs. The net charge-off ratio was 58 basis points, a 13 basis point increase from the fourth quarter. On Slide 12, we show you the credit quality metrics for both our consumer and commercial portfolios. Consumer net charge-offs increased $150 million versus the fourth quarter from the flow-through of higher late stage credit card delinquencies. We included a credit card delinquency slide, No. 28 in our appendix, and we’re encouraged by the trend of delinquencies because the late stage increases slowed and early stage delinquencies improved as well, and that leads us to believe we should begin to see consumer net charge-offs start to level out over the next quarter or so. All of this is still well within our risk appetite and our expectations, and it’s consistent with the normalization of credit we discussed with you in prior calls. Commercial net charge-offs increased $191 million versus the fourth quarter, driven by commercial real estate losses and office exposures. On office losses this quarter, we recorded charge-offs on 16 office loans. Four were a result of sales activity, i.e. final resolution, seven were from losses that we expect on exposures that are in the process of expected resolution in the course of the next 90 days, and the rest we took as a result of refreshed valuations. We use a continuous and thorough loan-by-loan analysis and we’re quick to
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the rest we took as a result of refreshed valuations. We use a continuous and thorough loan-by-loan analysis and we’re quick to recognize impacts in the commercial real estate office space through our risk ratings, and that’s resulted in several downgrades in the last few quarters. As a result of these quick actions and our downgrades in categorization, we’ve also refreshed the valuation of our reservable criticized properties, and we’ve taken appropriate reserves and charge-offs in the process. Roughly one-third of our office exposure is now categorized as reservable criticized, and importantly the pace of the increase in reservable criticized exposures has slowed each quarter since the second quarter of last year, so we believe the losses on these office properties have been front-loaded and largely reserved. We expect the losses to move lower in the second quarter and we expect a notable decline in the second half of the year when compared to the first half of this year, absent any material change in expected real estate prices. In the appendix on Slide 29, we’ve included a current view of our commercial real estate and office portfolio metrics, as we usually do. Let’s turn to the various lines of business and offer some brief comments on their results, starting on Slide 13 with consumer banking. For the quarter, consumer banking earned $2.7 billion on continued strong organic growth. The reported earnings declined 15% year-over-year as revenue declined from lower deposit balances compared to the first quarter of ’23. Credit card loss normalization also caused year-over-year provision expense to increase. As Brian noted, customer activity showed another strong quarter of net new checking growth, another strong period of card openings, and investment balances for consumer clients which climbed 29% year-over-year to a record $456 billion. That included market appreciation and also very strong full-year flows of $44 billion. As noted earlier, loans grew nicely year-over-year from credit card as well as small
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strong full-year flows of $44 billion. As noted earlier, loans grew nicely year-over-year from credit card as well as small business, where we remain the industry leader. Expenses were flat year-over-year, fighting off inflation, merit increases, higher minimum wages, and new and renovated financial centers and technology investments, so holding expense flat reflected very good work by the consumer team. As you can see on the appendix, Page 20, digital adoption and engagement continued to improve, reaching a record of $3.4 billion digital log-ins in the quarter, and it showed good year-over-year improvement. Customer satisfaction scores at near record levels illustrate the continued appreciation of the enhanced capabilities we provide. Moving to wealth management on Slide 14, we produced good results, and that included good organic client activity, market favorability and strong flows. Our comprehensive suite of investment and advisory services coupled with a commitment to personalized wealth management planning and solutions has enabled us to meet the diverse needs and aspirations of our clients. In first quarter, we reported record revenue of $5.6 billion and a little more than $1 billion in net income. That net income was 10% from the first quarter of ’23. The business generated positive operating leverage and grew revenue faster than expense, while improving the pre-tax margin year-over-year. While overall average loans were down year-over-year, driven by the securities-based lending, it’s worth noting the strong growth we’re seeing in custom lending, and ending loans in the wealth management custom loan book are up 6% year-over-year. As Brian noted earlier, both Merrill and the private bank continued to see strong organic growth and produce good assets under management flows of more than $60 billion since the first quarter of ’23, which reflects a good mix of new client money, as well as existing clients putting money to work. Expense growth here matched the revenue growth, otherwise fighting off higher
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well as existing clients putting money to work. Expense growth here matched the revenue growth, otherwise fighting off higher investment costs and inflation. Let me also highlight the continued digital momentum here. As an example, Merrill has 86% of its clients now engaging with us digitally and 80% utilizing e-delivery. 76% of their eligible accounts are now opened digitally, so the cost for us to open is half and the customer cycle times are improved greatly. On Slide 15, you’ll see our global banking results, and the business produced earnings of just less than $2 billion, down 22% year-over-year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 4% driven by the impact of interest rates and deposit rotation to interest-bearing, and that impacted NII. The diversification of our revenue across products and regions continues to reflect the strength in this platform, and GTS and investment banking fees are good examples. In our global treasury services business, some of the NII pressure from higher rates on deposits is offset by the fees paid for moving and managing the cash of clients, and that continues to grow with existing clients as well as with new client generation. As Brian noted, investment banking had a strong quarter, and at $1.6 billion in investment banking fees, this quarter was the strongest quarter in seven years, absent the pandemic 2020 and 2021 periods. An increase in provision expense included the commercial real estate net charge-offs I discussed earlier, as well as a larger reserve release in the prior year period. Expense increased 2% year-over-year, including the 35% lift in investment banking fees from the first quarter of ’23. Switching to global markets on Slide 16, we’ll focus our comments on results excluding DVA, as we normally do. The team had another terrific quarter with $1.8 billion in earnings, growing 7% year-over-year. Revenue improved 6% from the first quarter of ’23 and
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quarter with $1.8 billion in earnings, growing 7% year-over-year. Revenue improved 6% from the first quarter of ’23 and return on average allocated capital was 16%. Focusing on sales and trading ex-DVA, revenue improved 2% year-over-year to $5.2 billion, which is the highest first quarter result in over a decade. FICC was down 4% while equities increased 15% compared to the first quarter of ’23. The decline in the FICC revenues versus the first quarter was driven by a weaker macro trading quarter that was partially offset by better mortgage trading results. Equities was driven by strong trading results in derivatives, and year-over-year expenses were up 4% from continued investment in the business. Finally on Slide 17, all other shows a loss of $700 million driven by the FDIC assessment. Revenue declined year-over-year, reflecting higher investment tax credit yields, and expense adjusted for the FDIC assessment was down $133 million, driven by lower unemployment processing costs. Our effective tax rate for the quarter was 8%, and excluding the FDIC assessment and other discrete items, it would have been 9%. Further excluding tax credits related to investments in renewable energy and affordable housing, our effective tax rate would have been 26%. Thank you, and with that, we’ll jump into Q&A.
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Operator: [Operator instructions] We’ll take our first question from Steven Chubak of Wolfe Research.
Steven Chubak: Hey, good morning.
Alastair Borthwick: Good morning Steven.
Steven Chubak: Maybe just to start off with a question on capital management, just given the strength of your excess capital position, maybe still some uncertainty around Basel III end game and where the proposal could ultimately shake out, I was hoping you could just speak to where you’re comfortable running on CET-1 and when can we expect that you’ll return to 100%-plus type payout.
Brian Moynihan: I think you should expect, so if we run a cushion, whatever rules come out and when they come out and get clarity, we’ll expect to run the requirements plus 50 basis points, up to 100 basis points of excess, and anything above that will be either used to continue to grow the company, if needed; if not, it will be returned. We’re just, as all of us are, waiting for the finalization of these rules. Right now, we’re sitting on $30 billion under the old rules. We have enough under the new rules as previously proposed, but obviously they’re talking about changing them, so you should expect clarity on that. What you’d also expect is as we think about it, beginning now, you’re basically at the point where you’re sitting on the capital with a very modest need to build a cushion to the rules as proposed, and any changes will be more favorable to that, I assume, so expect us to continue to return capital at a fairly strong rate as we move through the second quarter and beyond, and the rules become clarified.
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Steven Chubak: Great color, Brian. For my follow-up, just on the NII commentary, Alastair, it sounds like you’re still assuming some modest deposit growth in the back half as part of that NII trajectory, that recovery off the trough in Q2. Just given your deposit balances increased $500 billion since COVID, I know some of that is going to be a function of share gains, but as we prepare for some QT driven outflows, how are you handicapping the risk of the deposit attrition and how does that impact the NII guidance? If you can frame any sort of sensitivity, recognizing many of those tend to be high money or higher cost deposits.
Alastair Borthwick: Yes, so first thing I’ll just say, Steven, is we’ve been up against QT now for the last couple of years, so the deposits are beginning to settle in now. If we were to go back to--if you take, for example, consumer, if you were to go back to pre-pandemic and think about what long term sustainable growth rates looked like for consumer, if you just extended that through from the fourth quarter of 2019 to today, given that the economy is 30% larger, we kind of feel like consumer is approaching that floor, so we’re still in this belief that Q2 is going to be--Q3 may be the turning point for consumer. You can see that slowing now. The rest of our business, if you look at the exhibit we put together on deposits, if you look at that bottom left chart on wealth, you’ll see it slowed and grew this quarter. Then in global banking on the right-hand side of that page, they’re kind of back to pre-pandemic growth rates - they’re up 7% year-over-year, so we’re seeing some structure now in the deposit base even with QT over the course of the past year. Our deposits are up $100 billion, so it has been a point of conviction of ours that as we get towards Q2, we should see the consumer side begin to stabilize. That’s what’s driving our conviction that NII will go up in Q3 and Q4. We’re in that transition period right now.
Steven Chubak: Good color. Thanks so much for taking my questions.
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Steven Chubak: Good color. Thanks so much for taking my questions.
Operator: We’ll take our next question from Mike Mayo of Wells Fargo.
Mike Mayo: Hi. Thanks for the outlook for NII and the consumer charge-offs, but once again I go back to efficiency. You highlight the 2 billion Erica interactions, the last billion the last 18 months. You mentioned Zelle transactions now double the check transactions, or more than checks plus cash withdrawals from ATMs plus cash withdrawals from tellers, so for all the great tech work, the efficiency ratio improved 66% to 64% quarter-over-quarter, but I know you’re still not happy with that 64%. As you see the NII decline in sight and as you have this tech evolution continuing, when do you think you can get below a 60% efficiency ratio? What’s your outlook for that, because I’m just reconciling the numbers that we look at with all the progress you’re making internally. Thanks.
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Brian Moynihan: Mike, I think as NII moves along the path that Alastair mentioned, all that sort of flows through because there’s no more activity attached, as you’re pointing out, namely continuing to reduce marginal expense of that activity because largely that’s consumer, wealth management and global banking, which don’t add lots more clients and stuff and lots more activity, even though the numbers go up out of efficiency, so that’s continuing to improve our efficiency ratio. As you also well know, when the revenue growth is coming through the wealth management business, which by definition because of the way the compensation process works, has a lowest efficiency ratio in the company, that’s a good thing because it grows and we get good profitability growth out of it. But we’re fighting that trend, and as one of the largest wealth management businesses in the world, if not--you know, it’s a higher percentage of our revenues in our expense base, and so we’re continuing to drive it down. We’re at 64, you’d expect that to improve as the deposit balance is stabilized for many quarters now and starting to grow. The rate paid has really flattened out sequentially by quarter, and the yield of the portfolio and the yield of the assets continues to grow, so we feel good about how it’s going. Our focus is really on deploying expenses in operating leverage, and as we get through the twist in NII, you should start to see us return to that again, and that would then obviously drive down the efficiency ratio.
Mike Mayo: But what are you thinking about expense growth for the rest of the year or next year? I get it - inflation has gone up quite a bit, but what are your thoughts about expense growth looking ahead?
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Alastair Borthwick: Well last year, remember Mike, we told you we thought we could drive expense down every quarter. We believe this year, the expense will trend down over the course of this year, and obviously Q1 is inflated a little bit with just payroll tax and some of the revenue seasonality, but underneath that there’s pretty significant revenue strength, so I think that probably cost us $100 million or so this quarter. I think we probably are looking--you know, if this environment continues, we’re looking at another $100 million per quarter going forward, but it’s--to Brian’s point, it’s the good expense that comes with revenue growth over time. That’s really the only change I’d say with respect to how we think about the expense picture.
Mike Mayo: All right, thank you.
Operator: We’ll take our next question from John McDonald of Autonomous Research.
John McDonald: Thanks, good morning. Wanted to follow up on the helpful deposit commentary. Alastair, you mentioned the consumer, you’re thinking that that will stabilize in the back half of the year on deposits. I’m wondering what your mix shift expectations are - you know, earlier this year, you kind of thought that those customers that moved for rate seeking already had, and just wondering if higher rates for longer could put some pressure on rate-seeking behavior again, and what you’re baking in, in terms of mix shift from non-interest bearing into interest-bearing in your outlook and your planning.
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994
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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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Brian Moynihan: John, I think if you look at Slide 7, you can see the mix in the left-hand corner. Remember that one of the things we all have to be careful about is in the global banking area, the way the fees are paid and earnings credit, it messes up the simplicity of non-interest bearing and interest-bearing, so it’s complex. But if you look at the quarters coming across from the first quarter of ’23 through the first quarter of ’24, you can see that you’re seeing the rate of change slow dramatically and kind of settle in. A lot of the money has moved. If you look at the seven-day average for consumer, going all the way back to the early part of October, it’s been relatively stable at $950 billion, $960 billion, so we’re just getting through the tax season and the ins and outs in the wealth management business and consumer, people paying taxes out on the wealthier side and receiving benefits on the tax refund side, so as we stabilize in that, we expect it to grow. We don’t expect a massive change in how the deposits are structured from what’s in money markets, what’s in savings, what’s in checking and that. It’s really slowed down and been relatively stable, so things jump around but it’s all very good value. Even the highest paid balances in the wealth management business are good value for the company. But if you look at what really drives the value, so the $950 billion-odd in checking balances you can see on Page 7, the core checking balances, that’s what drives it.
John McDonald: Are you still feeling, Brian, like the bulk of people that have kind of moved on rate-seeking behavior likely have done so?
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995
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2024-04-16 08:30:00
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Bank of America Corporation
| 19,049
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Brian Moynihan: Yes, if you look on the consumer business and you think about tracking those deposit accounts from pre-pandemic to now, which is one thing we’ve talked about for different purposes, but if you look at where all the deposit balances, if people with lower average balances are still multiples of where they were pre-pandemic, people in the higher balances are actually lower because obviously they were sitting on cash in the pandemic and accumulated more cash, and when rates came up, they moved it. All in, that gives you want you see in consumer, which is at the end of the day a couple hundred million dollars above where it was pre-pandemic. But the people have moved, and you’re seeing it month to month relatively stable as we track that every month on both sides, frankly. The lower average balance accounts from pre-pandemic are basically bouncing around at the same level right now, not going down, not going up, and the higher ones are stable but they are down 15%, 20% for people with a half million, million dollar balances, largely because they moved it in the market, so we feel it’s stabilized. There will be ins and outs and we’ll see it play out, but it’s extremely valuable no matter how you look at it.
John McDonald: Okay, and maybe as a quick follow-up for Alastair, it’s nice to see the core NIM, the net interest yield ex-markets inflect positively this quarter. Is that sustainable, do you feel like, and what are some of the fixed asset re-price dynamics that are tailwinds beyond the $10 billion per quarter in securities, in terms of loans and swaps that will come due over the next year or two and help the NIM a bit? Could you talk a little bit about that?
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996
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BAC
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| 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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Alastair Borthwick: Sure. We’ve talked about the fact that the net interest yield, obviously, this quarter benefits from the NII growth, so you’re getting in the numerator; but we inflated the denominator in terms of the average earning assets last year as we just made the balance sheet more liquid, so that’s going to allow us to continue as deposits grow to grow the net interest income over time without necessarily growing the other earning assets. Q2, we’ll have a little more of a challenge, but going forward I expect all the NII improvement in Q3 and Q4 to drop into that net interest yield, and part of things supporting that, John, as you pointed out, is we do have loans re-pricing. Because we’ve got loans coming off the balance sheet, we’re booking new loans at higher rates, so that’s one element. The second element is we’ve got securities that we’re re-investing underneath all this too, so obviously we’re sweeping the hold-to-maturity pay downs and reinvesting those at much higher rates. Then third, the teams have been working hard at re-pricing the balance sheet broadly for things like loans, and I believe we’ve now had seven quarters in a row of improving loan pricing, so we’ve just got to keep grinding away at that.
John McDonald: Thank you.
Operator: We’ll take our next question from Betsy Graseck of Morgan Stanley.
Betsy Graseck: Hi, good morning.
Brian Moynihan: Good morning.
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2024-04-16 08:30:00
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Bank of America Corporation
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Betsy Graseck: Hi, good morning.
Brian Moynihan: Good morning.
Betsy Graseck: Thanks very much for taking the question. I guess I just wanted to follow up on the conversation you were just having, and Alastair, I know that--look, your NII guide improved this quarter due to 1Q results being better than what you had anticipated a quarter ago. My question is on the second half ’24 improvement, I guess it is going to be an improvement from first half, right - that’s basically the base that you’re looking at? I’m wondering how you’re thinking about the NII trajectory on a year-[audio loss]. I believe NII is down about 3% year-on-year in 1Q. Should we anticipate that that is stable pace throughout the year, or that reduces as well when we’re talking about second half ’24? If you can just give us a sense of year-on-year, that’d be helpful, thanks.
Brian Moynihan: Betsy, before Alastair answers your question, it’s good to have you back and wish you good luck with everything. Alastair, why don’t you hit that?
Betsy Graseck: Oh, thanks so much, Brian, really appreciate that.
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2024-04-16 08:30:00
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Bank of America Corporation
| 19,049
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Betsy Graseck: Oh, thanks so much, Brian, really appreciate that.
Alastair Borthwick: It’s good to have you. I guess a couple things. The first thing is we haven’t changed our perspective in terms of this idea of Q2 being the low point in the trough for the year. We haven’t changed our point of view on growing in terms of Q3 and Q4. I think the important thing we’re trying to convey is because of the continued stability in pricing rotation and because of this continued stability in deposits, we feel like that extra couple hundred million in Q1 is something that should flow through in Q2, Q3 and Q4, and then there will be a second dynamic to watch for as well, Betsy, which is if we have less rate cuts, we’re going to benefit from that. We won’t necessarily benefit a lot in Q2 because there isn’t enough cuts or time in Q2, but I think by the time we get to Q3 and Q4, we’ll know more about the rate structure at that point and we’ll be able to tell you more about what we expect for the growth in the back half of the year, but we’re reasonably optimistic there.
Betsy Graseck: Super. That’s perfect, thank you. Then just one follow-up is on the AOCI, so we all know the HTM is a portfolio that you’re in run-off on, I guess, if that’s fair to say, as balances are pulling off, and this quarter we did have a back-up in the long end of the curve, your AOCI really didn’t flex that much. Part of my question is, is that a function of how the securities book is comprised and you’ve been shifting towards treasuries and that’s reducing this risk as the back end of the curve increases. I just wanted to understand how that’s trajecting in your mind, because it is a concern that people raise, and what I saw today suggests that it’s much less of a concern than it had been a year ago, say for example. Would you agree with that?
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999
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BAC
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2024-04-16 08:30:00
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Bank of America Corporation
| 19,049
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Alastair Borthwick: Yes, I mean, we’ve deliberately worked on that over time, but we’ve always, I think, had a pretty good program of hedging the fixed rate securities in the FS book so that they’re swapped, and that means that if rates go up, we obviously benefit from that. It doesn’t necessarily hurt us in terms of AOCI, so. Most all of the treasuries that you see in our portfolio are swapped, so I would expect very little in the way of AOCI impact there.
Betsy Graseck: Thanks so much.
Operator: We’ll take our next question from Glenn Schorr of Evercore.
Glenn Schorr: Perfect lead-in to this question. On Friday, you talked about AFS securities mostly hedged, your floating rate swaps [indiscernible] less than a half a year. I know the Fed forward curve keeps not being correct, but at some point it’s going to be correct and rates are going to come in. My question is what do you do about that? How much do you think about extending duration and managing your swaps a little differently as we eventually [indiscernible] transition to [indiscernible] rate backdrop?
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