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.

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 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]

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 ‘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 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 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 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 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 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.

Operator:

[Operator Instructions] We'll take our first question from Glenn Schorr of Evercore.

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?

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.

Glenn Schorr:

Okay, fair [Technical Difficulty] on advisory. Thanks.

Operator:

We'll take our next question from Jim Mitchell of Seaport Global.

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.

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.

Operator:

We'll take our next question from Mike Mayo of Wells Fargo Securities.

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.

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.

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%.

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.

Brian Moynihan:

Yes.

Steven Chubak:

Hi, good morning.

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?

Steven Chubak:

It's really about the NIM trajectory beyond ‘24.

Steven Chubak:

Great. Thanks for taking my questions.

Operator:

We'll take our next question from Betsy Graseck of Morgan Stanley.

Alastair Borthwick:

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?

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.

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?

Betsy Graseck:

Super. Thank you so much for the color.

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?

Erika Najarian:

And just what's the notional of the cash flow hedges that you're referring to?

Erika Najarian:

And how much of that starts rolling off in the second-half of 2025?

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?

Erika Najarian:

Okay, thank you.

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.

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?

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.

Q – Ken Usdin:

Thanks, Brian.

Q – Gerard Cassidy:

Hi, Brian. Hi, Alastair.

Alastair Borthwick:

Hi, there.

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.

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.

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.

Gerard Cassidy:

Great. Thank you, again, Brian.

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?

Vivek Juneja:

A quick one, Visa B derivative gains, did the -- did you have anything in your equity derivatives trading revenue this quarter?

Vivek Juneja:

Thank you.

Brian Moynihan:

Good morning, Matt.

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.

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.

Operator:

That concludes our question-and-answer session for today. I'd be happy to return the call to Brian Moynihan for closing comments.

Operator:

This does conclude today's Bank of America earnings announcement. You may now disconnect your lines. And everyone, have a great day.

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.

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 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 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 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 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 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 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 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 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 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.

Steven Chubak:

Hey, good morning.

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.

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.

Steven Chubak:

Good color. Thanks so much for taking my questions.

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.

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?

Mike Mayo:

All right, thank you.

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.

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?

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?

John McDonald:

Thank you.

Betsy Graseck:

Hi, 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.

Betsy Graseck:

Oh, thanks so much, Brian, really appreciate that.

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?

Betsy Graseck:

Thanks so much.

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?

Glenn Schorr:

Yes, I get that. I guess you have a lot of flexibility [indiscernible]. Just one follow-up, you talked deposits to debt. You had a smidgen of year-on-year loan growth, mostly in cards, I think. I know how we got here, but it’s a weird environment - we’re seeing a really strong economy with up markets, and yet no loan growth.

Glenn Schorr:

Is this just any way you slice it, we have to go through another year or two of super low loan growth, or are there any leading indicators that would lead you to believe we can get back to a little bit more normal BofA loan growth and not have to wait two years for it?

Brian Moynihan:

And just remember that the capital markets opened up and a lot of the larger clients accessed them as they’ve, frankly, have gotten used to the higher rate structure and need to refinance. If you look across the businesses, you’ve got the commercial [indiscernible]. If you look across the commercial businesses in middle market and business banking, the segment up to $50 million of revenue companies and up to $2.5 billion, they actually saw progress in loan growth. It was really in the high end global corporate investing banking business where you saw sort of pay downs to bring that down. That phenomenon is one that occurs from time to time. It’s probably stabilized now and we’ll see it play out, but we are fighting for loan growth and, frankly, line usage stabilized. It’s better than it’s been for the last few quarters in terms of trend and so again that all speaks to people feeling fine, but they’re not quite as aggressive as they would be when you read the economic statistics, and that’s one of the great debates that you can read about in the paper every day.

Operator:

We’ll take our next question from Matt O’Connor of Deutsche Bank.

Alastair Borthwick:

Sure, well I’d say generally speaking, higher for longer is probably better for banks, as a general statement. The question will become why are rates higher, like what’s going on in the economy? Are we talking about inflation, is it under control, is it coming down? Right now, that appears to be the case, so that’s obviously a good place. The Fed’s in a good place because they appear to have rates that are a real rate that is high enough to make sure that inflation stays in a good place. Things can change, Matt, so an awful lot will depend upon just the why for rates; but generally speaking, if it’s just because it’s taken a little while longer for the inflation to nudge down before the next set of cuts, that’s probably a good environment for us. I would expect us to perform relatively better than we’ve disclosed so far. Then you’re asking a second question, which is around what does the sensitivity look like to plus-100 or minus-100. We’ve tried to just make sure that we continue to stay balanced. If anything, that corridor of plus-100, minus-100 has gotten narrower and narrower over time as we’re trying to lock in NII that’s $4 billion or $5 billion higher per quarter today than it was three years ago, and just make sure that the shareholder benefits from that through the course of time. We’ll see how the environment plays out - it’s only been a quarter since we were last here talking about six cuts. Now it’s three, so we just have to watch this play out and stay patient.

Operator:

We’ll take our next question from Ken Usdin of Jefferies.

Brian Moynihan:

If I think about it, if you go back to sort of the period prior to the run-up and the couple years after the pandemic, you’ve had sort of the billion and half type of numbers a quarter. We think we’re fundamentally stronger in the market position, as you said, so we feel very good about the work Matthew and the team have done. As we look at it, we believe that they’ll continue to gain share, and I think this is a more normalized level and whether it’s pulled forward or not, we’ll find out, but it’s a more normalized level given those dynamics and one we should be able to build off of, especially as I said earlier, the penetration in the middle market side of our business, of whether those clients working off our wealth management in the markets generally, plus working across the globe and we’ve done better work international, so we feel good about everything the team’s done, the combination of corporate and investment banking was very strong, so we don’t think this is an unusually high water mark and we should be able to build from here.

Alastair Borthwick:

Well, wealth management, I think Lindsay, Katy and Eric highlight for us regularly just the elevated levels of cash that our clients have. A lot of that is on us, and you can see that in our deposit chart; but there’s a lot that we captured in the investment area too, where a lot of t heir flows are coming into maybe it’s money market funds, maybe it’s short dated treasuries, but there’s a lot of cash at this point, and so that would tell you it’s supporting the ability to see continued assets under management flows going forward, depending on how obviously the stock market shakes out over time. We’re all struck by just the sheer amount of cash on the sidelines at this point.

Operator:

Once again, that is star, one if you would like to ask a question. One moment while we queue. Once again, that is star, one. We’ll take our next question from Gerard Cassidy of RBC.

Brian Moynihan:

Hi Gerard.

Brian Moynihan:

I think, Gerard, you’ve been around long enough to understand some of those dynamics. As we moved through the post-financial crisis, we had--in terms of that chart, if you looked at it, you had a lot of loans that we’d ran off because they weren’t core loans anymore, and it kind of troughed out at the $900 billion level and then grew out from there. In 2015, that’s when we started driving responsible growth. It was a call to grow now that we’d pushed out a lot of stuff from the financial crisis and got it behind us. The loans then start picking up, but if you remember back then, I think we had almost $300 billion, if I remember right, and if you looked at the slide on loans and the non line of business loans, they were $200 billion or something like that, and it’s down to $10 billion, so think about that dimension. As we ran that down and could grow, we could overcome it, and so then on the growth on loan side, it’s driven by discipline, where we want to play, and the card business is getting it positioned right. Now we can start to push from there, whether it’s on home equity business, on the auto loan business. On the commercial side, it was--we had less issues after the financial crisis in commercial, but kind of getting through all that, it was getting to the credit quality we wanted. A source of great growth for us from 2010 and beyond has been we probably gone from, I don’t know, $20 billion, $30 billion of outstanding loans in the international part of Matthew’s business [indiscernible] to almost $100 billion type of number, so expansion of our international capabilities and downright great credit work by Jeff Green and the team and Bruce Thompson and the team, so put all that together, that’s the loan side. On the deposit side, it really started with a focus that began really prior to--in the middle of the financial crisis and beyond, where we said we’re going to go for core checking accounts in consumer, primary checking accounts, drive customer satisfaction, drive organic growth, and not care about the number of sales as much as the net growth in net sales. As the team, Dee and Thong over time in there, and then Holly now have continued to push that, adding a million-ish net new checking accounts all core, we’ve gone from 60% core to 92%. We’ve got customer satisfaction to the highest levels ever, in the mid-80s, top two [indiscernible], etc., attrition down to lowest ever, preferred rewards kicked in, and all that has led to higher and higher balance retention per account, and then also more accounts. We’ve probably grown in the consumer from, I think, around $300 billion at the beginning of 2010, 2011 to now $900 billion. Now, there’s economic growth and economy growth, but that’s way outsized, and that’s what’s driven the real value of the deposit franchise. Then wealth management - again, after Merrill putting it together and then driving the core aspects between the team there has kept us up to $300 billion, that’s from 200 and something pre-pandemic and probably less than that - I think it was 200 at the time of the merger, so all these things are just part of it, and the GTS business, investments in that have driven those products, so that spread is high and growing again, which is kind of counterintuitive to the narrative that even one of your colleagues mentioned earlier, which is leave aside all the quantitative tightening and all the interest rates and all the stuff that’s supposed to happen, quarter after quarter we’re now growing the amount of deposits over the top of the loans, and the loans hopefully will kick back in and grow a little faster. But they still won’t use a lot of those balances up, and so we feel very good about that position, and those deposits, as you can see on the bottom of Page 8 on the left-hand side, all-in cost is under 93 basis points against a Fed funds rate of 5.5, and the rate of change in those deposit prices has flattened out to be very modest quarter over quarter. That’s just tremendous leverage for the company.

Alastair Borthwick:

Look - we don’t have an update on the timing yet, Gerard. We’re in the same place you are - we’re kind of waiting for the rules to come out, and we’re still listening for updates from the Fed Chair and the Vice Chair, and we’ll wait until we see those come out.

Gerard Cassidy:

Appreciate it, Brian. Thank you.

Operator:

Yes, we’ll take that question from Jim Mitchell of Seaport Global.

Jim Mitchell :

Oh hey, good morning. Maybe just one last follow-up on that last question from Gerard. If Basel III is reduced as Powell has suggested, is it with limited loan growth just more likely to be put towards buybacks, or do you see opportunities beyond loan growth, whether it’s growing the trading balance sheet or other opportunities to deploy that capital, to drive growth? Just curious how you deploy that.

Jim Mitchell:

Right, right.

Operator:

This does conclude the Bank of America earnings announcement, and you may now disconnect. Everyone have a great day.

Lee McEntire:

Good morning. Welcome, and thank you for joining the call to review our fourth quarter and full year results. We know it's a busy day for all of you. As usual, our earnings release documents are available on the Investor Relations section of bankofamerica.com website, and they include the earnings presentation that we will be referring to during this call. I trust everybody's had a chance to review the documents. I'll 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. 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 those expectations are detailed and our earnings materials and the SEC filings that are available on our website. Information about our non-GAAP financial measures, including reconciliations to US GAAP can also be found in our earnings materials and our website. So with that, I'll turn the call over to you, Brian. Thank you very much.

Alastair Borthwick:

Thank you, Brian. And I'm going to start on Slide 4 of the earnings presentation to provide just a little more context on the summary income statement and the highlights. For the fourth quarter, as Brian noted, we reported $3.1 billion in net income or $0.35 per diluted share. That GAAP net income number included two notable items. First, we recorded $2.1 billion of pretax expense, that's $0.20 after-tax earnings per share for the special assessment by the FDIC to recover losses from the failures of Silicon Valley and Signature Bank. Second, on November 15th 2023, Bloomberg announced that they would discontinue publishing the Bloomberg Short-Term Bank Yield Index rate after November 15th 2024 and many commercial loans in the industry had BSBY as a reference rate prior to SOFR becoming industry-standard. As noted in an 8-K we filed earlier this week, we came to conclusion in early January that BSBY cessation would not get the same accounting treatment allowed under LIBOR cessation. And therefore cash-flow hedges of BSBY indexed products related to BSBY cash flows, forecast to occur after November 15th 2024, we need to be moved out of OCI into earnings in the fourth quarter of '23 financials. So as a result of the accounting interpretation, we recorded a negative pretax impact to our market making revenue of approximately $1.6 billion. I just want to reinforce that's an accounting impact. It's not an economic change to the contracts and we'll see an offset to this over time through higher NII mostly occurring in 2025 and 2026 after BSBY ceases in November 2024. The accounting lowered CET1 by 8 basis points during the quarter and we will recapture that in the next two or three years. Adjusted for the FDIC assessment and the BSBY cessation related impact, Q4 net income was $5.9 billion, or $0.70 per share. On Slide 5, we show the highlights of the quarter and we reported revenue of $22.1 billion on an FTE basis. And excluding the BSBY cessation impact, adjusted revenue was $23.7 billion and declined 4%, driven by net interest income. Fourth quarter revenue is a tough year-over-year comparison as NII peaked in the fourth quarter of '22 at $14.8 billion, before slowly moving lower over 2023. Outside of NII, we saw good growth in treasury service fees and wealth management fees and those were offset by higher tax-advantaged investment deal activity, creating higher operating losses and the more tax credits associated with them and recognized across periods. Expense for the quarter of $17.7 billion included the $2.1 billion FDIC charge. So excluding that charge, adjusted expense was $15.6 billion and consistent with our prior guidance. That allowed us to invest for growth, as well as use good expense discipline to eliminate work and reduce headcount. And on an adjusted basis, this then is the third quarter of sequential expense decline this year. Provision expense for the quarter was $1.1 billion, that consisted of $1.2 billion in net charge-offs and a modest reserve release, reflecting the improved macroeconomic outlook. Net charge-offs reflect the continued trend in consumer and commercial charge-offs towards more normalized levels as well as higher commercial real-estate office losses. Lastly, our income tax expense this quarter was a modest benefit as credits from tax-advantaged investment deals offset the tax expense on the lower earnings in Q4 driven by the notable charges. So let's review the balance sheet on Slide 6, and you'll see we ended the quarter at $3.2 trillion of total assets, up $27 billion from the third quarter. I'd highlight here, both the $39 billion growth in deposits and a decline in cash on balance sheet of $19 billion. Overall, you'll note the debt securities increased $92 billion. And that included a $9 billion decline in hold-to-maturity securities, and $100 billion increase in available-for-sale securities reflecting short term investment of liquidity from all of these activities. We continue to put money into very short-term T-bills and hedged treasury notes this quarter and those are essentially earning the same rate as cash. And you can see our absolute cash levels remain quite high. As Brian noted, liquidity remained strong with $897 billion of global excess liquidity sources. That was up $38 billion from the third quarter of '23 and it remained $321 billion above our pre-pandemic level in the fourth quarter of '19. Shareholders' equity increased $5 billion from the third quarter as earnings and AOCI improvement were only partially offset by capital distributed to shareholders. The AOCI improved $4 billion, reflecting both the previously mentioned BSBY-related reclassification into fourth quarter earnings and other AOCI improvements. This included some improvements in other cash-flow hedges, which don't impact regulatory capital, driven by a decline in long-end rates. During the quarter, we paid out $1.9 billion in common dividends and we bought back $800 million in shares, which more than offset our employee awards. Tangible book value per share is up 3% linked-quarter and 12% year-over-year. Turning to the regulatory capital, our CET1 level improved to $195 billion from September 30th, while the CET1 ratio declined 9 basis points to 11.8% and remains well above our current 10% requirement as of January 1st '24. We also remained well-positioned against the proposed capital rules, as our current CET1 level matches our 10% minimum against anticipated RWA inflation from the proposed rules. Risk-weighted assets increased $19 billion on loan growth and growth in global markets, RWA, and our supplemental leverage ratio was 6.1% versus the minimum requirement of 5%, which leaves plenty of capacity for balance sheet growth and our TLAC ratio remains comfortably above requirements. So let's focus on loans by looking at the average balances on Slide 7. And you can see loan growth improved this quarter as we saw improvement in both credit card and commercial borrowing, offset by declines in commercial real estate and securities-based lending. The commercial growth reflects good demand overall and was muted only at quarter-end by companies paying down commercial balances as they finalized their year-end financial positions. Lastly, on a positive note, we've seen loan spreads continue to widen, given some of the capital pressures from proposed rules on the banking industry, and this combined with investments in relationship managers we've added over the past few years, has positioned us to take market-share and improved spreads. Moving to deposits, I'll stay focused on averages on Slide 8, and the trends of ending balances saw growth in Global Banking and wealth management and declines in consumer. Relative to the pre-pandemic fourth quarter '19 period, average deposits are still up 35%. Every line of business remains well above their pre-pandemic levels. Consumer is up 33%, with checking up 40% driven by the net-new checking accounts added that Brian noted earlier. On a more recent performance basis, deposits grew $29 billion or 6% from Q3 on an annualized basis. The only business that saw a decline in deposits linked-quarter was consumer. And here we saw a decline of $21 billion. This linked-quarter decline slowed from the third quarter change. And in total, we have $959 billion in high-quality consumer deposits, which remains $239 billion above pre-pandemic levels. The total rate paid on consumer deposits in the quarter was 47 basis points and this remains very low, driven by the high mix of quality transactional accounts. Most of this quarter's rate increase remains concentrated in CDs and consumer investment deposits, which together only represent 15% of the consumer deposits. Turning to wealth management, balances on an end-of-period basis improved modestly, and we continued to experience a slowing in the trend of clients moving money from lower-yielding sweep accounts into higher-yielding preferred deposits and off-balance sheet. Our sweep balances were down $4 billion and were replaced by new account generation and deepening. Global Banking deposits grew $23 billion, moving nicely above the $500 billion level that we've experienced over the course of the past six quarters. These deposits are generally transactional deposits of our commercial customers. They are the ones that used to manage their cash flows. And noninterest-bearing deposits were about 33% of deposits at the end of that quarter. So when we turn to excess deposit levels on Slide 9, you can see deposit growth exceeded loan growth this quarter. And that expanded our excess of deposits above loans, from Q3 to about $0.9 trillion, which is well above the $0.5 trillion we had pre-pandemic. You can see that in the upper-left of Slide 9, which is where we've used and shown you how we think about managing excess liquidity. We continue to have a balanced mix of cash available-for-sale securities and held-to-maturity securities. And this quarter, the combination of the cash and the AFS securities now represent 51% of the total $1.2 trillion noted on this page. You'll also notice the change in mix of the shorter-term portfolio as we began to lower cash and increase available-for-sale securities buying mostly short-dated T-Bills with similar yields. You can note also the hold-to-maturity book continued to decline from paydowns and maturities pulling to PAR. In total, the hold-to-maturity book moved below $600 billion this quarter. It's now down $89 billion from its peak and it consists of about $122 billion in treasuries and about $465 billion in mortgage-backed securities along with a few billion others. Also note that the blended cash and securities yield continued to rise and remained about 170 basis points above the rate we pay for deposits. The replacement of these lower earning assets into higher yielding assets continues to provide an ongoing benefit and support to NII. From a valuation perspective, given the reduced balance and the longer-term interest-rate reductions we've seen in the fourth quarter, we experienced an improvement of more than $30 billion in the valuation of the hold-to-maturity securities. So, let's turn our focus to NII performance using Slide 10. And a strong finish to the year helped us report $57.5 billion in NII on a fully tax-equivalent basis for the full year of 2023. That's up 9% compared to 2022. On an FTE basis, we reported $14.1 billion in NII, which was modestly better than we told you to expect last quarter driven by modestly better deposit growth. The $14.1 billion was a decline of $400 million from the third quarter, driven by the unfavorable impacts of deposits and related pricing and lower global markets NII, partially offset by higher rates benefiting asset yields. And as we look forward, given that we've got one less day of interest in the first quarter and that's worth about $125 million to $150 million, and given the rate curve shift, we believe the first quarter will be somewhere between $100 million and $200 million lower than the fourth quarter. It could move a touch lower in Q2 and then we believe it should begin to grow sequentially in the second half of 2024. So very consistent with our prior guidance. With regard to the forward view I just provided, let me note a few other caveats. It would include an assumption that interest rates in the forward curve materialize. And the forward curve today has six cuts compared to last quarter when we had three cuts in the 2024 curve. So it's bouncing around a little and shifted in the past quarter. Forward view also includes our expectation of low to mid-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. Before moving away, it's worth noting our net interest yield declined 14 basis points to 197 basis points. And that's driven by the decline in NII, as well as higher average earning assets, reflecting prior period builds of cash and cash-like securities. Turning to asset sensitivity and focusing on a forward yield curve basis, the plus 100 basis point parallel shift at December 31st was $3.5 billion of expected NII over the next 12 months, coming from our banking book. And that assumes no expected change in balance sheet levels or mix relative to our baseline forecast, and 93% of that sensitivity is driven by short rates. The 100 basis point down scenario is $3.1 billion. Let's turn to expense and we'll use Slide 11 for the discussion. And we reported $15.6 billion in adjusted expense this quarter, which excludes the FDIC assessment. This was in line with our projection from last quarter and down $199 million from the third quarter, driven by reductions in headcount earlier in the year and seasonally lower revenue-related expense. These reductions outpace the continued investments that we're making to drive growth. Our average headcount was down from the third quarter to 213,000 people, and that's good work after peaking at 218,000 last January. We lowered our headcount through the year by 5,000 and did so without taking an outsized severance charge as we used attrition to lower our headcount along the way. One more point to acknowledge the good work of our teams on expense, Q4 '23 adjusted expense of $15.6 billion is only $94 million higher than the fourth quarter of '22. And just remember, we began 2023 with a $125 million lift in quarterly FDIC expense. So through some good operational excellence work and otherwise, we've managed through all of the additional costs of investments in new tech initiatives and merit and financial center openings, as well as some stronger revenue and higher marketing costs. As we look forward to next quarter, we expect to see the more typical Q1 seasonal elevation in expense of $700 million to $800 million compared to Q4. So we believe expense will be around $16.4 billion in the first quarter. That includes elevated payroll tax expense and the expected costs of higher revenue in both sales and trading and wealth management, as well as merit cost increases. And as we move through 2024, we expect the quarterly expense to decline from Q1, reflecting a drop in the elevated payroll tax expense and revenue changes, as well as some additional operational excellence initiative work. Continued digital transformation and adoption is also going to help us as we go through the year. Now turn to credit, and I'll use Slide 12 for that. Provision expense was $1.1 billion in the fourth quarter and it included an $88 million reserve release due to a modestly improved macroeconomic environment. On a weighted basis, we're reserved for an unemployment rate of nearly 5% by the end of 2024 compared to the most recent 3.7% rate reported. Net charge-offs of $1.2 billion increased $261 million from the third quarter, and the net charge-off ratio was 45 basis points, a 10 basis point increase from the third quarter. On Slide 13, we highlight the credit quality metrics for both our consumer and commercial portfolios, and the overall increase in net charge-offs was driven by three things. First, $104 million of the increase was driven by credit card losses, which continued to normalize as higher late-stage delinquencies flowed through to charge-offs. Second, $65 million of the increase was driven by a broad range of smaller commercial and industrial losses, which were mostly previously reserved and monitored for the past couple of quarters. And lastly, $76 million of the increase was driven by commercial real estate losses, primarily due to office, also mostly reserved. In the appendix, we've included a current view of our commercial real estate and office portfolio stats provided last quarter, and we've also included the historical perspective of our loan book de-risking and long term trend of our consumer and commercial net charge-offs, and you can see those on slides 30 to 33. Let's move on to the various lines of business and their results and I'll start on Slide 14 with Consumer Banking. For the quarter, consumer earned $2.8 billion on continued good organic growth and despite their good client activity, it's difficult to outrun the earnings impact of higher rates on deposit costs while the credit is also normalizing. The reported earnings declined 23% year-over-year as top line revenue declined 4% while expense rose 3% and the credit costs rose. Customer activity showed another strong quarter of net new checking growth, another strong period of card opening and investment balances for consumer clients which climbed $105 billion over the past year to a record $424 billion. Our full year flows were $49 billion as accounts grew 10% in the past 12 months. Loan growth was led by credit card and that broke above $100 billion this quarter. Deposit decline slowed in the quarter with continued strong discipline around pricing. And our expense reflects continued business investments for growth. And as you can also see on the appendix page 21, digital engagement continued to improve and showed good year-over-year improvement as customers enjoy the continuation of enhanced capabilities. Moving to Wealth Management on Slide 15. We produced good results, earning a little more than $1 billion after adding 40,000 net new relationships in Merrill and the private bank this year. These results were down from last year as a decline in NII from higher deposit costs still catching up from the interest rate hikes, more than offset higher fees from asset management, driven by higher market levels and assets under management flows. As Brian noted earlier, both Merrill and the private bank continued to see strong organic growth and produced solid assets under management flows of $52 billion since the fourth quarter of '22, which reflects a good mix of new client money as well as existing clients putting their money to the work. Expenses reflect continued investments in the business and revenue related costs. On Slide 16, you see the global banking results. The business produced strong results with earnings of $2.5 billion as a decline from peak levels of NII was offset by lower provision expense, leaving earnings down 3% year-over-year. Revenue declined 8%, driven by the NII. Our global treasury services business remained robust with strong business from existing clients as well as good new client generation. In addition, we continued to see a steady volume of solar and wind investment projects this quarter and our investment banking business continued to perform well in a sluggish environment. Year-over-year revenue growth also benefited from lower marks on leveraged loan positions. The company's overall investment banking fees were $1.1 billion in Q4. That grew 7% over the prior year despite a fee pool that was down 8%. And for the year we held on to the number three position overall, given that performance. In the component parts, we ended the year number one in investment grade, number two in leverage finance, number four in equity capital markets, and number four in mergers and acquisition. The diversification of the revenue across products and regions reflects the growing strength of our platform, and a good example of that is our focus on the equity capital markets blocks business, where we finished number one in the United States for the first time since 1998. And in EMEA, we were also number one for blocks. Provision expense reflected a reserve release of $399 million and that comes from an improved macroeconomic outlook as well as realized charge-offs better, as noted before. Expense decreased 2% year-over-year as continued investments in the business were more than offset by reductions in other operating costs. Switching to Global Markets on Slide 17, the team had another strong quarter, with earnings growing 13% year-over-year to $736 million, driven by revenue growth of 4% and we refer to results excluding DVA as we normally do. Good results in sales and trading and comparatively low remarks on leverage loan positions drove the year-over-year performance and focusing on the sales and trading ex-DVA, revenue improved 1% year-over-year to $3.8 billion, which is a new fourth quarter record for the firm. FICC was down 6% from a record quarter, while equities increased 12% compared to the fourth quarter of '22. And the FICC revenues were down versus that record fourth quarter level with higher revenues in mortgages and municipal trading. Equities was driven by improved trading performance in derivatives. And our expense was up 3% on continued investment in the business. Finally, on Slide 18, all other shows a loss of $3.8 billion, as the two notable items highlighted earlier negatively impacted net income by $2.8 billion in that segment. Revenue adjusted for the $1.6 billion BSBY cessation was flat year-over-year, and expense adjusted for the $2.1 billion FDIC assessment was down a couple hundred million, driven by lower litigation and lower unemployment processing costs. I noted earlier we reported a modest tax benefit this quarter. The tax credits from tax advantaged investment deals throughout the year, including their benefits in the fourth quarter, exceeded taxes on reported earnings because we had the two notable items that lowered results this quarter. For the full year, our tax rate was a little more than 6%. And excluding the impacts of BSBY cessation and FDIC and the other discrete tax benefits, that rate was 10%. And further excluding our investment tax credits, our tax rate would have been 25%. So thank you. And with that, we'll launch into the Q&A, please.

Jim Mitchell:

Hey, good morning, guys. Alastair, maybe on the NII trajectory that you're talking about, sort of down a little bit in the first half and then start to stabilize in the second half, and you're building in six cuts, but a lot of those cuts are coming starting in sort of 2Q and beyond. And given your asset sensitivity, why would we expect NII to stabilize? Is that just sort of expected growth of deposits and loans? Just kind of help us think through your assumptions on the NII for '24.

Jim Mitchell:

Okay, that's fair. And maybe just as a follow-up, just on loan growth, what do you think -- we all see the card growth, but outside of that, it's been pretty muted. We're looking at rate cuts. Maybe that's a little bit better for demand. How do you think -- what are you seeing on the commercial side in terms of demand and what changes the dynamic?

Jim Mitchell:

Okay. All fair. Thanks.

Erika Najarian:

Hi, sorry. Rookie move. Apologize for that. Alastair, if you could -- thank you for giving us more detail about how your NII trajectory is going to be for the rest of the year. I'm wondering if you could just give us a little bit more color on what you're expecting for deposit rate repricing and perhaps for BofA specifically, perhaps the liability mix in the second half of the year. So if you expect deposit growth to come back, I think a big question that the market has is, what is the repricing power to the downside that these banks have as the Fed cuts rate? So I think that would be really good color for the market to have.

Erika Najarian:

Got it. And just to clarify how we should think about the full year, the $16.4 billion in 1Q '24 expenses and a quarterly decline from there, does that pretty much square with what you've said in the past for expenses of up 1% to 2% year-over-year? And would that number include an assumption that investment banking activity returns in force in 2024?

Erika Najarian:

Thank you, Brian.

John McDonald:

Hi, Alastair, Brian. Alastair, I wanted to go back on the NII and maybe you could help us. It's so hard for us to square the NII outlook with the rate sensitivity disclosure that you have in the slide with the 100 basis point parallel shift down is $3.1 billion. Maybe just, is there some caveats about how in the real world it doesn't play out like the disclosures? We've already seen rates come down on the long end, almost 100 basis points. So I guess it just -- where's that $3.1 billion headwind in your number? Because it's very impressive, obviously, to be able to kind of keep it flat despite that, using the forward curve. Thanks.

John McDonald:

Okay. Okay. That's helpful. And then maybe just on top of that, trading NII or the global markets NII, is that likely to be a headwind or a tailwind in '24 versus '23? Is that -- do you have any visibility on that?

John McDonald:

Okay. So maybe that could grow a bit.

John McDonald:

Okay, got it. Thanks, guys.

Mike Mayo:

Hi. Just another follow-up on NII. I guess if you take the Fed dot plot, maybe there's just three rate cuts. If you take that instead of the six, what would -- how would you be thinking about NII change?

Mike Mayo:

Brian, Alastair, you always talk about the information advantage you have by just being in the flow of so much of the US economy. What do you think, I mean, is this -- and not relying -- I know you like relying on your research group, Brian, and what their economic forecast is, but what do you guys think as far as, are we going into a recession the second half this year? Does the Fed need to cut six times? Are you seeing that? Where are you seeing the most softness, I guess, is the question.

Mike Mayo:

And then just as far as controlling what you can control in terms of expenses and headcount, tech investments, and maybe throw in AI as part of that, what sort of extra efficiencies can you achieve through AI, tech, and other initiatives? You squeezed a lot out over the last decade plus. What's left to go?

Mike Mayo:

All right. Thank you.

Matt O’Connor:

Hi. Just thoughts on capital allocation from here. Brian, I think there were some -- and sorry if I missed it in the beginning, but I think there was some media coverage about you guys, are you talking about leading into markets with capital? I don't know if there's any way to kind of size that. And then just broadly speaking, like how you allocate capital from here or buyback levels and all that stuff? Thanks.

Matt O’Connor:

Okay, that's helpful. And then you did mention that trading or markets is off to a good start so far this year. Obviously, just a handful of days, but any color around that? And then kind of more broadly speaking, as we think about the overall wallet, like, obviously banking is the press, but how would you frame the market trading wallet? Do we use 2020 as a jumping off point and grow it by some kind of long term trend or any way to kind of frame that in terms of a base case? Thank you.

Matt O’Connor:

Okay, thank you very much.

Operator:

We'll take our next question from Glenn Schorr of Evercore.

Brian Moynihan:

Yeah. So, Glenn, you're making me have deja vu, because basically, I think you would have asked this question in the first quarter of '23 [too] (ph), on a theory that this was all going to run off. And so when we looked at it, we always said, we had grown sort of in the period up of time, the pandemic at sort of 4%, 5% a year in terms of deposit growth. If you strung that line out, that -- we're still above that line. Let's just say that. And now we're turning and growing. So as Alistair said, we troughed in the middle of the year. So we've outgrown what our sort of implied growth rate would have been against size, et cetera. So we feel good about that. It's all core. Now, if you look at the online dynamics, think about the different clients we have. If you start with the wealth management clients discreetly in GWIM, those balances came down and are bouncing around $300 billion -- $290 billion, $300 billion on a given day. And they've been relatively stable now for, I don't know, five, six months, I think. If you look at the wholesale banking, what's happened is they came -- they've shot up, came down after the pandemic, and then they've been growing back and they're actually stronger because just the activity is picked up and the stabilization of line usage has -- shows that the environment around their borrowing and cash is more consistent. So that's been good. And if you look at consumer, that's what we were saying earlier. If you think about consumer, where you see, if you take the people had accounts with this -- their balances in all their deposit accounts pre-pandemic to now, if you look at people had in consumer, not in wealth management, $50,000, $100,000, $250,000, $1 million in collected balances pre-pandemic, they are down 20%. They move the money, they're going to move. And so for wealth management and consumer, largely people who are going to move money out to get rates have done that and -- is there -- is it still bouncing around a little bit in consumer? Yeah, they're $950 billion more or less on a given day. But it's stabilized and been relatively consistent for the last four, six, eight weeks. But that's got to settle in and then you grow out from there. But that -- what that's really telling you is they've kind of moved the money they're going to move, mostly because they did it and you don't get that money twice. So you moved a chunk in these higher end consumer balances. They moved 20% of their balances over in to get in money market funds, which we captured into other things. And they don't have it to move again because that was accumulated balances that they had in a zero interest rate environment, pre-pandemic, plus whatever other things they got. So if you look at the Slide 8, you can see this deposit slides laid out by non-interest bearing and interest bearing. But the key is that consumer with [$700 billion going into the pandemic, sits at $950 billion] (ph) today. And if you look at the checking, it's still up $140 billion, and that's kind of bouncing around. You can see it's moved down a little bit, but that's really the high -- people with high end checking balances that have moved it into the market.

Brian Moynihan:

Just one back -- look at the Consumer Banking page. It's 47 basis points all in, and it was six quarters ago. And so -- and that's all driven by the CDs. We don’t have a lot of CDs and some of the high end money market pricing. But the point is, if it was going to be moved, it's -- think about that. It's -- so the money that's moved is moved and we pay higher rates for very high balances and stuff like that, so -- especially in like the Merrill Edge platform. So a lot of that dynamic is through the system right now, for lack of better term.

Alastair Borthwick:

I think we're getting pretty close now because things are beginning to stabilize. They're beginning to normalize. The whole -- this is a period of transition for the economy and it's a period of transition for our clients, too. A lot of them are dealing with higher interest rates and they're just beginning to moderate and change their spending behaviors. So we've seen a trend over the course of the past few quarters. It's pretty predictable around the consumer side. You can see that in our disclosures. I think it's slide 12 and 13, but that's going to bounce around over the course of the next couple of quarters. Now that we're back towards 2018-2019 levels, it's going to settle in, we think, in the first half of this year. And then on the commercial side, the asset quality remains really in a very good position. We happen to have a couple of names that popped up this quarter, but to your point, we were pretty fully reserved against them. That wasn't a surprise to us. We had seen those for the course of the past six months. So we think we're getting close there, Glenn. And obviously, the closer we get to a soft landing, the better we're going to feel about that.

Glenn Schorr:

That's great color. Thank you for all that.

Ken Usdin:

Hey, thanks. Good afternoon. Just a technical clarification on that BSBY $1.6 billion. So I presume that you start to get that back mid quarter 4Q next year, given the November 15, 2024 termination, and then does it just run out ratably? Just wondering how -- over what exact period of time you get that $1.6 billion.

Ken Usdin:

Correct, sorry.

Ken Usdin:

So it's a little -- so is it straight line or is it a little bit front load, like, I just want to get -- is just a straight line divided by or it has a little bit of like a tail?

Ken Usdin:

Okay, I got it. Thank you. And just one question. Can you just remind us of brokerage fees this quarter felt the impact, I think you said it of the soft averages from this quarter. And so I think should we expect to see just from the markets bounce that we saw in the fourth quarter, that to play well into the first quarter starting points from the management fees perspective?

Ken Usdin:

Yes.

Ken Usdin:

That's what I was getting at. Thank you. Right. Just confirming that we didn't see the benefit yet. That comes further based on the averages and how that'll play forward, presuming the market hangs in there.

Ken Usdin:

Okay, got it. Thank you.

Ryan Kenny:

Hi. Thanks for taking my question. Just following up on a few questions ago on the commercial credit side. So the commercial net charge-offs did roughly double sequentially. And you mentioned that there were a few customers that popped up. Should we interpret that to mean that the pace of deterioration decelerates and it was just a one-off, or is there anything else going on under the hood there?

Ryan Kenny:

Thanks. And then just one more clarifying question on NII. So in this scenario with the six rate cuts, can you help us understand how you expect the deposit mix to migrate? And specifically, would the migration from NIP to IP deposits grind to a halt? Or is there any scenario where NIP deposits actually start growing again?

Ryan Kenny:

Thanks.

Gerard Cassidy:

Hi, Brian. Hi, Alistair. You guys have obviously done a very good job in the consumer banking area with digital banking, and I frame that for you guys in this question. We hear a lot about AI and what it could do for the banking industry. And when you look out over the next three to five years and you invest in AI to improve efficiencies, could it have a similar impact what digital banking did for consumer banking pre-iPhone to where we are today in your business? Or is it going to be more like blockchain, where it was a lot of discussion about the future of blockchain, but we don't hear much about that anymore? Do you guys have a view on what AI could be for your business over the next three to five years?

Gerard Cassidy:

Very good. And as a follow-up, we've been reading and seeing a lot of information about the private credit markets making inroads, continue -- and we know the shadow banking industry has been around for a long time, our entire careers. What are you guys seeing today? Is it more competitive against the Apollos and Blackstones in lending? And then second, they're also, I'm assuming customers are yours, so how do you balance servicing them? But at the same time they could be a direct competitor in the lending markets.

Gerard Cassidy:

Very good, Brian. I appreciate it.

Brian Moynihan:

Happy New Year to everyone. Thank you for all the time today and on a very busy day with lots of us reporting. As we summarized, fourth quarter was a good quarter and another strong year for our company driven by organic growth from all our customer segments. Our digital capabilities continue to grow, our deposits and loans grew, and that's good news. Our NII continues to exceed what we tell you each quarter in terms of what we think is going to happen, which is good news. We gave you new guidance which we plan to hit. Our capital markets activity remains good on both the investment banking side and the sales trading side. And importantly, to get the value of that revenue, we have to have good expense management. You saw us, during the course of year take headcount down from 218,000 to 212,900. You saw us take the expense down sequentially, sets us up good for next year. And with all that, our capital and asset quality remains strong, as does our liquidity. So thank you and we look forward to talking to you next quarter.

Lee McEntire:

Good morning. Thank you. Welcome and thank you for joining the call to review the third quarter results. As usual, our earnings release documents are available on the Investor Relations section of the bankofamerica.com website, and it includes the earnings presentation that we will be referring to during the call. I trust everybody'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 we do that, let me just remind you that we may make forward-looking statements and refer to some non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials as well as the SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials that are on the website. So with that, Brian, I'll turn the call over to you.

Alastair Borthwick:

Thanks, Brian. And on Slide 10, we present the summary income statement. I'm not going to spend a lot of time here because Brian touched on this and the highlights that we show on Slide 3. For the quarter, we generated $7.8 billion in net income, resulting in $0.90 per diluted share. Both of those are up the double digits from the third quarter of last year. The year-over-year revenue growth of 3% was led by improvement in net interest income, coupled with a strong 8% increase in sales and trading results, and that excludes DVA, and a 4% increase in investment in brokerage revenue driven by our Wealth Management businesses. Expense for the quarter of $15.8 billion included good discipline from our team, which allowed us to reduce costs from the second quarter, even as we continue our planned investments for marketing, technology and physical presence build-outs, including financial center openings and renovations. Asset quality remains stellar, and provision expense for the quarter was $1.2 billion. That consisted of $931 million of net charge-offs and $303 million of reserve build. The provision expense reflects the continued trend in charge-offs toward pre-pandemic levels and remains below historical levels. Our charge-off rate was 35 basis points, that's 2 basis points higher than the second quarter, and still below the 39 basis points we saw in the fourth quarter of '19. And as a reminder, that 2019 was a multi-decade low. 30-day delinquencies also remained below their fourth quarter '19 level. Lastly, our tax rate this quarter was 4%, driven mostly by higher-than-expected volume of investment tax credit, or ITC deals for the rest of the year. And we can expect other income in Q4 will reflect seasonally higher renewables investment losses when these projects get placed into service. Okay. Let's turn to the balance sheet that's on Slide 11. And you can see it ended the quarter at $3.2 trillion, up $31 billion from the second quarter. So not a lot to note here. The driver of the increase was a $34 billion increase in available for sales securities. With cash levels so high, we chose to reduce the cash and just put some of the money into short-term T-bills this quarter, and those earn essentially the same rate as cash. Our cash remains high at $352 billion. In addition to the cash level change, we saw another $11 billion decline in hold to maturity securities as those securities matured and paid down. And as Brian noted, global excess liquidity sources remain strong at $859 billion, that's down very modestly from the second quarter, and still remains approximately $280 billion above our pre-pandemic fourth quarter '19 level. Shareholders' equity increased $4 billion from the second quarter as earnings were only partially offset by capital distributed to shareholders. During the quarter, we paid out $1.9 billion in common dividends and we bought back $1 billion in shares to offset our employee awards. AOCI was $1.1 billion lower, reflecting both a modest decline in the value of AFS securities, modestly impacting CET1 as well as a small change in cash flow hedges, which doesn't impact the regulatory capital. Tangible book value per share is up 12% year-over-year. Turning to regulatory capital. our CET1 level improved to $194 billion from June 30, and our CET1 ratio improved 30 basis points to 11.9%. It's now well above our current 9.5% requirement as Brian noted. Risk-weighted assets declined modestly as loans and Global Markets RWA both moved lower. Our supplemental leverage ratio was 62% versus a minimum requirement of 5%, which leaves capacity for balance sheet growth and our TLAC ratio remains well above our requirements. LCR ratios remain well above minimums for BAC metrics and stronger at the bank level. Let's now focus on loans by looking at average balances on Slide 12. And loan growth slowed this quarter as a decline in demand for commercial borrowing more than offset our credit card growth. So we saw that lower commercial demand in lower revolver utilization among higher funding costs. And commercial balances were also impacted by term loan repayments due to borrowers accessing other capital market solutions. Focusing for a moment on average deposits and using Slide 13. Given Brian's earlier comments, I'll just note the comparisons. Relative to pre-pandemic fourth quarter '19, average deposits are up 33%. Consumer is up 36%, with consumer checking up 45%. And you can see the other segment comparisons on the page. Turning to Slide 14. Let's extend the conversation we’ve been having over the course of the past couple of quarters around management of our excess liquidity. This slide serves as a reminder of the size of our high-quality deposit book, the magnitude of deposits we have in excess of those needed to fund loans and the way we've extracted the value of that excess to deliver value back to our shareholders. The excess of deposits needed to fund loans increased from $420 billion pre-pandemic to a peak of $1.1 trillion in the fall of 2021. And as you can see, it remains high at $835 billion today. That $1.1 trillion of excess liquidity has always included a balanced mix of cash, available for sale securities, and securities we hold to maturity. In late 2020 and into 2021, we concluded that additional stimulus was going to remain in client accounts for an extended period, and we increased the hold to maturity securities portion so we could lock in value from those deposits. And we made these investments given the core nature of our customers' deposits. Note, the split of the shorter-term investments in cash and available-for-sale securities, and then the term hold to maturity securities. And I just draw your attention to just how much cash we have above the actual level we need to run the company. On the available-for-sale, we would just note the duration is less than six months as it's mostly all short-term treasuries. And the combination of the cash and available-for-sale securities represents about 47% of the total noted on this page in the third quarter of '23 to give us the balance we're looking for. And if we look at the hold-to-maturity book, it had grown from $190 billion pre-pandemic, peaking two years ago, and now falling to just over $600 billion currently. That $600 billion consists of about $122 billion in treasuries. Those will mature in a little more than six years, and about $474 billion in mortgage-backed securities and a few billion other. Hold to maturity securities peaked at $683 billion, and we're now down $80 billion from the peak and $11 billion in last quarter. That $80 billion decline from peak was all driven by the reduction of mortgages from $555 billion to $474 billion. With less loan funding needs over the past several quarters, the proceeds from security paydowns have been deployed into higher-yielding cash, and this mix shift has been happening at about a 300 basis point spread benefit for these assets. Given the increased cash rates, the combined cash and security yield has risen now to more than 3%. It's up more than 200 basis points since the peak size of the portfolio in the third quarter of '21, and it's risen faster than the rate paid on deposits. In fact, today, it's 178 basis points above what we pay for deposits. And remember also, we have $1 trillion of loans that are largely in floating rate in addition. From a valuation perspective, we did experience a decline in the valuation of the hold-to-maturity book this quarter, and that's in the context of mortgage rates reaching a two-decade high. Comparing the valuation change to the year-ago period, it worsened $15 billion. And over that same time period, we grew regulatory capital by $19 billion and hold global liquidity sources in excess of $850 billion. And importantly, as we move to Slide 15, I'll make one final comment here, which is the improved NII over this investment period. The net interest income, excluding Global Markets, which we disclose each quarter, troughed in Q3 '20 at $9.1 billion, that compares to $13.9 billion in the third quarter of '23 or $4.7 billion higher every quarter on a quarterly basis, and that gives a sense of the entire balance sheet working together. Okay. Let's now turn our focus to NII performance over the past quarter, and we'll talk about the path forward, and I'm going to use Slide 15 for that. On last quarter's call, we guided to expect Q3 NII to be about $14.2 billion to $14.3 billion on an FTE basis. Our third quarter performance turned out to be better than our guidance. And on an FTE basis, NII was $14.5 billion this quarter. We expect Q4 will be around $14 billion fully taxable equivalent, and that increases our full year guidance for NII in 2023 versus 2022 to 9% growth per year. We believe NII will hover around this expected fourth quarter $14 billion level, plus or minus, in the first half of next year, and then we anticipate modest growth in the half of 2024. By the time we get to the fourth quarter of 2024, we believe we can see NII up low single digits compared to the fourth quarter of 2023. The good news is we believe NII will likely trough around the fourth quarter level of $14 billion and begin to grow again in the middle of next year. I'd note a few caveats around that forward view I just provided. It includes an assumption that interest rates in the forward curve materialize and it includes rate cuts for the second half of 2024. It also includes an expectation of modest loan and deposit growth as we move into the second half of 2024. Focusing again on this quarter, $14.5 billion NII was an increase of nearly $700 million from the third quarter of '22, or 4%, while our net interest yield improved 5 basis points to 2.11%. The year-over-year improvement was driven by higher interest rates and partially offset by lower deposit balances. On a linked-quarter comparison, NII improved $239 million from Q2, and that comes from the benefit of an extra day of interest, a rate hike and higher global markets NII, partially offset by increased deposit pricing. And the net interest yield improved 5 basis points. Turning to asset sensitivity and focused on a forward yield curve basis, the plus 100 basis point parallel shift at September 30 was $3.1 billion of expected NII benefit over the next 12 months from our banking book. And that expects -- or that assumes no expected change in balance sheet levels or mix relative to our baseline forecast, and 95% of the sensitivity is driven by short rates. The 100 basis point down rate scenario was $3.3 billion. Okay. Let's turn to expense, and we'll use Slide 16 for the discussion. Previously highlighted that we guided you to a trend of sequential declines in our expense each quarter this year, and we achieved that in Q3 with our expense down $200 million to $15.8 billion. Additionally, we expect the fourth quarter to go down another couple of hundred million to $15.6 billion, excluding any FDIC special assessment. That would mean our fourth quarter expense of $15.6 billion, compared to the fourth quarter of '22, would be up by only $100 million or less than 1%. And we're proud of that work by the team, especially considering our regular FDIC insurance expense alone increased by $125 million quarterly starting in the first quarter of this year. So without that, we would be flat year-over-year in Q4. The decline this quarter from the second was driven by the reduction in litigation expense and lower headcount, offset somewhat by investments in inflationary costs. Our headcount is down nearly 2,800 from the second quarter to 213,000. And that includes the addition of 2,500 or so full-time campus hires we brought into the company. So that's good work by the team after we peaked at 218,000 in January month-end. And you see the movement here across the past year at the bottom left of the slide. As we look forward to next quarter, we'd add $1.9 billion of expense for the proposed notice of special assessment from the FDIC as a possibility. Absent that, we'd expect our fourth quarter $15.6 billion expense target to more fully benefit from the third quarter headcount reductions, and that will allow expense to continue the decline experienced throughout the year so far. All of that is going to set us up well for next year. Let's now turn to credit, and we'll turn to Slide 17. Net charge-offs of $931 million increased $62 million from the second quarter. The increase is driven by credit card losses as higher late-stage delinquencies flow through to charge-offs. For context, the credit card net charge-off rate rose 12 basis points to 2.72% in Q3, and it remains below the 3.03% pre-pandemic rate in the fourth quarter of '19. Provision expense was $1.2 billion in Q3, and that included a $303 million reserve build. It reflects a macroeconomic outlook that on a weighted basis continues to include an unemployment rate that rises to north of 5% during 2024. On Slide 18, we highlight the credit quality metrics for both our Consumer and our Commercial portfolios. And on Consumer, we just note that we continue to see the asset quality metrics come off the bottom. And for the most part, they remain below historical averages. 30 and 90-day consumer delinquencies still remain below the fourth quarter of 2019 as an example. Commercial net charge-offs declined from the second quarter, driven mostly by a reduction in office write-downs. And as a reminder, our CRE credit exposure represents 7% of total loans, and that includes office exposure, which represents less than 2% of our loans. We've been very intentional around client selection and portfolio concentration and deal structure over many years, and that's helped us to mitigate risk in this portfolio. We continue to believe that the portfolio is well positioned and adequately reserved against the current conditions. And in the appendix, we've included a current view of our commercial real estate and office portfolio stats we provided last quarter. We've also included the historical perspective of our loan book de-risking and our net charge-offs, and you can see all of those on Slides 36, 37, 38 and 39. Okay. Let's move on to the various lines of business and their results. And I'm going to start on Slide 19 with Consumer Banking. For the quarter, Consumer earned $2.9 billion on good organic revenue growth and delivered its 10th consecutive quarter of operating leverage, while we continue to invest for the future. Note that the top-line revenue grew 6%, while expense rose 3%. Reported earnings declined 7% year-over-year given credit costs continue to return to pre-pandemic level. And we believe this understates the underlying success of the business in driving revenue and managing costs, because PPNR grew 9% year-over-year. Much of this success is driven by the pace of organic growth of checking and card accounts, as well as investment accounts and balances, as Brian noted earlier. And expense reflects the continued investments by the business for their future growth. Moving to Wealth Management on Slide 20. We produced good results, and we earned a little more than $1 billion. These results are down from last year, due to a decline in NII from higher deposit costs, which more than offset higher fees from asset management. While lower this quarter, NII of $1.8 billion derives from a world-class banking offering, and it provides good balance in our revenue stream and a competitive advantage in the business for us. As Brian noted, both Merrill and the Private Bank continued to see strong organic growth, and they produced solid assets under management flows of $44 billion since the third quarter of last year, reflecting good mix of new client money as well as our existing clients putting their money to work. Expense reflects continued investments in the business as we add financial advisers and capabilities from technology investments. On Slide 21, you see the Global Banking results. And this business produced very strong results with earnings of $2.6 billion, driven by 11% year-over-year growth in revenue to $6.2 billion. Coupled with good expense management, the business has produced solid operating leverage. Our GTS, or Global Treasury Services business has been robust. We've also seen a steady volume of solar and wind investment projects this quarter, and our investment banking business is performing well in a sluggish environment. Year-over-year revenue growth also benefited from the absence of marks taken on leverage loans in the prior year-ago period. The company's overall investment banking fees were $1.2 billion in Q3, growing modestly over the prior year, despite a pool that was down nearly 20%. And we held on to number three position given our performance. Provision expense reflected a reserve release of $139 million as certain troubled industries and credits outside of commercial real estate continue to have improved outlooks. Expense increased 6% year-over-year, reflecting our continued investments in this business. Switching to Global Markets on Slide 22. The team had another strong quarter, with earnings growing to $1.3 billion driven by revenue growth of 10%, and I'm referring to results excluding DVA as we normally do. The continued themes of inflation, geopolitical tensions and central banks changing monetary policies around the globe have continued to impact both bond and equity markets. And as a result, it was a quarter where we saw strong performance in our FICC businesses, as well as a record third quarter in equities. Focusing on sales and trading, ex DVA, revenue improved 8% year-over-year to $4.4 billion. FICC improved 6% and equities improved 10% compared to the third quarter of last year. And at $1.7 billion, that's a record third quarter for our equities teammates. Year-over-year, expense increased 7%, primarily driven by investments for people and technology. Finally, on Slide 13, all other shows a profit of $89 million. So revenue improved from the second quarter, driven by the absence of prior period debt security sale losses and available-for-sale securities, and partially offset by higher operating losses on tax credit investments in wind, solar and affordable housing. As I mentioned earlier, our effective tax rate in the quarter was 4%, and that reflects a higher-than-expected volume of investment tax credits in which the value of the deals are recognized upfront. We also had a small discrete benefit to tax expense from a state tax law change. Excluding renewable investments and any other discrete tax benefits, our tax rate would have been 25%. And as we wrap up 2023, we expect our full year tax rate, excluding discrete and special items, such as the FDIC special assessment, we expect that full year tax rate should end up in the 9% to 10% range. So to summarize, we grew our earnings double digit year-over-year. We reported NII that was above our expectations, and we increased our full year expectations. We've managed costs aligned with our guidance and brought expenses down in every quarter so far this year, and we expect to do that again in the fourth quarter. We earned more than 15% return on tangible common equity. We returned $2.9 billion in capital back to shareholders, including a 9% dividend increase. And we built 30 basis points of CET1, positioning us well for the proposed capital rules. So all in all, it was a strong quarter. It was one where our teams executed well against responsible growth. And with that, David, I think we'll open it up for the Q&A session.

Gerard Cassidy:

Thank you. Hi, Brian. Hi, Alastair.

Alastair Borthwick:

Hey, George.

Brian Moynihan:

I think, a couple of things, Gerard. One is the -- there's obviously external events, which could change the situation in the globe dramatically. And so -- but given just the pathway that those -- that doesn't -- that kind of event doesn't take place, you think that the rate they're spending out now is consistent with a lower inflation. So embedded in our teams [indiscernible] team's economic projections is a return to inflation, the 2% target at the end of '25. The rate structure comes down beginning in the middle of next year, but still stays around 4% at the end of '25. And so given that the economy -- the inflation is coming down, the economies would still be growing then and getting back towards trend growth, I think it would hold steady. And so it's been pretty steady, the month of August into September into October, at this 4%, 4.5%, 5% level. And that's kind of just people get paid more, they spend a little bit more and pricing goes up. And then you have the ebbs and flows within it, what they spend on. And right now, you've kind of seen all the adjustments that came through the pandemic into the last couple of years sort of adjust out of the system. What I mean by is you had a lot of goods purchase, then you had a lot of travel. You had a lot of return-to-office spending. We can track that people buying stuff. All that's kind of leveled out of the system, including a drop in fuel prices and an increase -- and basically, it's relatively bounce around about the same and they're spending about the same amount of money on gas as they spent last year. So all that being said, in the big aggregate numbers, I think, yes, it can keep bumping along at that level, which is consistent of low inflation, low growth economy, and effectively shows the consumer has been brought more in line with the scenario of the Fed reaching their target. That's what we see. Now, we'll take some time for all that to work through the system and the retail sales number seems to be stronger today, but that will all shake through, but this is what they are doing at the moment.

Brian Moynihan:

So I think, number one, I think the first thing is there'll be -- at the end of November, the comments are due, there'll be comments by our company, by all the other companies, by industry participants, and then the staff at the Fed will have to sort through all that and think to what they all mean. And there'll be very rigorous points about our views of the wisdom of the changes, the need that changes, the balance of the changes, the double accounting, all the things you've heard much about. That being said, it is a little puzzling that you see some of the RWA increases for mortgage loans or for these types of investments in the environmental and housing and other spaces, which sort of counter the policy that we want to do it. Now what would happen is we'd have to adjust the pricing and it would become more expensive. It's been a great business for us. We continue to drive it. But ultimately, it’d have to go through the market. You have the equity cost go up by a four-fold increase to get the returns. And so think about a pricing model, just increasing the amount of equity we have to dedicate, therefore, we have to get returns on that. And so that would happen. It just seems a little counterintuitive that people would be doing that on a set of rules that, basically, after the financial crisis, Dodd-Frank put in a set of rules and said here's how you count the RWA, without much evidence that this is an issue for companies because the Volcker Rule and all the stuff that are having issues of write-downs or changes here. And so the idea going up four times seems odd to us from a public policy standpoint, and also absent any evidence that this is an issue for the banking system.

Operator:

We'll take our next question from Jim Mitchell with Seaport Global. Please go ahead. Your line is open.

Alastair Borthwick:

Yeah. I mean, Jim, one of the things that I think gives us some confidence around NII troughing and then growing in the back half of next year is if you think -- we've seen the last Fed hike or you believe that the last Fed hike is a month from now or two months from now. And at some point, deposit pricing is going to stop going up. And there'll be a natural lag to that, that's pretty normal. And then what you see, if you look forward into the forward curve is we've actually got Fed cuts, three of them, in the forward curve for next year. So, yes, we anticipate will be some lag. I don't think we're any different than anyone else in that regard. But we're just pointing out that as we get towards peak rates, we're getting closer now so we can begin to see the end of that in terms of the later innings at this point. And the other thing just -- we always have to remind everyone of this is, the deposits that we have are very relationship based. They're -- a lot of them are core operating deposits where we've got the checking, they're thinking about the way we serve them in terms of digital. We've got preferred reward program. And then on the Commercial side, very similar. We've got a lot of operating deposits all around the world. and they're using our world-class CashPro product. So there's a lot of relationship value here as well that we need to take into account. But fundamentally, we're just making a judgment that we're getting towards the top of the rate cycle here for Fed funds and then deposit pricing will sort out in the quarter or two following.

Alastair Borthwick:

Yeah, I think the other things that we’ve got going on, especially as we get into the back half of the year, Consumer balances are going to find the floor at some point. They again are in the late innings of returning to sort of more normal pre-pandemic balances per account. So they are going to find a floor and at that point, they're going to start growing in the same way that Wealth has found the floor, and in the same way the Global Banking found a floor a while ago and is now beginning to grow. So we have a point of view that the Consumer side is going to find the floor. So that's one. Two is, at that point, you're poised for deposit growth, but we're also going to see loan growth through the course of the year. It's been slower this quarter. But at some point, you return to a more normal economy, as Brian has pointed out, we're going to see the loan growth and so we're thinking that's going to start to evidence itself in the back half. And then the final thing I'd just say is we have securities reinvestment every month, and that's going to support and grow NII. And I think it gives us a sense that we've got a more durable NII stream underneath.

Operator:

We’ll take our next question from Erika Najarian with UBS. Please go ahead. Your line is open.

Alastair Borthwick:

All right. So I'll answer the first part, Erika. I think if you look back through the course of the last couple of years, that portfolio paydowns in terms of maturities or paydowns, it's sort of averaging $10 billion a quarter. So I think you could probably use that as a good starting point for the reinvestment horizon in 2024. That's what I would use. And then I'll let Brian answer the second part of your question.

Erika Najarian:

Got it. And my second question is for you, Alastair. Do you have any economic ownership of Visa Class B shares remaining? Our understanding is until the litigation was settled, you weren't allowed to sell it other than to other banks in the initial consortium. But I'm wondering if you've sold any economic ownership through swap or if we still have it on the books because we haven't seen any disclosures on that recently.

Erika Najarian:

Got it. Thank you.

Mike Mayo:

Do you expect the efficiency ratio expenses to revenues to improve from 63% and when? And I guess this is a two-part question. One is expenses. As you said, it's down every quarter this year and you're guiding for the fourth quarter. Slide 5, the digital adoption, it’s about three-fourth for your clients across the firm. So the sustainability of those digital trends to help lower expense or control expenses, given some of the headwinds. And especially given the threat of big tech and fintechs, the sustainability of the digital trends and why you think you have an advantage on so many others. I think they have the advantage. And the second part of that question is revenues. Your NIM is a bit over 2%. Went up a little quarter-over-quarter, but it was closer to 2.5%. Going back five years and maybe long term, it should be 3%. I'm not sure. So what do you think is a normalized NIM? Because that would help the efficiency ratio and the trend for expenses and ultimately, the efficiency ratio? Thanks.

Mike Mayo:

And then just on that big picture question, I mean, you've invested for over a decade in your data and tech stack and digital engagement. And now we have AI and GenAI as a new opportunity and a threat. Why do you think -- or maybe you don't, why do you think that you have an advantage versus, say, smaller banks, fintechs or big tech?

Mike Mayo:

Okay. Thank you.

Steven Chubak:

Hey, good morning, Brian. Good morning, Alastair.

Steven Chubak:

So I wanted to start off with a question on expense. You cited headcount actions, it should provide relief in 4Q and positive flowthrough into next year. I was hoping you could either help size the benefit from expense actions or just frame how we should be thinking about expense growth as we look out to next year.

Steven Chubak:

Great. And just two clarifying questions or cleanup questions on my end. On the NII remarks, you talked about deposits. I was hoping you could help frame, Alastair, what are the assumptions you're making in terms of reinvestment yields and loan growth that are underpinning that higher NII exit rate for next year?

Steven Chubak:

Okay. And just one quick one here on the tax advantage investments. I just wanted to confirm, given the long duration, the 4x increase in capital, are you still planning to fund tax advantage investments on the platform before the rules are finalized? Or are you going to take a wait-and-see approach?

Steven Chubak:

Understood. Thanks so much for taking my questions.

Matt O’Connor:

Hi, good morning. First, just to clarify, what's driving the drop in net interest income from 3Q to 4Q? Is that core net interest income? Or is that on the market side?

Matt O’Connor:

Yeah. Okay. That's helpful. And then just conceptually, as we think about your interest income guidance for next year, what if we get higher for longer rates, there's no cuts. Is that good or bad versus the guidance that you gave earlier? Obviously, you've got puts and takes to some reinvestment on the asset side. But again, coming back to the deposit pricing issue, I think there's a view that higher for longer eventually drives up the Consumer rates. So what would be the net of those two in the higher for longer? Thank you.

Matt O’Connor:

And that's simply the assets repricing more of the deposits or are you still thinking there's minimal consumer deposit or pricing even in the higher for longer?

Matt O’Connor:

Okay. I understand. Thank you.

John McDonald:

Yeah. I was hoping you could give a little color on what you're seeing on credit. Your outlook as you look at roll rates and migrations, how are you thinking about the trajectory of charge-offs in the near term?

Brian Moynihan:

John, just one thing on as you think about the Commercial credit. Remember, we have a strong, disciplined ratings change, rating capability in this company. And so we are pushing through the reviews of the commercial real estate portfolio, et cetera. We put them on, criticized quickly. We had to deal with the charge-offs, and that's why you see them come back already in. And we're adjusting those activities as we show in the slides in the part of the deck, to current appraisals, under market conditions, under current rent rolls, et cetera. And so even though it's a very small part of our portfolio, frankly, a lot of the issues are through the system for us because the high ratings integrity and ratings conservatism we've had in this company for many, many years. And that holds us well. And I always -- if you think back like in the oil and gas thing in the end of '15, '16, we put up all of this reserve that was pre-CECL and then end up bringing it back in because the charge-offs were very modest. So I think we feel very good about the original underwriting, but you also have -- because of our ratings integrity on the office part of the portfolio, we pushed a fairly significant amount through reappraisal and relook, and we have the CECL reserves. But importantly, the charge-offs are falling already.

Brian Moynihan:

Yeah, so I think we're doing on a -- I think a simple way to think about is we're doing on $194 billion of capital, which we did at this quarter. And that is -- you need about another, say, $10 billion to put a buffer on the end state need, $10 billion to $11 billion, $195 billion plus, 0.5% which is our normal buffer, without any mitigation. That would be a very modest increase of $10 billion over $200 billion, let's make it simple. And that would hit the ROTCE a bit. And I'm sure we can figure out ways to price to get that back. But remember, we're different than everybody else, John, because we're actually sitting on this amount of capital today. And so we are getting a 15% return on it. So I don't want to -- don’t take that as saying, I agree with the rules, but saying, we've got to deal with the cards that are dealt to us. The rules say that you have to have $195 billion plus about $10 billion cushion for, and maybe a little bit more cushion, but depending on, for 50 basis points or so. But, we're doing 15% today, so that'd be a slight dilution to that number, but not something we couldn't make up. And that's before any mitigation, honestly. And there's always mitigation. You know that. You've been around this industry for a long time. So there's always mitigation, how you construct things, what you'll do, what you'll not do. And I fully expect there'll be modifications in the rules, which ought to help also. But I think the simple point is we earn that amount of capital today, so it's not like some calculation I have to think through. It's right there today.

Operator:

We'll take our next question from Vivek Juneja with JPMorgan. Please go ahead. Your line is open.

Alastair Borthwick:

Yeah, I'm saying right now, Vivek, that if you think about what rate cuts look like in the back half of next year, in the absence of that, we might guide NII higher, yes. That's what I'm trying to communicate.

Alastair Borthwick:

Yeah. On the way down, I'd anticipate that as rates are going down, it's going to cut into our margin on our deposit spreads. So that's essentially what we're talking about.

Vivek Juneja:

Okay. Thanks.

Ken Usdin:

Thank you. Just a follow-up on the securities portfolio on the AFS side, Alastair, how much of that $180 billion is still swapped? And can you kind of help us understand like what the kind of all-in yield is on that book? And if you would still also have repricing help going forward on that book as well as you mentioned earlier on the HTM maturities?

Ken Usdin:

Okay. That helps. Thank you. And then just wanted to also say, on the fee side, obviously, another really good job both on the Investment Bank and the trading businesses, still an uncertain environment. Just wanted to get your thoughts. You were able to hold the IB fees flat sequentially, which was, I think, better than you had indicated. Just your thoughts on reopening here in the markets and how you're kind of expecting the business to hopefully, albeit understanding it's still an uncertain environment.

Brian Moynihan:

Yeah, Ken, let me give you two other pieces. One, the pipeline still is strong. But more importantly, Matthew and the team have done a good job of building out our capabilities to serve our huge middle market client base, our global commercial banking client base under Wendy's leadership. And that number is growing quickly, and that's a market which is, we're relatively unpenetrated in. We had good market share with our clients that we did business with, but we -- meaning investment banking business with, and so that's generating probably better performance for us than others in terms of holding our position flat relative to up a little bit year-over-year, flat year-over-year versus a down market. So we basically doubled the size of that team, and we'll double it again. It's that kind of opportunity for us.

Operator:

We'll take our next question from Manan Gosalia with Morgan Stanley. Please go ahead. Your line is open.

Brian Moynihan:

So a couple things. One, just broad base, we have a $1.9 trillion deposit, $1 trillion of loan. So we have a tremendously high deposit base. But also, if you think about, if you look at the Slide 5 or whatever, as we show the deposits by business, in the banking business, Global Banking, I think six quarters we've been relatively flat, so, and starting to grow off of that. That is fully priced at -- it's not like corporate treasurers wait around to talk to you about what you're paying and the noninterest-bearing percentage has drifted down. The amount they hold in excess of that, part of that to pay fees has been relatively stable. And so, we feel very good about that. Looking at Wealth Management, basically all the movement was made -- has been made pretty much to the higher rate environment, i.e. buying treasury securities directly. If you look in our Wealth Management business, the amount of short-term cash-oriented type investments, money market funds, et cetera, treasuries, et cetera, has gone from like $500 billion to $700 billion or $800 billion over the last several -- last couple of years. So that move has taken place. And so the rest of it is now in a relatively stable base. You can see those numbers flat. If you go to the consumer side, there's basically two or three things. One is, in the medium income households plus or minus, you're seeing the slow spend down even though they still have multiples of what they had pre-pandemic in their accounts. And even though that's a small part of the overall deposit base, there's still this low trend that where that's drifting down as all the things you read about go on. And the higher end part of that base, in a broad consumer base, they're actually below the pandemic by about 20%. And that's because they moved the money into the market. And you can see that in some of the preferred category of pricing. So where people think about checking and money markets and this, we think, I always have thought about it a little more straightforward, which is transactional cash and investment cash. The investment cash has largely been re-suited across the businesses. The transactional cash holds because it's money in motion moving every day. And for our Consumer business, that’s represented by the $0.5 trillion of checking account balance, as you can see on the page, with some modest amounts in money markets and stuff that are carried as the cushion people have. And if they've moved the money to market, they've moved it. And so we're watching Consumer because there's a little more drifting there, and it's up $250 billion since pre-pandemic. And you're saying you have the dynamics of loans, student loan repayment starting, that's a million of our customers pay student loans. You have the dynamics of interest rate impacts on cash carry of loan balance if that's higher. And that'll sort out, but just takes a lot longer. That's across 37 million people. So it’s a -- the impact takes a while to sort through. And so we feel good about it. But I think people look by category in this and that. You have to think about more how a customer, which a business or consumer, behaves. And what we've seen them is adjust their behavior based on their household circumstances, and largely through the system, and most of it coming a little bit slower in consumer, just because natural question is there, if there are a lot of stimulus went in those accounts, what do I do with it over time? And now they're doing something.

Brian Moynihan:

We prefer to grow deposits in line with customer growth and activity. So in the last four quarters, Consumer I think were up another 900,000. Net new checking accounts, which average balance is around $11,000, they come in lower than that and mature after that. We grow -- we have a transactional banking business for all types of customers and we grow irrespective of it. That produces $2 trillion. You have a loan business to customers, that produces $1 trillion, and that difference then is a wonderful thing to have every day.

Operator:

We'll take our next question from Chris Kotowski with Oppenheimer. Please go ahead. Your line is open.

Alastair Borthwick:

Well, I don't think it was an amortization issue. I think it was just the -- way the entire balance sheet works across assets, liabilities, when you think about all the various moving pieces. So I don't think there's anything particularly notable there.

Operator:

For our final question today, we have a follow-up from Vivek Juneja with JPMorgan. Please go ahead. Your line is open.

Brian Moynihan:

Let me just hit the first one. Alastair can hit the second one. The capacity, if you think about the constraint on RWA, as you know, Vivek, and your experience in the business, that equity financing is not RWA intense. So -- but it is asset size intense. Now, when you look at us with our supplemental leverage ratio, 100 plus basis points over the requirements, we have lots of room on the asset size if we want. And the return on equity -- the return on the risk in that business is very strong. So Jim and the team have done a good job and [indiscernible] equities side. And we continue to experience that there's plenty of room. And in fact, we have brought the balance sheet up by over $200 billion largely due to the financing side. A lot of that due to equities, and we can continue to do that if the clients need the capabilities in the product. So that's a simple answer. Yes, there's a lot of capacity, and it’s largely driven by our huge capital base and our effect on all the size measures were way over the requirements. I think 100 basis points on that is probably almost $50 billion of overage, so you have a lot of room to go.

Vivek Juneja:

Thank you.

Operator:

This does conclude today's program. Thank you for your participation, and you may now disconnect.

Lee McEntire:

Thank you, Catherine. Good morning, welcome and thank you for joining the call to review our second quarter results. I trust everyone has had a chance to review our earnings release documents. They are available on the Investor Relations section of the bankofamerica.com website, and includes the earnings presentation that will be referring to during the call. 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 I do that, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. The forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause the actual results to materially differ from expectations are detailed in our earnings materials and SEC filings that are available on the website. Information about our non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. So, with that, it's my pleasure to turn the call over to you, Brian. Thanks.

Alastair Borthwick:

Thank you, Brian. And on Slide 8, we list the more detailed highlights of the quarter, and then Slide 9 presents a summary income statement, so I'm going to refer to both of those. For the quarter, we generated $7.4 billion in net income, and that resulted in $0.88 per diluted share. A year-over-year revenue growth of 11% was led by a 14% improvement in net interest income, coupled with a strong 10% increase in sales and trading results ex-DVA. Revenue was strong, and it included a few headwinds, and I thought I'd go through those headwinds first. We had lower service charges from both higher earnings credit rates on deposits for commercial clients, and the policy changes we announced in late 2021 to lower our insufficient funds and overdraft fees for our consumer customers. The good news on the consumer piece is year-over-year comparisons get a bit easier starting next quarter, as the third quarter of '22 reflects the full first quarter of these changes. Second, we had lower asset management and brokerage fees as a result of the lower equity and fixed income market levels, and market uncertainty that impacted transactional volumes compared to a year ago quarter. Third, we have a net DVA loss of $102 million this quarter compared to a gain in DVA of $158 million in the second quarter a year ago. We also recorded roughly $200 million in securities losses as we closed out some available for sale security positions and their related hedges, and we put the proceeds and cash. Lastly, and just as a reminder, our tax-rate benefits from ESG investments, and those are somewhat offset by operating losses on the ESG investments which show up in other income. So, this quarter, our tax-rate is a little bit lower and the operating losses are a little bit higher from volume of these deals. So you have to be careful in analyzing the lower tax-rate without considering the operating losses, and that in-turn often offsets what would have been higher revenue elsewhere. Our tax-rate for the full year is expected to benefit by 15% as a result of the ESG investment tax credit deals, and absent of these credits, our effective tax-rate would still be roughly 25%, and we continue to expect a tax-rate of 10% to 11% for the rest of 2023. Expense for the quarter of $16 billion included roughly $276 million in litigation expense which was pushed higher this quarter by the agreements announced last week with the OCC and the CFPB on consumer matters. Asset quality remains solid and provision expense for the quarter was $1.1 billion consisting of $869 million in net charge-offs and $256 million in reserve built. The provision expense reflects the continued trend in charge-offs towards pre-pandemic levels, and it is still below historical levels. The charge-off rate was 33 basis points, and that's only 1 basis point higher than the first quarter and still remains well below the 39 basis points we last saw in Q4 of 2019, when remember, 2019 was a multi-decade low. I'd also use Slide 9 just to highlight returns, and you can see we generated 15.5% return on tangible common equity and 94 basis points return on assets. Let's turn to the balance sheet starting with Slide 10, and you can see our balance sheet ended the quarter at $3.1 trillion, declining $72 billion from the first quarter. A $33 billion or 1.7% reduction in deposits closely matched a $41 billion decline in securities balances through paydowns from the hold to maturity and sales of available for sale securities. Securities are now down $177 billion from a quarter to '22. Cash levels remained high at $374 billion and loans grew $5 billion. As Brian noted, our liquidity remains strong with $867 billion of liquidity, up modestly from the first quarter of '23, and still remains nearly $300 billion above our pre-pandemic fourth quarter '19 level. Shareholders' equity increased $3 billion from the first quarter as earnings were only partially offset by capital distributed to shareholders. AOCI decreased by $2 billion, driven by derivatives valuation and AFS securities values were little changed. So, there is little change in the AOCI component that impacts regulatory capital. Tangible book-value is up 10% per share year-over-year. During the quarter, we also paid out $1.8 billion in common dividends, and we bought back $550 million in shares to offset our employee awards. And last week, we announced the intent to increase our dividend by 9%, beginning in the third quarter. Turning to regulatory capital, our CET1 level improved to $190 billion from March 31st, and the ratio of CET1 improved more than 20 basis points to 11.6%, once again, adding to the buffer over our 10.4% current requirement. While our risk-weighted assets increased modestly in the quarter. Also noteworthy, on July 3rd, we initiated dialog with the Fed to better understand our CCAR exam results, and we remain in discussions today with no news to update as of now. In the past 12 months, we've improved our CET1 ratio by more than 110 basis points, and we've done that while supporting claims for loan demand and returned $11.3 billion in dividends and share repurchases to shareholders. A supplemental leverage ratio was 6% versus our minimum requirement of 5%, and that leaves us plenty of capacity for balance sheet growth. Finally, the TLAC ratio remains comfortably above our requirements. So, let's now focus on loans by looking at average balances, you can see those on Slide 11, and there you can see, average loans grew 3% year-over-year. The drivers of loan growth are much the same. Consumer credit card growth is strong, and then commercial loans grew 4%. The credit card growth reflects increased marketing, enhanced offers and higher levels of account openings over time. And in commercial, we saw a little bit of a slowdown this quarter, driven by higher paydowns from borrowers and weaker customer demand as opposed to any credit availability from us. We are still open for business for loans. While loan growth has slowed, it's generally remained still ahead of GDP and commercial client conversations remain solid as our clients seem to be waiting for some of the economic uncertainty to lift before borrowing further. Slide 12 shows the breakout of deposit trends that's on a weekly ending basis across the last two quarters, and it's the same chart that we provided last quarter. In the upper left, you see the trend of total deposits. We ended the second quarter at $1.88 trillion, down 1.7% with several elements of our deposits seeming to find stability. Given the normal tax seasonality impacts on deposit balances in Q2 and the monetary policy actions, we believe this is a good result. I want to use the other three charts on the page to illustrate the different trends across the last quarter, and more specifically in each line-of-business. In consumer, looking at the top right chart, you see the difference in the movement through the quarter between the balances of low to no interest checking accounts and the higher-yielding non-checking accounts. Here you can also see the low levels of our more rate-sensitive balances in consumer investments and CD balances. And they're both broken out here. In total, we've got still more than $1 trillion in high quality consumer deposits, which remains $274 billion, above pre-pandemic levels. In the second quarter that decline in consumer deposits was driven by higher debt payments, higher spend and seasonal tax activity. And some non-checking balances that rotated from deposits into brokerage accounts. We did see some competitive pressure this quarter within about roughly $40 billion of CD's, as some of the financial institutions pushed prices higher. And at this point with deposits, far exceeding our loans we've not yet felt the need to chase deposits with rate. Broadly speaking, average deposit balances of our consumers remain at multiples of their pre-pandemic level, especially in the lower end of our customer base. Total rate paid on consumer deposits in the quarter rose to 22 basis points, and remains low relative to Fed funds driven by the high mix of quality transactional accounts. Most of this quarter's 10 basis point rate increase remains concentrated in those CD's and consumer investment deposits and together, those represent only 11% of our consumer deposits. Turning to Wealth Management. This business is also impacted by tax payments and normally shows the most relative rate movement because these clients tend to have the most excess cash. The previous quarters trend of clients moving money from lower-yielding sweep accounts into higher-yielding preferred deposits. And moving off-balance sheet on to other parts of the platform seem to stabilize this quarter, and our sweep balances were more modestly down $72 billion. At the bottom right, note the global banking deposits stability. We ended the second quarter at $493 billion down $3 billion from the first quarter. We've now been in this $490 billion to $500 billion range for the past several quarters. And these are generally the transactional deposits of our commercial customers that they use to manage their cash flows. And while the overall balances have been stable, we've continued to see shift towards interest-bearing as the Fed raised rates one more time during the quarter before pausing in June. Non-interest-bearing deposits were 40% of their deposits at the end of the quarter. Focusing for a moment, on average deposits using Slide 13, I really only have one additional point to make. While you've seen the modest downtick in deposits for the past several quarters, as the Fed has removed some accommodation, we just want to note that deposits remain 33% above the fourth quarter 2019 pre-pandemic period. And as you look at the page every segment relative to pre-pandemic is up at least 15%, consumer is up 40%, consumer checking is up more than 50%, and as noted global banking has been right around $500 billion for the past five quarters, and it remains 31%, above pre-pandemic. So let's move to Slide 14. And we'll continue the conversation that we began last quarter around management of excess deposits above loans. In the top left, note the balances in the second-quarter of each year since the pandemic began. The excess of deposits needed to fund loans increased from $500 billion pre-pandemic to a peak of $1.1 trillion in the fall of 2021. And as you can see it remains high at the end of June at $826 billion. In the top right, note that the amount of cash and securities held has increased across time, in-line with the excess deposit trend. And you will also note the mix shift over time. This excess of deposits over loans has been held in a balanced manner across the period shown with roughly 50% fixed longer dated held-to-maturity securities and the rest has been held in shorter dated available-for-sale securities and cash. Cash and the shorter day-to-day FS securities combined was $516 billion at the end of the quarter. And cash of $375 billion is more than twice what we held pre-pandemic and you should expect to see that come down over time. We made these investments, given the mix and transactional nature of our customers deposits, particularly given the excess deposits built. Note also in the bottom left chart, the combined cash and securities yields continue to expand this quarter and remain meaningfully wider than the overall deposit rate paid that's a result of two things. Securities book has seen a steady decline since the fall of 2021, when we stopped adding to it. With less loan funding needs, proceeds from security pay-downs have been deployed into higher-yielding cash and through this action, and the increased cash rates, the combined cash and securities yield has risen further and faster than deposit rates. Deposits at the end of the quarter were paying 124 basis points while our blend of cash and securities has increased to 319 basis points. So, over the past year the deposit cost has risen by 118 basis points, and the cash and securities yield has improved by 164 basis points. And as a reminder, this slide focuses on the banking book because our global markets balance sheet has remained largely market funded. Finally, one very last - one last very important point that I want to make is on the improved NII of our banking book. The NII excluding global markets which we disclose each quarter troughed in the third quarter of 2020 at $9.1 billion, and that compares to $14 billion in the second quarter of 2023, so almost $5 billion higher on a quarter basis, $20 billion per year. That's led to a stronger capital position even as we returned capital to shareholders and supplied capital to our customers in the form of loans and other financing capital. And then more specifically on the hold-to-maturity book, the balance of that portfolio declined again $10 billion from the first quarter, it's down $69 billion since we stopped adding to the book in the third quarter of '21. The market valuation on our hold-to-maturity book, which is in a negative position, worsened $7 billion since March 31, 2023, driven by a 54 basis point increase in mortgage rates. The OCI impact from the valuation of our hedged AFS book modestly improved this quarter. Let's turn to Slide 15, and we can focus on net interest income. On a GAAP or non-FTE basis, NII in the second quarter was $14.2 billion, and the fully tax equivalent NII number was $14.3 billion. So, I'm going to focus on that fully tax equivalent. Here NII increased $1.7 billion from the second quarter of '22 or 14%, while our net interest yield improved 20 basis points to 2.06%. This improvement has been driven by rates which includes securities premium amortization, partially offset by global markets activity, and $137 billion of lower average deposit balances. Average loan growth during the period of $32 billion also aided the year-over-year NII improvement. Turning to a linked quarter discussion, NII of $14.3 billion is down $289 million or 2% from the first quarter, and that's driven primarily by the continued impact of lower deposit balances and mix shift into interest bearing, partially offset by one additional day of interest in the period. Global markets NII increased during the quarter. The net interest yield fell 14 basis points in the quarter, driven by a larger average balance sheet due to the cash positioning we chose and some higher funding costs. This quarter's compression, we believe, was just a little anomalous, driven by our decision late first quarter to position the balance sheet around higher cash levels. Turning to asset sensitivity and focusing on a forward yield curve basis, the plus 100 basis point parallel shift at June 30 was unchanged from March 31, '23, at $3.3 billion of expected NII over the next 12 months in our banking book, and that assumes no expected change in balance sheet levels or mix relative to our baseline forecast, and 95% of the sensitivity remains driven by short rates. A 100 basis point down-rate scenario was unchanged at negative $3.6 billion. Let me give you a few thoughts on NII as we look forward. We still believe NII for the full year will be a little above $57 billion, which would be up more than 8% from full year 2022, and this could include third quarter at approximately the same level as second quarter, so think $14.2 billion, $14.3 billion. And then fourth quarter, somewhere around $14 billion. That's a slightly better viewpoint than we had last quarter for the third and fourth quarter, with a little more stability closer to the second quarter level, and therefore provides a better start point for 2024. So, let's talk through the caveats around our NII comments. First, it assumes that interest rates in the forward curve materialized, and an expectation of modest loan growth driven by credit card. On deposits, we are expecting modestly lower balances led by consumer, and we expect continued modest deposit mix shifts from global banking deposits into interest bearing. The past few months have provided us a little more positive outlook around NII, given the apparent stabilization of some elements of deposits as well as better pricing, and now we'll see how the rest of the year plays out. Okay, let's turn to expense, and we'll use Slide 16 for that discussion. Second quarter expenses were $16 billion, that was down $200 million from the first quarter. And as I mentioned, the second quarter included $276 million of litigation expense. In addition, we also saw a little higher revenue related expense driven by our sales and trading results. Those higher costs were more than offset by the absence of the first quarter seasonal elevation of payroll taxes and savings from a reduction in overall full-time headcount. Now, excluding the 2,500 or so summer interns that we welcomed into our offices over the summer months, our full-time head count was down roughly 4,000 from the first quarter start point to 213,000. That's some good work after peaking at 218,000 in January. Our summer interns will leave us in the third quarter, and hopefully many will return as full-time associates next summer. And at the same time in Q3, we welcomed back about 2,600 new full-time hires as college grads, many of whom interned with us last summer. And that's a very diverse class of associates who are excited to join the company. As we look forward to next quarter, we would expect the third quarter expense to more fully benefit from the second quarter head count reduction, even as we remain in a mode of modest hiring for client-facing positions. Additionally, the proposed notice of special assessment from the FDIC to recover losses from the failures of Silicon Valley and signature banks could add $1.9 billion expense for us, $1.5 billion after tax, and we just remain unsure at this point of timing to record that expense. Let's now move to credit, and we'll turn to Slide 17. Net charge-offs of $869 million increased $62 million from the first quarter, and the increase was driven by credit card losses as higher late-stage delinquencies flowed through to charge-offs. For context, the credit card net charge-off rate was 2.6% in Q2, and remains well below the 3.03% pre-pandemic rate in the fourth quarter of '19. Provision expense was $1.1 billion in Q2, and that included a $256 million further reserve build, that's driven by loan growth, particularly in credit card, and it reflects a macroeconomic outlook that on a weighted basis continues to include an unemployment rate that rises to north of 5% in 2024. On Slide 18, we highlight the credit quality metrics for both our consumer and commercial portfolios. On consumer, we note we continue to see asset quality metrics come off the bottom, and they remain below historical averages. Overall commercial net charge-offs were flat from first quarter. And within commercial we saw a decrease in C&I losses that was offset by an increase in charge-offs related to commercial real estate office exposures. As a reminder, commercial real estate office credit exposure represents less than 2% of our total loans, and this is an area where we've been quite intentional around our client selection, portfolio concentration, and deal structure over many years, and as a result, we've seen NPLs and realized losses that are quite low for this portfolio. In the second quarter we experienced $70 million in charge-offs on office exposure, to write down a handful of properties where the LTV has deteriorated. Our charge-offs on office exposures were $15 million in the first quarter. We pulled forward some of the office portfolio stats provided last quarter in a slide in our appendix for you. Now, we continue to believe that the portfolio is well positioned and adequately reserved against the current conditions. Moving to the various lines of business and their results, starting on Slide 19 with consumer banking, for the quarter, consumer earned $2.9 billion on good organic revenue growth and delivered its 9th consecutive quarter of strong operating leverage, while we continue to invest in our future. Note that top-line revenue grew 15% while expense rose 10%. These segment results include the bulk of the impact of the costs of the regulator agreements from last week. While reported earnings were strong in both periods at $2.9 billion, it understates the success of the business because the prior year included reserve leases while we built reserves this quarter for card growth. EPNR grew 21% year-over-year even with the added cost of the agreements. And the revenue growth overcame a decline in service charges that I noted earlier. Much of this success is driven by the pace of organic growth of checking and card accounts as well as investment accounts and balances, as Brian noted earlier In addition to the litigation noted, expense reflects the continued business investments for growth, and as you think about this business, remember much of the company's minimum wage hikes and the mid-year increased salary in wage moves in 2022 impact consumer banking the most, and that, therefore, impacts the year-over-year comparisons. Moving to wealth management on Slide 20, we produced good results earning a little less than $1 billion. These results were down from last year as asset management and brokerage fees felt the negative impact of lower equity, lower fixed income markets, and some market uncertainty, impacting transactional volume. Those fees were complemented by the revenue from a sizeable banking business, and that remains an advantage for us. As Brian noted earlier, both Merrill and the private bank continued to see strong organic growth and produce solid client flows of $83 billion since the third - since the second quarter '22. Our assets under management flows of $14 billion reflect a good mix of new client money as well as existing clients putting money to work. Expenses reflect lower revenue-related incentives and also reflect continued investments in the business as we add financial advisers. On Slide 21, you see the global banking results, and this business produced very strong results with earnings of $2.7 billion, driven by 29% growth in revenue to $6.5 billion. Coupled with good expense management, this business produced strong operating leverage. Our global transaction services business has been robust. We've also seen a higher volume of solar and wind investment projects this quarter, and our investment banking business is performing well in a sluggish environment. Year-over-year revenue growth also benefited from the absence of marks taken on leveraged loans in the prior-year period. We saw modest loan growth on average year-over-year and link quarter, the utilization rates declined, and more generally, we saw lower levels of demand. As we noted earlier, the deposit flows have stabilized in the $490 billion to $500 billion range over the past several quarters, reflecting the benefits of our strong client relationships. The company's overall investment banking fees were $1.2 billion in the second quarter, growing 7% over the prior year and 4% linked quarter, a good performance in a sluggish environment that saw fee pools down 20% year-over-year. Provision expense declined year-over-year as we built more reserve in the prior year. Expense was held relatively flat year-over-year even as we drove strategic investments in the business, including a relationship management hiring and technology costs, and additionally comparisons benefit from the absence of elevated expense for some regulatory matters in the second quarter of '22. Switching to global markets on Slide 22, we had another strong quarter with earnings growing to $1.2 billion driven by revenue growth of 14% and I'm referring to results excluding DVA as we normally do. The continued themes of inflation, geopolitical tensions and central banks changing monetary policies around the globe. Along with this quarter's debt ceiling concerns, continued to impact both the bond and equity markets. As a result, it was a quarter where we saw a strong performance in both our macro and micro trading businesses. The investments made in the business over the past two years continued to produce favorable results. Year-over-year revenue growth benefited from strong sales and trading results and the absence of marks on leverage finance positions last year. Focusing on-sales and trading ex-DVA revenue improved 10% year-over-year to $4.4 billion. FICC improved 18% while equities was down 2% compared to the second quarter of '22. Year-over-year expense increased 8%, primarily driven by investments in the business and revenue-related costs, partially offset by the absence of regulatory matters in the second quarter of '22. Finally on Slide 23, all other shows a loss of $182 million. Revenue included a $197 million of losses on securities sales and increased volume of solar and wind investment operating losses that create the tax credits for the company. As a result of the increased solar and wind tax deal volume, and their associated related operating losses our effective tax-rate in the quarter was lower at 8%, but excluding ESG and any other discrete tax benefits our tax-rate would have been 26%. So with that, let's stop there and we'll open it up for Q&A.

Gerard Cassidy:

Thank you. Good morning, Brian. Good morning, Alastair. Brian, can you give us a view from your standpoint of the - and the new proposal I should say new but the speech by Vice-Chair Barr about the likelihood of capital ratios going up for large banks, like your own and then second, there was a report today, Bloomberg that the capital requirements for holding residential mortgages may go up meaningfully. Any thoughts on that as well?

Gerard Cassidy:

Very good. And then as a follow-up, Alastair, you talked about the balance sheet. I think you said 100 basis point increase, it wouldn't lead to over $3 billion in net interest revenue growth over the next 12 months. And 100 basis point decrease would lead to a decline of just over $3 billion in revenue. Can you share with us, when do you think you might change or what would make you change that position to be liability sensitive, would you rely on the forward curve. What's the outlook for the balance sheet management, that you're looking at now.

Gerard Cassidy:

Very good. Thank you.

Brian Moynihan:

Good morning, Glenn.

Brian Moynihan:

Yes. So, Glenn, I think Alastair gave you a trajectory which if you look at it from fourth quarter last year to the fourth quarter this year, it gets you relatively flat year-over-year, and as your revenues flatten out because interest-rate movements flatten out, you'll see that as we decline in the quarters, that'll be strong. So, as we think about it - as we think about the forward, we think about the ability to control headcount and have expenses continue to come down, but they're going to stay at a level that's relatively consistent where we are now over time, and the goal is then to grow revenue faster than expense. We've been doing it for many decades, you can see that in our data. And - but the way we do it differs from five years ago to 10 years ago to last year, and that the ability to move the branch configuration around when we had 6,000 branches down to 4,000, or 3,900, 3,800, now it is different from 3,800 to where it might end up. And so, you should expect us to continue to engineer by applying massive amounts of technology. Erica saves a lot of transactional activity, Zelle saves a lot of transactional activity deposits by mobile phone saves a lot of activity. All that goes on, and then what we're offsetting with that is from the decade you talk about we probably went from $2.5 billion of technology initiatives a year to $3.8 billion, and we went - we have a lot more revenue that is compensated for, thinking about in the wealth management business, and those are things we fight all the time. So, we expect to manage expenses in-line with revenue. As we got to '19, we told you that we're going to have to start growing expenses at a modest growth rate relative to the revenue growth rate will outgrow the economy on revenue expense and grow a couple 100 basis points lower, it kind of going to be back in that mode frankly, it just with inflation they kicked up and now we have flattened them back out, and then we'll get back in sync as we move to '24 and beyond.

Glenn Schorr:

Totally agree. Thanks for all that. I appreciate it.

Brian Moynihan:

Good morning, Mike.

Brian Moynihan:

So our goal is always to maintain it. And Mike, you point out that the toughest times when you have sort of a twist in the interest-rate environment and you can see that at the end of '19 and we got right back into it right after the environment stabilize, but just thinking about the question you asked me a few years ago Mike was - when NII is coming in are going to let it fall the bottom-line, you going to spend it at about 80% plus of it is falling to the bottom-line, which shows you how we position the franchise from the second quarter of '21 until now as we went through the interest-rate - the fast interest-rate raising. So we gave you the specific as you said, the specific expense guidance by quarter. We'd expect that should produce operating leverage that will be it gets tougher and then it will get easier as we start to see the stabilization of deposits and loans and loan growth, you sort of routinely come through in the economy frankly, shaking through whether we're going to have a recession or not. And so we feel good about what we've done, that's why I tried to give that longer period of time that people have the context, it's very different environments how you've achieved at sometimes revenue fell and expense fell faster, sometimes revenue grew and expense grew, but slower and all the different ways. So we'll keep working at it in a key leading indicator we like as we've been able to manage the headcount down as Alastair said earlier and frankly that is in the face of a turnover rate year-over-year which has dropped in half, which is good because we're not training and hiring as many people, and that then sets us up for the second half of the year because that headcount benefit us not really come through the P&L and will offset some of the other inflation.

Brian Moynihan:

Well, I can't look, I can't speak to other banks Mike. But obviously we know we are in a privileged in advantage position relative to our client base. I just think it's interesting, you look at our global banking set of results over the course of the past year and a half in particular that's extraordinary resilience. And look, Q2 is tax season, so if you look at the wealth management business for example, deposits were down $9 billion, but we know that paid tax payments of $14 billion, $15 billion, $16 billion last quarter. So there is beginning to be a little more stability and obviously, our focus has always been on transactional primary operating, and we may be seeing the benefit of that in some degree, but will continue -- we show you on slide, I think it was Page 12 of the earnings deck, that's where it is. We showed that last quarter we showed again next quarter. But it's just the Fed's engineering this across-the-board, and we're just reacting to what we see from our customer-base.

Operator:

We'll take our next question from Jim Mitchell with Seaport Global. Your line is open.

Brian Moynihan:

I think Jim, one of the things that as we think about deposits, we think about across each of the customer bases and that's what Page 12 shows you. We think about what do they have cashless for that, cash transact and to have cash-in-excess of that. And what happens is, depending on the customer segment that cash moves to the market that excess cash moves the market. But the transactional cash is all with us, that transactional cash far exceeds for us our loan balances. So we have excess transactional cash, in a lot of it is low-interest checking, no interest checking, even if it's a money markets that sort of cushion that you have consumers as a wealthy people, while the consumers and an average consumers maintain to pay their bills and unexpected expenses. So that's what you've seen in that producers, the cost to deposits of $1.24, which is far different than we see other people have and that that's just happens. In other questions how much moves and as Alastair said earlier, we're after tax time now where we have a big wealth management pay-out to the - to tap into the taxes. We also passed the point where people have way passed the point last payments where people will have to that money has been and accounts and still is in their accounts to a large degree as we look at them and they're paying that down slowly. So the average balance in our checking accounts has gone from a high of 11,000, the peak the 10,600 and 10,500 something like that. So all that dynamic, but you got to go back and say, it's the mix of interest-bearing and non-interest bearing is actually a little bit of a misnomer because it's really what the customer uses it the cash for, and they use it to transact and run their household. That's a very stable base and that's what this data shows across time and it's fundamentally a lot higher than pre-pandemic, so consumer $700 billion pre-pandemic $1 trillion now. Checking that if you look on the pages in the deposit descriptions, you'll see those numbers are Page 13, I think it is, those numbers will show you how much is stayed in checking, that's because we have more customers, but more importantly, the average consumer through inflation stuff has more money around. And that provides great crisp for the mill.

Brian Moynihan:

Well, that's what the data on Page 12 shows you. That's why we show you this level of detail in our customer bases, our lines of business that many don't show you did demonstrate that differences there for us. And other people maybe there too, I just can't find it in their data. But if you look at that's why we show you page, while we see actually see during the second quarter, you the week-by-week average balance movement and it's as Alastair said earlier that it's very stable in GWIM, it's very stable global banking even in non-interest-bearing piece half of that is excess balance, half of it is earnings credit rates through the GTS process and then you got to be careful that. And you look at the consumer and it's bouncing around the high $980 trillion, depending on the thing and ended at a trillion. And that happens when payroll has happened all stuff. But that's hugely, hugely advantaged pricing, 20 odd basis points in total for the consumer goods. And you asked about CD's, we only have $40 billion of CD's. So we are what our customers are asking for CD rates, we give them to it's just not the core business and then we have the investment side, we push those wealth management flows and the consumer investment flows are part of our deposits moving over to the market when this excess cash.

Operator:

We'll go next to Chris Kotowski with Oppenheimer. Your line is open.

Brian Moynihan:

Frankly, Chris, it's - when we went all through the horizontal review by the OCC and all the practices and everything were changed then. And these - the small number of accounts that are part of this are from that time period. It's just - not the other agencies did anything, and then the consumer bureau had to - sitting around, we kind of cleaned it up this quarter. So that was that one.

Brian Moynihan:

It reflects up to the current time, but the accounts were from '16 and before '17. Back when -- remember, the Comptroller Curry did the 3-phase review of all the other firms that they didn't find - you can go look at the data and then hopefully, the next Comptroller will testify in Congress and started in the Obama administration after Wells and then led in the early part of the Trump administration with [indiscernible]. And you can go look at that, that was cleared up, but we've made the changes in those processes at that time.

Operator:

We'll go next to Erika Najarian with UBS. Your line is open.

Operator:

Absolutely. We'll go next to Betsy Graseck with Morgan Stanley. Your line is open.

Brian Moynihan:

Good morning, Betsy.

Brian Moynihan:

Betsy, that's kind of what I said earlier. It's been gotten by different ways in different periods of time. But even in the last year, the numbers of branches, I think dropped about from 3,900 to 3,800 and change. And so even as we deployed new ones. And so you're consolidating branches in markets you've been in a long time with lots of branches. The ATM count continues to drift down. But importantly, if you go to the digital pages and look at the activity levels by customers - and you're speaking mostly the consumer business, but affects all customer bases. And you see things like Zelle transactions far exceeding checks. Remember that - what that means is that we don't have to process a check on the back end of that. And so, and then your process it, push it through. So all that continues to grow very quickly and continues to change the overall operating costs in our consumer business. Our cost of operating plus the cost of pays and deposits is still 130-odd basis points or whatever, it's very strong. If you go where the big moves are coming as what we're doing in the markets business, for example, in terms of deeper, deeper digitization, it was always - equity trading was already digitized, but the operational process behind that the throughput of the amount of stuff that's going straight through. And then what's behind that also on the wealth management to customers getting their statements and statements not being delivered to customers' home, but delivered that kind is of $0.5 billion annual benefit that's accumulated over time. And so if there were some magic thing you could pull, you'd pull it, but these are a whole bunch of operational excellence ideas, it seems [indiscernible] to the general public, but it just is a constant improvement of the platform, allows us to constantly manage people down as a percentage of work done by people always comes down. And then now with artificial intelligence and all enthusiasm, we decided that's in the future, the way we've applied it so far has enabled us to do things like our business bankers are more efficient at culling because we use artificial intelligence and programs to tell them which prospects they go to, not to tell - they know their clients and they run it, but which prospects they should approach first so they're more efficient or the adviser match, which has an intelligence base built into it to match a client to an adviser that's - you saw the statistics about the number of leads, 20,000 leads. All this is adding efficiency. So yes, the brand system has got - it's come down a slope and that slope is starting to flatten out. But in that slope is a massive reinvestment in rehabs and a massive opening. And then more and more deposits over top of that, which keeps that efficiency going.

Brian Moynihan:

Yes. Erica, we started working on probably eight years ago now. They do a natural language processing capability that could answer questions that we can make sure the answer was what we wanted to be and every - and on our proprietary systems. And so it's an algorithm that anticipates the answer to a question, but it comes from our data and it looks in your account. But those 165 million interactions in the last quarter, all of them would have been an e-mail, a text, a phone call, and they were all done through the customer entering it into Erica and getting an answer, and then going on and it started. But that will just keep expanding to become a higher and higher functionality. It is a - start at a methodology, which these new programs are far in excess of that, but they're not tested on data, they hallucinate and all these wonderful things that you hear the experts talk about that have to be carefully controlled before you apply. But Erica is using some of the same principles but applied in a very controlled environment. And by the way, when we do it with our drafting the [indiscernible] credit offer memoranda or we do it with a business - targeting that we talked about. All those are ways that we apply, but it's a very controlled setting. So it still has a lot more out there, frankly, as it gets understood better and how it works better and how it can be - attribution, accountability, those types of things have to build in. But Erica, that was built in from the start.

Alastair Borthwick:

Yes. So we got the final stress capital buffer along with the rest of the industry in August. So we'll wait for that, obviously. And then, Betsy, I think we'll likely have to wait for Basel 3 final clarity. That's still moving, and so we don't have the proposed rule yet. Then we have to wait for the comment period, then we got to wait for the final rule. So there's a lot that needs to go on before we get full perspective. But I think Brian said it well. I mean we've got plenty of capital. We've been buying back enough shares to offset the share dilution. And we've got flexibility to do a little bit more. So the other thing that you see over the course of the past year is obviously stress capital buffer last year, we had to add 90 basis points. Well, we've added 110 over the course of the past year, and capped return on tangible common equity around 15% while buying back shares. So we've got the flexibility to do a little bit of everything. But I think we want to see what the final rules look like before we make too many decisions.

Operator:

We'll go next to Ken Usdin with Jefferies. Your line is open.

Alastair Borthwick:

Dan, I think you nailed it. That's sort of been - you just - you watch our - if you look at our charge-offs, for example, that's mainly about loan growth and a little bit about the rate picking up just a little bit, but it's still well below pandemic. You can see that. And fourth quarter '19 was a great quarter for asset quality and cards. So it gets back to this idea that the consumer is still in a pretty healthy place. You can see that in the unemployment statistics, and you can see it in the way that they're just continuing to spend a little bit more money year-over-year. So I feel like the - we've been pretty consistent. The consumer is pretty resilient. That remains the case, and we're benefiting it from right now in the card experience.

Brian Moynihan:

So as Alastair mentioned earlier, there's been a 10-year change in how we work in the overdraft area. And the biggest - and another set of changes were made and fully implemented in the third quarter of last year. So they're in the current run rate. It's just the year-over-year comparisons, this quarter picks up a little bit of pre - final changes to post. So if you look at the FDIC data, I think we're down to $30-odd million a quarter or something like that. And overdraft fees compared to others that are multiples of that. But we've -- it's all through the system. It's all done and all the changes required under the recent announcements and stuff that have been made for a couple of years. So it's in the run rate, so to speak.

Operator:

[Operator Instructions] We'll go next to Charles Peabody with Portales. Your line is open.

Alastair Borthwick:

Yes. So if you go back to - we talked about this at the end of last quarter, Charles. At the end of last quarter, it was an interesting time for the industry. And we felt like it was prudent to just build cash during a period like that. And so that's what we did. And it's - it was obviously, an extraordinary period. Since then as the environment is normalizing, I'd anticipate and I talked about that earlier, you'll see our cash levels just continue to come back down. And so that's all that's happening. It's a choice on our part to position with cash, and you'll begin to see that drift lower now.

Alastair Borthwick:

No, it shouldn't really impact RWAs because most of that is sort of low or zero RWA. What it should impact is, if you look at our net interest yield, that's always a question of numerator and denominator. And when we increased the cash balances, that inflates the denominator for a period of time. So that doesn't hurt NII, but it does inflate your balance sheet just a little bit. So I think as you look forward, what you should expect is we just get back to work on both parts of that numerator and denominator will grind away at the NII side. And then on the denominator side, we'll have a smaller, more efficient balance sheet as the environment normalizes. And in the meantime, it hasn't hurt NII in any way.

Operator:

We'll go to Erika Najarian with UBS. Your line is open.

Alastair Borthwick:

So all of our asset disclosures reflect the betas that we believe at the time. So that part is always in the disclosures. It's too early for me to say on 2024. We're giving guidance for the rest of the year, so you have a pretty good sense of what we're pretty confident around. But last time I looked at the forward curve, we had one, possibly two hikes this year and then as many as five declines next year. So there's a lot between here and there. And I think we'll just assume to take the next three to six months to figure out, Erika, exactly how we feel about '24.

Alastair Borthwick:

Well, you lost me a little. But I'll say this. We've got - it's actually done $3.6 billion. It's not done $3 billion. So that's number one. Number two, you should think about the short term being the vast majority of that. And number three, part of the reason that I think we feel like we've narrowed this corridor, and we've got a little more stability around it is, A, the securities book. And B, just as importantly, there's been a large rotation into interest-bearing. And so as rates in a disclosure like this, as rates come down, one would expect that we'll be somewhat insulated from that in a different way than we might have two years ago when we didn't have as much interest-bearing.

Operator:

We'll take a follow-up from Mike Mayo with Wells Fargo. Please go ahead. Your line is open.

Brian Moynihan:

Mike, the linkage of the digital activity to produce the many quarters of operating leverage at the last 8.5 years, et cetera, is an absolute tie in, and Betsy asked about the branch count and all the things that we've done. The efficiency ratio for us is as a plain element, which is the wealth management business is a big part of our revenue base and has a different operating dynamic because of how it's reported. As you well know, that the revenue has the cost of compensation as a percent of revenue is high. And we basically make 50 cents on the dollar for every dollar past the revenue takeout, which - the adviser compensation level. And we're continuing to try to improve that and make the adviser more efficient and things like that, but that's a major change. We improved year-over-year. And frankly, we're still cleaning out some pandemic-related costs and things like that. So we'll continue to drive that down. And as net interest income has come up and more important part of the business that helps push that efficiency ratio back down. And that's the goal. I mean, you're describing what we go to work and do every day. And the way we do it is - the application of technology across the board. And then removing work in the system and bringing that out and bringing it to the bottom line and then making the investments we did to make it happen again. So we'll continue to do that. But the efficiency ratio, remember, for us, if you go lines of business is best-in-class. It's just we have a bigger mix towards the wealth management business than most other people.

Brian Moynihan:

Yes. It will continue to allow us to do more with the same amount. So if you think about from '19 to now, Mike, remember, the number of customers who do their core checking list is up 10%. So it's not a - and that is a lot of people. It's 3 million more customers doing 20, 30 transactions a month, and all that's going through on a relatively flat expense base. And we've been - we've had - with inflation and wages and things, we've absorbed all that as part of the thing, and that's why the costs have changed. But the reality is we flatten that back out, and then we'll keep driving it back down. And that - if you look at the cost of deposits, which is the cost of running all that as a percentage of deposits, you can see that on the consumer page, it still maintains a nice break against the rate they would receive for the deposit balances. So we're working at it. Simply put, we had 100,000 people in the consumer business a decade-plus ago. We now have 16 going - and it comes down a little bit every quarter. Even though we're putting new branches with an average of 5 to 10 people and depending on the location and things like that going on. And so that just keeps going in the right direction. Now if you take that across other things, in our operations group, the team there continues to have flat headcount, down headcount, and we invest that back in the technology side for more developers, 20-odd thousand on our payroll plus another 10,000 or 15,000 of third parties that go through, frankly, the top lines. And so we keep trying to drive it in to make us more efficient. So all the principles you're saying is right, and we expect it to continue to have a benefit.

Operator:

There are no further questions in queue at this time. I'd like to turn the program back over to Brian Moynihan for any additional or closing remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Lee McEntire:

Thank you, Catherine. Good morning. Welcome. Thank you for joining the call to review our first quarter results. I trust everybody has had a chance to review our earnings release documents. They are available, including the earnings presentation that we'll be referring to during this call, on the Investor Relations section of the bankofamerica.com website. I'm going to turn the call over to CEO, Brian Moynihan; and Alastair Borthwick, our CFO, to discuss the quarter. But before I do, let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. Our forward-looking statements are based on management's current expectations and assumptions, and subject to risks and uncertainties. Factors that might cause those actual results to materially differ from those expectations are detailed in our earnings materials and the SEC filings that are available on our website. Information about the non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials, and those are available on our website. So, with that, I will turn it over to Brian. Thank you.

Alastair Borthwick:

Thank you, Brian. And I'll pick up on Slide 3, where we list some of the more detailed highlights of the quarter. And then, on Slide 4, we present the summary income statement. So, I'm going to refer to both of these together. As Brian mentioned, for the quarter, we generated $8.2 billion of net income, and that resulted in $0.94 per diluted share. Our revenue grew 13%, and that was led by a 25% improvement in net interest income, coupled with strong 9% growth in sales and trading results, excluding DVA. Our non-interest revenue was strong, despite three headwinds

Operator:

[Operator Instructions] We'll take our first question from Jim Mitchell with Seaport Global. Your line is open.

Alastair Borthwick:

So, Jim, I think, right now, the expectations for the market in terms of whether or not there'll be another hike in May, that's bouncing around pretty good. Similarly, you've got a question of whether or not there's two cuts at the back half or three. So, we're operating with the same information you are. We're looking at the forward curve day-to-day thinking that through. At the same time, we're looking at our deposit balances. They're performing kind of the way we would think and we're competing for rate paid. So, I'd say, generally speaking, at this point, we feel pretty good about NII. It's obviously going to be up this year pretty significantly. And, look, we don't provide guidance for the full year for a very simple reason, it just comes down to -- it's very difficult to predict what the Fed is going to do six months and nine months out. But let me put it this way, we can see where our consensus is. Consensus is right around $57 billion, plus or minus. That's sort of the number that would imply us up for the year, 7% to 8%. I mean, I think, we're pretty comfortable there, but it's just so many moving parts, that's why we don't provide the guidance.

Alastair Borthwick:

Well, I think, the team has done a really good job. Brian talked about that. A couple of years ago, we made a decision as a team that it was important for us to invest more in that business and we did that. And we've made pretty significant investments in equities and in fixed income. And we felt like, in particular, we could continue to grow our macro businesses, which we've done, and that's what has done a really good job until this quarter. This quarter, we just happen to fire on more cylinders, particularly in FICC, because this quarter we had a great quarter for our micro products and you kind of expect that, because it was a better quarter for them. We've had positive returns there. So, mortgages, credit, munis, financing, futures, FX, all of them had a pretty good quarter and, I think, Jim and the team are just executing at a really high level. So, they just got to keep at it.

Operator:

We'll take our next question from Erika Najarian with UBS. Your line is open.

Alastair Borthwick:

Right now, that's our expectation. I mean, we're 90 days into the quarter -- I'd say into the year rather. Obviously, as we're looking forward, we see -- we know the headcount is coming down, so that's going to be a tailwind all the way through the course of the year. So, we don't have any change in our expectations right now. We're going to see how the year develops. We still got a little bit of a headwind in terms of something like our sales and trading business having a very good revenue year, and we're still investing in the business. So, it'll be a dog fight, particularly as we get into the back half of the year, but we still feel good about where we are with respect to the expense.

Brian Moynihan:

I think, you saw this quarter, we continue to adopt our basic, or apply our basic principles, which is we support the growth in our customer base, we pay the dividends that are -- what we think is the rational rate, and then we use the rest to basically return to use for the share buybacks. Yeah, we're in the middle of stress test as you just mentioned. We'll have to see the results of that. We also -- but the good news is, we crossed 11.40% this quarter, which basically is an excess -- has a cushion on top of what we need for the first quarter of next year. And so, we'll continue to follow our basic principles. So, we're -- we feel good -- very good about our capital and you should expect us to continue to follow the idea to pay the dividend or grow organic -- support the organic growth, pay the dividend and buyback shares, but we've got to get through the near-term sort of what goes on in our business every year at this time.

Operator:

We'll go next to Ken Usdin with Jefferies. Your line is open.

Brian Moynihan:

Yeah. I think, Ken, we think this -- everybody thinks this as a big bulk thing, Bank of America, but it's really -- and then looks at broad categories of interest-bearing and non-interest bearing accounts and treasury. You have to really think about customer bases and what they do with their money. And so, there is transactional cash, whether that's for consumer running their household day-to-day or a wealthy consumer running their household day-to-day, which may have different level of expenses. And then, the commercial customers, who run their business day-to-day and then have excess cash from that if they are successful, and then how they all play that through. So I think -- we think, transactional cash and investment cash. You've seen a lot of investment cash as -- so to speak. As Alastair mentioned earlier, we price competitively for that, that moves around. But the good news is, we have a massive investment platform where we put that money to work for our customers if they don't need to manage their day-to-day household. So, in our NII estimates, our view of what happens in the future, I think, the key for the consumer business is to remember that, they've got $700 billion of excess deposits over its loans. It's generating a lot of excess deposits that grew $300-odd billion from pre-pandemic, it has been stable. The checking balances, if you look at those charts we gave you, they show you the near-term movement are stable. That generates at a total all-in cost of 10 basis points to 15 basis points, a lot of the value in our franchise, and meaning -- including interest-bearing part of that franchise when you think about deposits across time and in like businesses. So, you'd expect some of those trends to continue in terms of customers have excess cash, putting it to work differently. Here, we expect the deposit rates to move to continue to match the market. But the broad value of this deposit franchises driven by the money people leave us, because it's transactional cash, which is a motion, and we don't pay interest on, and that is both the consumers, wealthy customers and businesses. So, it's hard. It's a very detailed question of which we spent a lot of time looking at or the team does, as you might imagine.

Alastair Borthwick:

Yeah. So, Ken, think about -- I mean, the easiest way to think about those treasuries, they're swapped to floating, so they're essentially cash. And, actually, this quarter, we ended up converting some of them into cash, just because it's simpler, it's simpler for everyone to understand, and this is, obviously, a pretty good bid for treasuries this quarter. So, we just converted them into cash. That's what accounted for some of the securities loss there, it was a couple hundred million. But I think the way to think about it is, as the overall securities portfolio -- remember, we've got cash, we've got available-for-sale, you can always think about that as enhanced cash, and we've got hold-to-maturity, as that continues to pay down, we're just sweeping it right now into cash. That's something I've talked about in the last couple of quarters. And we're putting in cash, because

Operator:

Our next question comes from Mike Mayo with Wells Fargo. Your line is open.

Alastair Borthwick:

Yeah. So, Mike, I'll start. Brian can add anything he chooses to. But one of the reasons that we spend as much time laying out the deposit franchise is because in a rising rate environment, you'd expect obviously that bond markets are going to turn negative. And, at the same time, you and we have been expecting, as rates go up, the NII would rise, because the deposits are so much more valuable in that environment. What we laid out for you and for everyone to see is just how broad and stable and diversified is this deposit base. We think it's very long-tenured. That's why we're laying out some of these things around just how long the relationships are in consumer and in wealth and in global banking, and it's one of the reasons why...

Alastair Borthwick:

Yeah. If you took a look at Slide number 9, we've tried to lay that out for you. So, you take a look at -- in consumer, for example, you're talking about 67% of the clients have been with us for more than 10 years. That's pretty long-tenured. I know from my time in the commercial bank, our clients on average were 17 years with us. You have long operational deposits in all of these businesses. So, that's what we're trying to lay out in front of everyone, so you can see that.

Alastair Borthwick:

Now, I can't remember where it was.

Alastair Borthwick:

No. I think, look, what I'm trying to convey to you too, Mike, and you know how this works, we've got to balance all of this, because we have to think about the entire balance sheet. And there's a lot going on with the entire balance sheet. And so, what we're trying to do is invest that excess, which has existed now in hundreds of billions for many, many years. We've got to invest it the best way we can. And the way we do that, we talk about balancing it, it's we're -- number one, trying to make sure we grow capital. We've done that. We're up 100 basis points there in the last year. Number two, we're trying to grow liquidity. We added $23 billion in this past quarter. Number three, we're trying to grow earnings. We're at $8.2 billion, it's one of our best earnings quarters ever. So, look, we can always be better. You know that we're taking the portfolio and we're just making it smaller, it's run off now six quarters in a row. We're taking all of that and flowing it into cash and loans. That's what we've been doing. We'll just continue doing that, and the portfolio is going to get smaller and shorter overtime. And when you look at the asset sensitivity now, relative to rates going up 100 or rates going down 100, we're pretty balanced there too. We're sort of up $3.3 billion if rates go up 100. We're down $3.6 billion, if rates go down 100, so we feel like we're in a pretty balanced place and lot of flexibility at this point.

Alastair Borthwick:

Well, I think, if you look at the value proposition that we're talking about, if you go to the consumer business, for example, we've invested so much in client experience, whether it's the financial centers, renovation, whether it's the new -- the people that we've added in that business over a long period of time, whether it's the digital, the mobile, preferred rewards, ours is a relationship model and it has been. And if you look then -- like, just think about this quarter, look at the organic growth in consumer again, that's a 130,000 net new checking, 17 quarters in a row. Based on that relationship value proposition, that's what we're attracting. If you go to the wealth management business, this was a record quarter for net new households for Merrill Lynch and a record for the Private Bank, this quarter. That tells you we're offering people something that's valuable. And then, we added 35,000 new bank accounts for people in our wealth management franchise. So, that again is a significant indicator that what we're offering as value to people. And if I were to go back to my old business in business banking and commercial banking, they're adding new logos and new clients over time in a way that we're really happy with right now. So, I think, the ultimate answer is, we are a purpose-driven company who put our clients' interests first. That is helping make their financial lives better. And in this period of time, people want stability and that's what we offer.

Operator:

We'll go next to Glenn Schorr with Evercore. Your line is open.

Alastair Borthwick:

So, we're going to decline, Glenn, to give a specific number. We're pretty confident we saw noticeable flight to safety. And it comes in two parts. Part one is, during a period like March 10th and in around that week or two. And then just the second part that comes with onboarding clients over a period of time, who are trying to move operational accounts here and that takes a while, that has a lag. So, you can think about, we get some of the deposits quite quickly, but relationships take longer time to build and onboard. So, you can see from our numbers, it was improving before the disruption. We've chosen not to put an exact number on it, because there are typical ebbs and flows in any given quarter, leading up especially to a payroll end of quarter. But, generally speaking, I'd say, we were improving anyway. A lot of that is just organic growth, but we obviously benefited.

Alastair Borthwick:

Well, we do use the forward curve, because we feel like it's the most kind of dispassionate assessment with the most information out there in the market from the broader set of people and, importantly, it's not just us making it up. So, we use the forward curve. And I even mentioned during my remarks, things are bouncing around, is it one hike? Is it zero? Is it two cuts? But the sensitivity that we provide around up 100 or down 100 is probably the best we can offer at this stage. And then, depending on how things develop, and they are developing quickly, it will allow you to adjust the model accordingly.

Alastair Borthwick:

Correct. Right now, that's exactly what we've been doing. We've communicated that pretty clearly and that's what we're continuing to do. It just keeps getting smaller and shorter.

Operator:

We'll go next to Steven Chubak with Wolfe Research. Your line is open.

Brian Moynihan:

Good morning, Steven.

Brian Moynihan:

The margin came down largely because you had to sort of incremental hit to the investment side revenue as the markets fell year-over-year, but we'd expect that margin to move back up to its more traditional 20%, 25% to 30%. But you also have to remember, they are a big beneficiary or hit of the elevated payroll taxes and other things in the first quarter, because as a percentage of our compensation in the company, they're not a small amount. So -- but we expect that to move back in the high-20%s. But we have been working on this business to continue to improve the digitization of the services side of it. So, basically, if you think about it, you get [a dollar's worth] (ph) of the revenue and you take about half past the compensation in the financial advisory grids and the other payouts, and then we take the rest of it and convert it to about a 30% deposit, the other half and convert about 30 percentage points or 60% at the profit pre-tax this quarter, down a little bit, because of the payroll. So, we feel very good about where we stand on a relative basis, but one of the things the team continues to work on across Eric and Lindsay and Katy is to drive operational excellence to new level in that business, because we believe that there is still a lot of costs that can come out around the simplicity -- more simple, straightforward products, the delivery of those products, the paper-based usage and things like that. And then, also, remember, we are making investments in advisors. We have 4,000 plus trainees in the businesses across the company, and we believe it the best advisors one is growing at our -- with our own company, and we continue to do that and that's a drag on the P&L that we're willing to take to make sure we have the advisor growth in the future.

Brian Moynihan:

I mean, I think we don't have anything more than you do in a broad sense, but I think, at the end of day, I think this industry has extremely strong capital liquidity and capabilities. We just demonstrated through the pandemic and then through the aftermath of the pandemic and then through inflation and then through a tightening cycle, that hasn't happened before. So, we feel good about where the industry stands, and I think people have to step back and think about it overall. And then, frankly, this industry in the United States is so much stronger than Europe. It has so much capital per square inch, so to speak, than Europe does to get to ratios, which on numbers are lower, but the amount of capital to get there is pretty unbelievable. So, we have twice the capitals of European counterparts of similar size and our ratios are considered to be lower. So, obviously, let's say, pull this together, they got to make sure they aren't counting the beans in different ways or the gold plating and other things in the United States. So, hopefully, people will start to see the wisdom and making sure they are careful here and we'll see that play out, but we don't have any special understanding.

Operator:

We'll take our next question from Matt O'Connor with Deutsche Bank. Your line is open.

Alastair Borthwick:

It's a little bit of both, Matt. You've got -- first quarter is just normally a seasonal build for us, so that happens, and a little bit of borrow. And you're right, it doesn't impact NIM, because you can invest it in cash three-way and there's no drag there, but it may hurt NOI slightly at the margin by a little bit.

Alastair Borthwick:

Correct.

Brian Moynihan:

I think, we saw in the first part of the quarter -- first quarter, being a little bit -- a little bit softer and then we saw it kick back up in March. So far in April, it's still early. It's probably a little lower than it was for the month of March, but it's a couple of weeks since. So, we got to be a little careful about that just due to the different ways vacations fall and things like that. So -- but it's -- over the course of last year, the total spending year-over-year increases have slowed down and I think that means that's a precursor to the economy being a little bit slower and that we're seeing and then frankly consumers being more careful in the use of the cash, because the cash in their accounts -- in our accounts, especially for the lower income cohorts continues to build honestly. From peak last April, it fell down a little bit all the course of the year, and it's built back up in the first part of this year. So, we'll see that play out. There's been a delay in some of the tax returns as you know this year that pushes them from quarter-to-quarter, but stay tuned. I think, it's a little early to call, but it is a little softer in the first part of the April here.

Operator:

We'll go next to Vivek Juneja with J.P. Morgan. Your line is open.

Alastair Borthwick:

Yeah. I'd expect it to slow over time, Vivek, because we're getting pretty close now to Q4 '19 levels anyway, which was the last peak. And, also, if you think about the big driver, it tends to be global banking. And as rates are rising, clients are doing their rotation, but we're getting towards the end of the hikes now, we would think. So, you'd anticipate there'll be a little bit of a lag there. But, generally speaking, I'd expect it to slow at some point and I think we're probably getting close now.

Alastair Borthwick:

I can do, but I'm going to need to follow-up with you afterwards, because I don't have it in hand.

Alastair Borthwick:

But I don't think you're going to find anything there other than sort of typical geographic distribution similar to the way we serve our customers around the United States.

Operator:

We'll go next to Gerard Cassidy with RBC. Your line is open.

Brian Moynihan:

Good morning. How are you doing?

Alastair Borthwick:

Well, I think, if you were to take that same metric on the downside, it would be -- probably, be down $3.6 billion for down 100, just to give some idea. And what's happening now is, obviously, as the interest-bearing piece just continues to rise across the company, we've got a hedge now as rates, if and when they start to go back down, it won't be a complete hedge, but it'll be a little bit of a hedge there. And then, you also get something back in terms of global markets NII, that will start leading back positively. So, there's some puts and some takes, but we'll see how that develops over the course of the year.

Brian Moynihan:

It would always include those results. Those come through continuously. It's -- there's not -- Gerard, there's a change over time, that's a continuous set of things they look at and we always do well on that. And when we say macroenvironment, remember, this business set is credit across the world. So, there's places that we finished up on cleaning up. That allowed us to lease some reserves on one side and then we got to other places that we would have put up reserves, but at the end of the day the overall credit quality here is very strong and very stable.

Alastair Borthwick:

And you asked the question in commercial, correct?

Alastair Borthwick:

Yeah, okay. So, I mean, I think, just a couple of things going on. Number one, we didn't have any real loan growth. Number two, the asset quality remains terrific. Number three, the macro environment when you look at the blue-chip consensus was ever so slightly better. So, we felt like we were pretty well provided for already. And then, on the commercial side, we had a little bit of exposure run-off in one or two places where we may have been reserved quite conservatively. So, it was all those things added together.

Alastair Borthwick:

Well, their profitability remains in a good place. Cash flows remain in a good place. I think, corporate America learn something from 2009 and 2008. And so, leverage is in a good place. You add all that up, you got a decent environment overall for the economy and that's where we are with respect to credit quality. So, we'll have to watch that over time. But as of right now, it's in terrific shape.

Operator:

Our next question comes from Betsy Graseck with Morgan Stanley. Your line is open.

Alastair Borthwick:

Good morning, Betsy.

Alastair Borthwick:

Well, look, we don't really have a significant change to our risk appetite. We haven't changed our client selection. Those are largely speaking design to be through the cycle. We will obviously adjust on specific concerns about asset quality performance in the sector or outlook. But, I'd say, with respect to our loan growth, it -- what we're seeing at more is, as the Fed raises rates, those rates are changing our customer demand. So, we just don't see as much demand right now for securities-based lending or mortgage, but it's less about credit tightening or standards, it's more about just Fed doing and having the effect that you would expect.

Brian Moynihan:

Well, I think, as always, that's the cohort of pre-pandemic compared to where they were then and now. And they had been sort of bounce around and it leveled for the last six months and they moved up a little bit. This is the time they do move up, because of the tax returns and other things and year-end payments and stuff. But they clearly are going -- they basically are stable from November, December, January. They started increasing in February and then they bounced up a little bit. So, we'll see where it ends up. The clear message is, despite people having said these consumers are spending down their money, it would be out of these balances in mid-2022 or the third quarter, they clearly are still sitting with a fair amount of money in account relative to pre-pandemic times.

Brian Moynihan:

Yeah. So, Erica, obviously, the basic concept was built for us a number of years -- four or five, six, seven years ago starting and came out -- came into the business. It is a predictive language type of program, where you put in question and then it answers it, but we had to do a special language to make sure it would work with our business, it wasn't a general. So, we did that. Then put us in a condition to start to deploy to our customers, because it's captive to our data, where it's just looking our systems, finding information and giving to clients is really a service capability. And what we've seen is that increase is a clear indicator of how valuable these types of artificial intelligence, natural language processing, predictive technologies can be for customer service and things like that. We've also taken Erica internally and applied it to help us do work and we've seen it have those benefits. Ultimately, we think this has extreme benefits for our company. We think it has a lot -- and you've seen this written about in the computer coding areas. In other words, it could speed up the process of what they used to be called object programing. That goes on. We think it has a lot to do in terms of allowing teammates to work much more quickly and efficiently with our systems and get information out and can make, even someone like me, the ability to do analytics, that I could -- I'd have to send to somebody and have them put, key it in the systems. So there's a lot of value to this. The key question will be, when can you use it without the fear of -- with the -- the reason why a lot of it stopped in our industry and other industries was, it wasn't clear how it worked. It was your data and the outside world's data and how it would interact and pull stuff out and we have to be careful with that. And then, secondly, we have to understand how the decisions are made, being able to stand up to the -- to our customers' demand for us to be fair and, frankly, follow the laws and rules and regulations on lending. So, I think, all that is good, strong -- it's really important thing. So, we're not a neophyte in this sense, actually operating out there, we understand the value of it, but we will carefully apply it and we see a great value. I don't think it's a great value in the next month, but in the overall sense, it will help us continue to manage the headcount down, which we've been doing this quarter. And, remember, we started this company -- management team started with this company in 2010 with 285,000 and 300,000 people working here and we're running the same size company with 216,000 people or bigger company doing more stuff and so all that's been aided by digitization of which is a potential step function change.

Operator:

We'll take our final question at this time. This is a follow-up from Mike Mayo with Wells Fargo. Please go ahead. Your line is open.

Brian Moynihan:

No, it not -- Mike, I would say, there could be -- the activity in the first quarter was actually higher in some ways, because of the volatility in the trading side and things like that. So, we aren't expecting -- we're expecting to get scale and operating leverage across activity taking less dollars to do it in the OpEx and the work we do. We had built-up more people, largely because the fear of last year of the turnover rate that is now gone in half in a year, requires us to be hiring a lot to stay ahead of it and then when it slowed down, we built-up people and we're bringing that back down in line. But there is no -- the expenses frankly are just managing the headcount carefully, because that's two-thirds of the expense base and getting more leverage out of the activities. But there's no -- yeah, we'll have more checking accounts, we will have more credit card accounts, we'll do more wires on a given day, we'll do more trades on a given day, and that can ebb and flow, but, overall, we're expecting activity continue to rise. Now, well, loan demand, i.e., people want to borrow another $10 versus the $10 ahead, that's what we say slows down. So that doesn't -- yeah, that's -- but that's not -- that they don't have a loan is that they borrow different amounts of money.

Brian Moynihan:

No, in the investment spend, we're spending, we increase this year versus last year $300 million to $400 million in pure initiative spending and that's going through the run rate as we speak, and we aren't -- we wouldn't cut that, because we think to the point of Betsy's comment, it gives us a chance to continue to leverage the franchise and nowhere is that more evidenced in our consumer business, where the numbers of branches year-over-year are down a few 100 again. Customers are bigger, more stuff's going through, customer delights were an all-time high, attrition is an all-time low, and that's what makes that franchise valuable as you well know and that's by continuing to invest in new capabilities at all-time.

Brian Moynihan:

[Candace] (ph) and research teams have been consistent to see after the Fed raises rates this amounts, there would be a, recession they have a mild recession and at that day predicted basically say 0.5% to 1% negative -- annualized negative GDP growth in Q3 and Q4 and Q1 and then back to positive. So I think, in the end of the day, we don't see activity on the consumer side slowing at a pace that would indicate that, but we see, commercial customers are being more careful and things like that. But everything points to relatively mild recession, given the amount of stimulus that was put -- that was paid the people and the money they have leftover, the fact that unemployment is still at 3.5% -- full employment plus. And then the wage growth is slowing in tipping over, so the size of inflation are tipping down but, they're still there, but that translates into good -- relatively good activity. So we see it as a slight recession and we'll see what happens, but we built this company across the last decade even in a stress scenario is that you'll see somewhere in the slides last quarter we didn't reduce because they're the same answer, our stress scenarios are always less than anybody else, because how we built the company through the go through recessions, without a problem, including the pandemic.

Operator:

And at this time, I'd like to turn the program back over to Brian Moynihan for any additional or closing remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.

Lee McEntire:

Thank you. Good morning. Welcome. Thank you for joining the call to review the fourth quarter results. I know it’s a busy day with lots of banks reporting, and we appreciate your interest. I trust everybody has had a chance to review our earnings release documents. They’re available, including the earnings presentation that we’ll be referring to during the call, on the Investor Relations section of the bankofamerica.com website. I’m going to first turn the call over to our CEO, Brian Moynihan, for some opening comments, and then ask Alastair Borthwick, our CFO, to cover some other elements of the quarter. Before I turn the call over to Brian, let me 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 actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website. Information about our non-GAAP financial measures, including reconciliations to U.S. GAAP can also be found in our earnings materials that are available on the website. So with that, take it away, Brian.

Alastair Borthwick:

Okay. Thanks, Brian. And let me start with the balance sheet, and I’ll use slide 13 for this. During the quarter, our balance sheet declined $23 billion to $3.05 trillion, driven by modestly lower global markets balances. Our average liquidity portfolio declined in the quarter, reflecting the decrease in deposits and securities levels. And that $868 billion, it still remains $300 billion above our pre-pandemic levels. Shareholders’ equity increased $3.7 billion from the third quarter as earnings were only partially offset by capital we distributed to shareholders and roughly $700 million in redemption of some preferred securities. We paid out $1.8 billion in common dividends. And we bought back $1 billion of shares, which was $600 million above those issued for employees in the quarter. AOCI was little changed in the quarter as a small benefit from lower mortgage rates was more than offset by a change in our annual pension revaluation. With regard to regulatory capital, our supplementary leverage ratio increased to 5.9% versus our minimum requirement of 5%. And that obviously leaves capacity for balance sheet growth and our TLAC ratio remains comfortably above our requirements. Okay. Let’s turn to slide 14 and talk about CET1, where, as you can see, our capital remains strong as our CET1 level improved to $180 billion and our CET1 ratio improved 25 basis points to 11.2%. That means in the past two quarters, we’ve improved our CET1 ratio by 74 basis points as we’ve added to our management buffer on top of both our current and 2024 requirements. So, we can walk through the drivers of the CET1 ratio this quarter, and you can see earnings net of preferred dividends generated 43 basis points, common dividends used 11 basis points, and gross share repurchases usage 6 basis points. And while the balance sheet was down, loan growth drove a modest increase in RWA using 3 basis points of CET1. So, we were able to support our loan growth and return capital and add to our capital buffer in the same quarter. Let’s spend a minute on the loan growth by focusing on average loans on slide 15. And here, you can see average loans grew 10% year-over-year, driven by credit card and commercial loan improvement. On a more near-term linked-quarter basis, loans grew at a slower 2% annualized pace just driven by credit card. The credit card growth reflects increased marketing, enhanced offers and reopening of our financial centers, delivering higher levels of account openings. Mortgage balances were up modestly year-over-year, and linked quarter were driven by slower prepayments. Commercial growth reflects a good balance of global markets lending as well as commercial real estate and to a lesser degree, custom lending in our private bank and Merrill businesses. Turning to slide 16 and net interest income. On a GAAP non-FTE basis, NII in Q4 was $14.7 billion, and the FTE NII number was $14.8 billion. Focusing on FTE, net interest income increased $3.3 billion from Q4 of ‘21 or 29%, driven by a few notable components. First, nearly $3.6 billion of the year-over-year improvement in NII was driven by interest rates. Year-over-year, the average Fed funds rates has increased 359 basis points, driving up the interest earned on our variable rate assets. Relative to that Fed funds move, the rate paid on our total deposits increased 59 basis points to 62. And focusing just on interest-bearing deposit rates paid, the increase is 91. So, even while Fed funds rates have increased 140 basis points more than the last cycle, at this point, our cumulative pass-through percentage rates still remain lower in this cycle. That includes an increase in the pass-through rates in the past 90 days due to the unprecedented period of rate hikes. Included in the rate benefit was $1 billion improvement in the quarterly securities premium amortization. Long-term interest rates on mortgages have increased 345 basis points from the fourth quarter of ‘21, which has driven down refinancing of mortgage assets and therefore, slowed the recognition of pre-amortization expense recognized in our securities portfolio. The second contributor is loan growth. Net of securities paydowns, and that’s added nearly $400 million to the year-over-year improvement. And lastly, partially offsetting the banking book NII growth just described was higher funding costs for our global markets inventory. Now, that is passed on to clients through our noninterest market-making line, so it’s revenue neutral to both sales and trading and to total revenue. And as you can see in our material, Global Markets NII is down $660 million year-over-year. Okay. Turning to a linked quarter discussion. NII is up $933 million from the third quarter, driven largely by interest rates. That $933 million increase included a $372 million decline in our global markets NII. The net interest yield was 2.2%, and that improved 55 basis points from the fourth quarter of ‘21. Nearly 30% of that improvement occurred in the most recent quarter with the primary driver being the benefit from higher interest rates, which includes a 13 basis-point benefit from lower premium amortization. As you will note, excluding global markets, our net interest yield was up 89 basis points to 2.81%. Looking forward, I would make a couple of comments. As I do every quarter, let me provide the important caveats regarding our NII guidance. Our caveats include assumptions that interest rates in the forward curve materialize, and we anticipate card loans will decline seasonally from holiday spend paydowns, and otherwise, we expect modest loan growth. We expect a seasonal decline in global banking deposits and that the other deposit mix shifts experienced in Q4 may continue into the first quarter in the face of more rate hikes. We also expect the funding cost for global markets to continue to increase based on higher rates. And as noted, the impact of that is recognized and offset in noninterest income, so it’s revenue neutral. So, starting with the fourth quarter NII of $14.8 billion, and assuming a decline of roughly $300 million of global markets NII in Q1, which would be similar to the fourth quarter decline. That would get us to a Q1 number around $14.5 billion. In addition, we have to factor in two less days of interest, which is about $250 million. So, that would lower our starting point to $14.25 billion. We believe the core banking book will continue to show the benefit of rates and other elements and can offset most of the day count. So, we’re expecting Q1 NII to be somewhere around $14.4 billion. Beyond Q1, with increases in rates slowing and if balances continue their recent stabilization trends expect less variability in NII for the balance of 2023. Okay. Let’s turn to expense, and we’ll use slide 17 for the discussion. Q4 expenses were $15.5 billion, and they were up $240 million from Q3, driven by an increase in our people and technology costs. In addition, we also saw higher costs from our continued return to work and travel and cost of client engagement. We’ve seen pent-up demand for our teams gathering back together in person to drive collaboration and to spend more time with our clients. Inflationary pressures continued but our operational excellence improvements as well as the benefits of a more digitized customer base helped offset those pressures. Our headcount this quarter increased by 3,600 from Q3. And as we faced increased attrition in 2022, our teams were quite successful in their hiring efforts to continue to support customers. As the attrition slowed in the fall, our accelerated pace of hiring outpaced attrition, leaving us with growth in our headcount. As we look forward to next quarter, I would just remind everyone that Q1 typically includes $400 million to $500 million in seasonally elevated payroll taxes. And Q1 will also be the first quarter to include the costs of the late October announcement by regulators of higher FDIC insurance costs. And as a result of holding the leadership share in U.S. retail deposits, that will add $125 million to each of our quarterly costs or total of $500 million for the year. We expect these things will put expenses around $16 billion in the first quarter before expectations that they should trend back down again over the course of 2023. On asset quality, we highlight credit quality metrics on slide 18 for both our consumer and commercial portfolios. And since Brian already covered much of the topics on asset quality, I’m going to move to a discussion of our line of business results, starting with consumer on slide 19. Brian noted the earlier organic growth across checking accounts, card accounts and investments were strong again this quarter, and that’s as a result of many years of retooling and continuous investments in the business. So, let me offer some highlights. At this point, we have the leading retail deposit market share. We have leadership positions among the most important products for consumers, and we’re the leading digital bank with convenient capabilities for consumer and small business clients. We also have a leading online consumer investment platform and a great small business platform offering for our clients. And importantly, when you combine all these capabilities with improved service, at this point, customer satisfaction is now at all-time highs. And we produced another strong quarter of results in consumer banking that resulted in $12.5 billion in net income in 2022. For the quarter, consumer banking earned $3.6 billion on good organic growth and delivered its seventh consecutive quarter of operating leverage, while we continue to invest for the future. Note that our top line grew 21%, while expense grew 8%. The earnings impact of 21% year-over-year revenue growth was partially offset by an increase in provision expense, and that provision increase reflects reserve builds this period compared to a reserve release in the fourth quarter of 2021. Net charge-offs increased as a result of the card charge-offs that Brian noted earlier. While this quarter’s reported earnings were up 15% year-over-year, pretax pre-provision income grew an even stronger 36% year-over-year. So that highlights the earnings improvement without the impact of the reserve actions. Revenue improvement reflects the fuller value of our deposit base as well as deepening with our deposit relationships. I’d note the growth also includes a decline in service charges of $335 million year-over-year as our insufficient funds and overdraft policy changes were in full effect by the end of Q2 of this year. And as a result of those policy changes, we continue to benefit from the better overall customer satisfaction and the corresponding lower attrition and the lower costs associated with fewer customer complaint calls, obviously, as a result of fewer fees. The 8% increase in expenses reflects business investments for growth, including people and technology, along with costs related to reopening the business to fuller capacity. And remember, much of the Company’s minimum wage hikes and quarter two increased salary and wage moves impacts consumer banking the most of our lines of business and therefore, impacts most the year-over-year comparisons. We also continued our investment in financial centers. For the year, we opened 58 and we renovated 784 more. And against all of that, both digital banking and operational excellence helped us to pay for investments and that allowed us to improve the efficiency ratio to 47%, an impressive 600 basis-point improvement over the year-ago period. Before moving away from consumer banking, I want to note some differences to highlight just how much more effectively and efficiently this business is running since even just before the pandemic. It’s easy to lose sight of how well this business is operating from an already strong position in 2019. And you can see some of the stats on slide 17 in the appendix. We can best summarize by noting we’ve got $318 billion more in deposits, 10% more checking customers, 92% of whom are primary, 28% more investment accounts. And absent the card divestitures, we’ve increased the amount of new card accounts by 4%, and our payment volumes are 36% higher. We’re servicing those customers with 387 fewer financial centers because of our digital capabilities, and it’s allowed us to need 10% fewer people to run the business. Our combined credit and debit spend was up 35%. Digital sales increased 77%, and we sent and received 3 times the number of Zelle transactions. All of this allowed us to run the business with fewer employees and lower our cost of deposits ratio below 120 basis points. Moving to slide 20. Wealth management produced strong results, earning $1.2 billion on good revenue and 29% profit margin. This led to full year records for both revenue and net income of $21.7 billion and $4.7 billion, respectively. This was an especially good result given the nearly unprecedented negative returns of both, the equity and the bond markets at the same time this year. The volatility and generally lower market levels put pressure on certain revenues in this business again in Q4, but what helps differentiate Merrill and the private bank is a strong banking business at scale with $324 billion of deposits and $224 billion of loans. So, despite a 14% decline in asset under management and brokerage fees year-over-year, we saw revenues hold flat with the fourth quarter of ‘21. Our talented group of wealth advisers, coupled with powerful digital capabilities, generated 8,500 net new households in Merrill in the fourth quarter, while the private bank gained an impressive 550 net new high net worth relationships in the quarter, both were up nicely from net household generation in 2021. We added $20 billion of loans in this business since Q4 of ‘21, growing 10% and marking the 51st consecutive quarter of average loan growth in the business despite securities-based lending reductions related to the current market environment. That’s consistent and sustained performance by the teams. Our expenses declined 1%, driven by lower revenue-related incentives, partially offset by investments in our business. Moving to global banking on slide 21. And you can see the business earned $2.5 billion in the fourth quarter on record revenues of $6.4 billion, pretty remarkable given the decline in investment banking fees during this year. Lower investment banking fees, higher credit costs and a modest increase in expenses were mostly offset by stronger NII and other fees. So overall, revenue grew 9%, reflecting the value of our global transaction service business to our clients and our associated revenue growth, while investment banking fees declined a little more than 50%. The company’s overall investment banking fees were $1.1 billion in Q4, declining $1.3 billion year-over-year in a continued tough market. Still, we increased our ranking in overall fees for the full year 2022 to number three as we’ve continued to invest in the business. The $612 million increase in provision expense reflected a modest reserve build of $37 million in the fourth quarter compared to a $435 million release in the year ago period and pretax pre-provision income grew 13% year-over-year. Expense increased 4% year-over-year, and that was driven by strategic investments in the business, including hiring and technology. Switching to global markets on slide 22. And as we usually do, I’ll talk about the segment results, excluding DVA. You can see our fourth quarter record results were a very strong finish to a good year. The continued themes of inflation, geopolitical tensions and central banks changing monetary policies around the globe continue to drive volatility in both bond and equity markets and repositioning from our clients. And as a result, it was another quarter that favored macro trading, while our credit trading businesses improved also spreads fared better than the prior year. Our fourth quarter net income of $650 million reflects a good quarter of sales and trading revenue, partially offset by lower shares of investment banking revenue. And it’s worth noting that this net income excludes $193 million of DVA losses this quarter as a result of our own credit spread movements. Reported net income was $504 million. Focusing on year-over-year, sales and trading contributed $3.7 billion to revenue, and that improved 27%. That’s a new fourth quarter record for this business, vesting the previous one by 21%. And at $16.5 billion in sales and trading for the year, it marked the best in more than a decade. FICC improved 49%, while equities was up 1% compared to the quarter a year ago. And the FICC improvement was primarily driven by growth in our macro products, while credit products also improved from a weaker Q4 ‘21 environment. We’ve been investing continuously over the past year in our macro businesses. We’ve identified those as opportunities for us. And again, we’ve been rewarded for that this quarter. Year-over-year expense increased about 10%, primarily driven by investments in the business. Finally, on slide 23, we show all other, which reported a loss of $689 million, and that was consistent with the year ago period. For the quarter, the effective tax rate was approximately 10%, benefiting from ESG investment tax credits and certain discrete tax benefits. Excluding those discrete items, our tax rate would have been 12.5%. And further adjusting for the tax credits, it would have been 25%. Our full year GAAP tax rate was 11%, and we would not expect 2023 to be a lot different. So with that, we’ll stop here, and we’ll open it up please for Q&A.

Glenn Schorr:

Hi. Thanks very much. Need a little more help, you gave a lot, but I need a little more help on NII for 2023. You walked us to the $14.4 billion on starting point on the quarter and your words were less variability in NII for the rest of ‘23. So, I guess, my question is, you got a lot of loan growth, you have a few more rate hikes hopefully coming through, and I understand the opposite. The flip side of that is deposit migration, some outflows and betas. But could you fill in those blanks? Because I think -- I won’t speak for everybody. I know I am -- we’re still expecting some growth in NII for the calendar year. So, maybe you could talk through some of those pieces and maybe the outflow in global banking, noninterest-bearing is a big piece of it. So, thank you.

Glenn Schorr:

Fair enough. I feel bad for all of us. Maybe a quick one on credit. Good to see charge-offs down given everything that’s going on in the world. But can you talk through the big -- the $1.6 billion sequential pickup in criticized book from last quarter? What’s driving that and how you feel about reserves against that? Thanks.

Alastair Borthwick:

Just remember that we’re talking about office with very high-quality underwriting characteristics, all A Class, et cetera. And so we just have a conservative rating process, frankly. And it’s well viewed out there and well looked at by many people. But remember, office is $14 billion to $15 billion of the total portfolio. So, we feel very comfortable where we are. And then, obviously, we built reserves against the portfolios across the board that are strong and reflect, as I said earlier, basically a mild recession in the base case and the worst recession in the adverse case that we wait 40%.

Gerard Cassidy:

Thank you. Alastair, on the loan loss reserving and Brian just talked about the adverse case being about 40%. Can you guys share with us how much of the reserve building is what may be referred to as management overlay relative to what the models are specifically dictating on reserve building?

Gerard Cassidy:

Very good, Brian. And then when you look at your deposit behavior of the consumer, the past cycles, is there any material differences in the way they’re moving money around or not moving money around from their checking accounts or low-yielding savings accounts?

Gerard Cassidy:

Just quickly, Brian, just when you look at the high net worth and corporate, did that move from 0% to 3% Fed funds, for example, versus 3% to where we got today at 4.5%? Is most of that completed where the people that were going to move the money have already moved it in those two categories?

Operator:

We’ll take our next question from Mike Mayo with Wells Fargo. Please go ahead.

Alastair Borthwick:

Yes. So Mike, if I go back to six months ago, quarter two earnings, what we said at the time was we thought over the course of the next six months, NII might go up by $1.8 billion, $1.85 billion. In actual fact, it’s gone up $2.25 billion. So, that’s the actuals. Remember, we’re forecasting as best we can at any given time, up $2.25 billion. Q3 was more favorable than I think we had thought and Q4 was less favorable. And the Q4 was less favorable in large part because the balances behaved just a little bit differently, and the rate paid behaved just a little bit differently. And the mix or rotation, if you like, that behaved a little differently. It kind of makes sense because Q4 is where QT kind of kicked in. So look, we don’t have a great deal of precedent. It’s obviously a historic period. It’s difficult to forecast quarter-to-quarter, and it’s -- our models are just a lot more sensitive right now. So, I think we’re going to try and share with you what we know when we know it, but it’s just a more difficult environment at this point to predict looking forward.

Brian Moynihan:

On the first thing, Mike, you -- it was something I was going to pick up on earlier to the first question. You picked up it going to the point -- we will have growth in NII year-over-year in the range you talked about, if you take the $14.4 billion, as Alistair said, we expect it to sort of be less variability and annualize that, compare that to ‘22 of 9% as you said. So, you’re exactly right. So that’s good growth. And I think you’ll see as you move through the year ‘23, leave aside the economic scenario playing out. But you’ll see -- you’ll move from where we are today, which is uncertainty about where the balances will finally settle in and the plateauing of those balances to where you get back to normalized growth and normalized loan growth, et cetera. So, you’ve got it right. There’ll be nice NII growth year-over-year. On expenses, if you look at your guys’ estimates for us, 62.5%, which is what we sort of said earlier this -- in the fourth quarter, we’re comfortable with that. That’s what the average of the Street analysts are. And that takes a lot of good management to get there, and we’ll continue to work on it, letting the headcount drift back down and continuing to invest in things that provide efficiencies. So, you’ve got it. And key to that is the six quarters of operating leverage and the idea of continuing that going.

Brian Moynihan:

We’ve always said that the first desire is always to support business growth, and that’s what we’ve been doing. We then -- we’re well above our minimums. We’re on a path to close out the requirement for next year. And so, we bought back a chunk of shares this quarter, you expect that to start to increase neutralizing employee issuances and then going above that each quarter now because we -- 11.2% something, we were close to 11.4% targets. So, we’re back in the game.

John McDonald:

Alastair, I know we’re asking you to predict a lot of things here. Just thinking about the credit and the pace of normalization, do you have any sense of where charge-offs kind of might start out there and what kind of pace of normalization if we look at the charge-off ratio that moved up a little bit this quarter, what might that look like for 2023?

John McDonald:

Okay. And you touched on this a little bit on Brian’s comments, but just on loan growth, what are you guys thinking about for this year? And what’s the perspective of where you closed the spigots a little bit in the third quarter as you managed RWA. You kind of said those were opening up in the fourth, but we didn’t really see it translate to robust loan growth. Just kind of that dynamic between what you’re looking to do and what you’re seeing on demand for loan growth outlook. Thank you.

Operator:

We’ll go next to Erika Najarian with UBS. Please go ahead.

Brian Moynihan:

I think, I’ll put all those questions together in one answer. If you go the page that’s in the report where we sort of say, look at the difference between the consumer business in ‘19 and now. And it’s something to be excited about because we have -- during a period of time where we were completely shut down in branches like 2,000, open back up. We actually went down from 4,300 branches to 3,900 branches. We built out in a lot of new cities. We still have work. We have 10% more checking accounts. The customer favorability is an all-time high. Our small business part of that business is the biggest in the country and growing. And you look at that, and that provides a great anchor, which provides that great stable deposit base, we show you on the slide where we show that base. It also provides a lot of very low-cost deposits. And as rates rise and materialize that. And then if you think what happened last cycle, for a year when rates did not move up, we continue to grow deposits in the consumer business in the mid-single-digits, which just is infinite leverage. And so, that’s something to be excited about from not only a customer side, where we’re digitized and Zelle usage is going up. Erica usage is going up -- Erica, meaning our Erica, not you, Erika. But the -- and the balance of the consumer investments open up 7% more accounts in a year where investment world was choppy. And then you pair that into the wealth management business, same thing, one of the biggest deposit franchise in the country, biggest -- 3-point-something trillion high, $3 trillion of assets, growing net households at the fastest rate it’s grown in a long, long time, maybe history, growing advisers. Those are things to get excited. That’s the organic growth engine in the company. You got to put that against the backdrop of a plateauing of NII, which is basically what Alastair said sort of think about less variability around the $14.4 billion starting number, which might be annualized and did math. And so, did the math and made it out, but that provides us a good base of which to drive forward. And so, you really got to get through the economic uncertainty and then all those things will start to bear. Meanwhile, the trading business, which we invested in a couple of years ago now at its best fourth quarter ever and Jimmy and the team are doing a good shape. And so, I -- we just feel good about the overall franchise, more customers, more of each customer, and then that provides a big stable base, which is rate increases slow down, the marginal impact of it will slow down until we see the good core loan and deposit growth, which you saw after rate -- the last rate rising increase stopped and produced the 20 quarters of operating leverage or -- and things like that. So, that’s pretty good to be excited about. Because bank growing its franchise and they are -- growing solid economy in the world at a faster rate than anybody else is pretty interesting.

Brian Moynihan:

The scenario of rate cuts and rate rises, we basically use blue chips. So, I’m not sure. It depends on what’s causing that. So if it’s a normalization of the rate curve back to say, 3% at front end, 4.5% at the back end or something like that. That’s different than what you saw when they had to cut rates for the pandemic or after the financial crisis and left in there for years to get the engine of the United States economy restarted. What’s different this time, frankly, and that’s what we’re talking about the consumer data is even with a strong rise in interest rates, a less tight labor market, and inflation and what people are being told to worry about, you’re actually seeing consumer spending consistent with a good 2% growth environment, a low inflation environment, which is good because the consumer is being appropriately conservative right now.

Operator:

We’ll go next to Ken Usdin with Jefferies.

Alastair Borthwick:

Yes. So most of the increase in securities portfolio, we’re not really reinvesting in there at this point as the securities portfolio started declining. We’re using the money that’s throwing off to put it into loans. That’s always our first preferred place. So, you’re picking up on the right thing. It’s mainly the treasuries that are in there, they’re swapped to floating. That way, we don’t have any capital impact from rising rates. And so, you’re going to see the securities yield just continue to pick up. Number one, based off of the treasuries swap to floating as floating rates go higher. And number two, as the securities come due, there’ll be fewer and fewer of them at lower rates. And so, you’re going to see the pickup over time.

Alastair Borthwick:

Normally, it’s SOFR, secured overnight financing rate.

Alastair Borthwick:

Well, I think Brian said the right things. The strategy hasn’t changed. We’ve got to, number one, support our clients. We’re going to number two, invest in our growth. Then we plan to just sustain and grow our dividend and over time, we’ll balance building capital and buying back shares. I think, the difficult part with Basel III endgame right now is we don’t have the rules. So, we got to wait, I think, until we see those. They’ll go through a comment period. At that point, we’ll offer much more perspective. But I’ll say the obvious, banks have got plenty of capital. We were asked to take 90 basis points more in June. There’s a lot of procyclicality already in things like the stress test and stress capital buffer and in CECL. And I think, look, we’ve shown our ability to perform and build capital, in this case, 75 basis points in two quarters. So, we’ll deal with whatever the ultimate rules come out with.

Matt O’Connor:

Good morning. Have you kind of thought about how to better insulate yourself against potentially lower rates and not just kind of a little bit of a decline, but if we get something unusual and rates drop a lot. I know it’s easier for some of the smaller banks to do it, but we have seen some regional banks essentially trying to lock in a corridor of the NIM, so that kind of medium term it’s more about growing the balance sheet versus the rate moves up and down. And clearly, with your deposit rates low, if we do get Fed cuts, there’s just not as much leverage to bring down those rates.

Operator:

We’ll take our next question from Betsy Graseck with Morgan Stanley.

Brian Moynihan:

That’s a couple of things. If you look in the fourth quarter, you can see the cards come up, which is seasonal, and that’s going to come down, and that’s one of the things that people tend to pay those down. The usage of those cards frankly, are still at low levels, the pay rate, the way to think about that still in the 30s. So, that’s sort of one thing that’s been kind of consistent through the pandemic. The customers are paying down the card balances. And you expect at some point, those will get back to more normalized paydown rate in the mid-20s. The second is line usage, frankly, has also come back down. It’s not gotten ever back to where it was pre-pandemic, and it moved up and it dropped by 100 or so basis points, which across a lot of lines is a fair amount of loan. So, that you saw. And so, how corporates manage their borrowing and cash and demand cycle seems to be flattening out a little bit. Then obviously, acquisitions and things are way slowed down, so there wasn’t much activity there. So, I think you put it together, then you have in the securities-based business, customers took down leverage, paid off a fair amount of loans in the wealth management business, even though they’ve grown, I think, for 50 some quarters in a row now or something like that in loan balances, it happens, mortgages, obviously, are low. So -- but what we think is as the rate environment settles in, you’ll see that normalize and that we’ll get -- we’ll be back on the mid-single digits. We just won’t have the 10% loan growth year-over-year because that is faster in economy and faster we do. We have not changed credit underwriting standards. And you can see that in the consistency of the origination standards back in pages of the appendix where we show sort of our cars and home equity and things like that. It’s just the demand side is a little soft because people are reading the same headlines we’re all reading about recessions coming and what should -- they should be careful.

Brian Moynihan:

Well, we always have the variable compensation stuff will drop because assuming that the reason why rates are going -- being cut is because economic activities were some people thought. And then you have the general just efficiency movements in the house that we’ve been pretty good at. And then, you have to remember, we try to get people to go off of nominal expense to operating leverage. And so, we have six quarters of operating leverage. As the NII growth slows down, we have to manage a company to produce operating leverage. And so, we’d expect that fees might stabilize and absorb the $1 billion downdraft in quarterly investment banking fees and start to work up from there and other types of things. So, I think we feel very good about the ability to find ways to manage expenses, always have. We slowed down hiring as we came into the fourth quarter, not because, frankly, we were hired -- we’ve gotten our hiring to match the great resignation earlier in the year, and it was sort of overachieving. So, we slowed that down, and that will allow us to get back in the line and start to bring the headcount back down to where we want it to be. But those are, frankly, positions that are relatively -- have a relatively high movement rate and only because of the nature of the job. So we feel good about between very rate compensation, between continue to reduce headcount for efficiency and frankly, just activity levels, in a down scenario we’ll be able to pull the expenses down. But yes, meanwhile, we we’re going to invest $3.7 billion in technology development in ‘23 versus $3.4 billion in ‘22. We continue to add bankers. We had 800 wealth management advisers in the second half of last year, where our training program for those across wealth manage -- all of our wealth management businesses and other trading programs. We continue to hire young talented people. So we’re trying to maintain that balance of continuing to invest in the growth opening in new cities. We’re averaging -- these branches we’re opening are extremely successful when you look at the size of them relative to anybody else’s opening practice. And so, why would you stop that. And yet the total number of branches comes down because we’re managing the expense side. So, we’re paying for this stuff as we go. But -- and so you could slow some of that down and get leverage out of it. But the question would be, as we’re in that scenario, is that the right decision for long-term value creation.

Vivek Juneja:

Thank you. A couple of clarifications on the same NII question. I just want to understand, in your assumption about staying at $14.4 billion through the year on a quarterly basis, are you assuming deposits to continue growing or shrinking? Number one, are you expecting further rotation out of noninterest-bearing to interest-bearing? And do you expect the $14.4 billion number even if there are rate cuts towards the end of the year? Is that number doable even with -- what is it that you’re assuming? Is it even with rate cuts?

Vivek Juneja:

Another -- a different question slightly. You gave the $2,000 to $5,000 deposit cohort, Brian, in terms of where they are in the deposit balances. In the past, you’ve also given a cohort below that, like $1,000 type cohort. Where does -- how is that doing? Can you give any numbers on that?

Operator:

We have no further questions in queue at this time. I’d like to turn the program back over to Brian Moynihan for any additional or closing remarks.

Operator:

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.

Lee McEntire:

Thank you, Kathrin. Good morning. Welcome, I hope everyone had a good weekend. Thank you for joining the call to review our third quarter results. I hope everyone also had a chance to review our earnings documents released earlier this morning. As always, they're available, including the earnings presentation that Brian and Alastair will refer to during the call, on the Investor Relations section of the bankofamerica.com website. I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments, and then I'll ask Alastair Borthwick, our CFO, to cover the details of the quarter. Before I turn the call over to Brian, I'll just remind you that we may make some 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, and they are subject to risks and uncertainties. Factors that may cause actual results to materially differ from expectations are detailed in our earnings materials and the SEC filings that are available on the 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 the website and in the docs. So with that, I'll turn it over to you, Brian. Thank you

Alastair Borthwick :

Thank you, Brian. And I'll start by adding a little more detail on the income statement and refer you to Slide 6 highlights. You can see here revenue of $24.5 billion grew 8% and with NII improving 24% year-over-year, while our fees declined 8%. And I'll cover the NII improvement in just a moment. On noninterest income, the volatility and the levels of market activity drove a year-over-year decline in investment banking and asset management fees, while still some trading benefited from investments made in the business and the volatile market conditions. Additionally, service charges moved lower for two reasons. First, in Consumer, we completed the sweeping changes around insufficient funds and overdraft in June, marking a 90% reduction from June of 2021. Second, our corporate service charges declined as earned credit rates increased for clients and that overwhelmed organic growth in the gross fees associated with treasury management services performed for our clients. Expenses this quarter were $15.3 billion, and they included the settlement of our last large remaining legacy monoline insurance litigation. As you likely saw on October 7, we filed the 8-K announcing a settlement that resolved all of the outstanding litigation with Ambac and that dates all the way back to the 2008 financial crisis. We recorded $354 million in litigation expense this quarter above previous accruals for payment of the settlement. And without that litigation cost, our expense would have been just below the $15 billion mark. Okay. Let's move to the balance sheet and we'll look at Slide 7, where you can see during the quarter, the balance sheet declined $38 billion to $3.07 trillion. That was driven by a $46 billion decline in deposits and coupled with a $53 billion decline in securities. Our average liquidity portfolio declined in the quarter reflecting the decrease in deposits and security levels. At $941 billion, our liquidity still remains $365 billion above pre-pandemic levels, just to give you an idea of just how much our liquidity has increased. Shareholders' equity was stable with the second quarter at $270 billion as earnings were offset by capital distributed to shareholders and the change in AOCI from rate moves. We paid out $1.8 billion in common dividends. We bought back $450 million in gross share repurchases, and that covered our employee issuances in the quarter, leaving no dilutive impact for shareholders. AOCI declined $4.4 billion as a result of the increase in loan rates, and we saw the impact primarily in two ways. First, we had a reduction from a change in the value of our AFS debt securities. That was 1.1 billion, and that impacted CET1. Second, rates also drove a $3.7 billion decline in AOCI from derivatives, and that does not impact CET1. That reflects cash flow hedges mostly put in place last year against some of our variable rate loans, and that protected us against CET1. With regard to regulatory capital, our supplemental leverage ratio increased to 5.8% versus our minimum requirement of 5%, which still leaves plenty of capacity for balance sheet growth and our TLAC ratio remains comfortably above our requirements. Okay. Let's go to CET1 waterfall on Slide 8, and we can talk about that. As you'll recall back in -- last quarter, we talked about our June CCAR results, where our stress capital buffer increased from 2.5% to 3.4%. And that increased our overall CET1 ratio minimum requirement from 9.5 to 10.4 as of the beginning of the fourth quarter. Our capital levels today remain strong with $176 billion of CET1. And through the good work of our teams, we improved our CET1 ratio by 49 basis points compared to June 30, taking us to 11%. That leaves us well above our new 10.4% minimum requirement. So we'll walk through the drivers this quarter. First, it's $6.6 billion of earnings, net of preferred dividends and that generated 40 basis points of capital. And then also importantly, through optimization of the balance sheet, we managed our RWA balances down and that added 26 basis points more of capital ratio improvement. Dividends used 11 basis points of capital. And this quarter, the movement in treasury and mortgage-backed securities rates caused the fair value of our AFS debt securities to decrease, and that lowered our CET1 ratio by 7 basis points. We remain well positioned for the rate movement because of the hedge of a large portion of this portfolio continuing to protect us from AOCI movements while benefiting NII since float -- since swap to floating. So we feel like our teams rose to the challenge well this quarter in terms of increased capital requirements. On Slide 9, we've laid out average loans. And looking at those loans and providing a bit more detail on a year-over-year basis, you can see 12% average growth as commercial loans grew 17% and consumer loans grew 7%. Within Consumer, credit card grew 12%. Focusing on more near-term growth versus the second quarter of '22, our average total loans grew 8% on an annualized basis, led by 12% annualized commercial loan growth and 21% annualized credit card growth, while other consumer loans were relatively flat linked quarter. This slower loan quarter growth included two notable impacts that Brian mentioned. We saw good commercial loan demand, and we also saw FX valuations adjustments as a result of the strong dollar and then some loan sales and syndications that lowered our RWAs. Partially offsetting some of the strong card growth in consumer loans, we sold about $1 billion of residential mortgage loans. Adjusting for the FX impact and loan sales, loan growth from Q2 was closer to the industry's growth rate. Let's focus now on deposits use on Slide 10. And you can see there that our average deposits year-over-year are up 1% at $1.96 trillion. The noninterest-bearing deposits are down 3%, while the interest-bearing are up 4%. So overall, we grew our deposits. And as you would expect in a rising rate environment, we've seen some shifts from noninterest-bearing into interest-bearing, and it's important to understand the makeup of these moves. In Consumer, our total deposits are up 7% year-over-year. These are core and foundational elements of the customers' financial activities. And we've seen growth in both noninterest-bearing and interest-bearing balances and we remain very disciplined on $1.1 trillion of total consumer deposits while Fed funds is now at 3.25. So customers see the value in their total relationship with us through their personalized client engagement and our industry-leading digital capabilities and rewards. We expect that to continue. Do we expect deposit rates to increase? Yes, of course, and we will remain both disciplined and competitive, and that is built into our asset sensitivity. On a linked quarter basis, our consumer deposits moved lower by less than 1%. In Wealth Management, total deposits are flat year-over-year. And again, it's important to understand that as expected, these are the clients who generally have more excess liquidity and have historically saw higher rates, both in deposit accounts as well as movements outside of deposits where we offer alternatives for those clients. While flat year-over-year, within that, we saw a $12 billion decline in year-over-year average deposits on our brokerage platform with some shifts from sweeps to preferred deposits within the platform. Meanwhile, Merrill Bank deposits and deposits with Private Bank have grown $12 billion. The higher-tiered preferred deposit products represent a little more than 20% of the mix of deposits and they're moving largely in line with short-term rates, while the other 80% or so deposit products are paying much lower rates. On a linked quarter basis, we saw total GWIM deposits decline by 7%, further highlighting these trends. In Global Banking, we hold about $500 billion in customer deposits, and we saw a 7% year-over-year decline. In a rising rate environment, where excess balances can be more expensive, we typically see some runoff, particularly in high liquidity environments as clients both use cash for inventory build and begin to manage their cash for yield. And we've seen the mix of interest-bearing deposits move from 30% a year ago to nearly 35%, and we're paying an increased rate on those interest-bearing deposits. Pricing is largely customer-by-customer based on the depth of relationship and many other factors. And again, we're not really seeing anything unexpected here. Betas at this point are still favorable to the last cycle. And as we would just note, relative to the last cycle, the Fed increases have been pretty rapid, and we'd expect to pay higher rates as we continue to move through this rate cycle. It's probably too early to say right now if at the end of that cycle, the percentage of those rate pass-throughs will be similar to the last cycle. Turning to Slide 11 and net interest income. On a GAAP non-FTE basis, NII in Q3 was $13.8 billion, and the FTE NII number is $13.9 million. Focusing on FTE, net interest income increased $2.7 billion from Q3 '21 or 24%, and that's driven by benefits from higher interest rates, including lower premium amortization and from loan growth. Versus the second quarter, NII is up $1.3 billion, driven largely by the same factors, plus an additional day of interest in the quarter. Year-over-year now, average short-term interest rates have increased 200-plus basis points, driving up the interest earned on our variable rate assets while we've maintained discipline on our deposit pricing, and that has driven nearly $1 billion of improvement. Long-term interest rates on mortgages have increased even more than short-term rates, and that's improving fixed rate asset replacement and driving down refinancing of mortgage assets, therefore, slowing the recognition of premium amortization recognized in our securities portfolio. Year-over-year, that premium amortization has improved $1 billion. And additionally, lower securities balances over the past six months modestly offset the benefits of year-over-year loan growth. The net interest yield was 2.06% and that improved 38 basis points from the third quarter of '21. 20 basis points of that improvement occurred in the most recent quarter. And as you will note, excluding Global Markets activities, our net interest yield was 2.51% this quarter. Looking forward, as it relates to NII guidance, I'd like to make a couple of comments. And first, I need to make a couple of caveats. Our guidance is going to assume interest rates in the most recent forward curve and that they materialize, that we see modest loan growth and modest deposit balance changes with market-based deposit pricing increasing baked in. With that said, we expect NII in Q4 to be at least $1.25 billion higher than Q3. So last quarter when we were together, we told you we expected to see consecutive NII increases of about $1 billion in Q3 and another $1 billion in Q4. And that would make a total of $2 billion in Q3 and Q4, given we just put up $1.3 billion in Q3 and that outperformance, and refreshing our expectation for Q4 at $1.25 billion. We're now saying that aggregate quarterly improvement won't be the $2 billion we initially thought, it's increased to around $2.6 billion or more. Turning to asset sensitivity and focusing on a forward yield basis. At September 30, declined $0.7 billion to $4.2 billion of expected NII over the next 12 months, with now roughly 95% of the sensitivity driven by short rates. And on a spot basis, our sensitivity to 100 basis point instantaneous rate hike would be $5.3 billion. Okay. Let's turn to expense, and we'll use Slide 12 for the discussion. Third quarter expenses were $15.3 billion and were flat with the second quarter as litigation costs for our settlement in Q3 nearly offset the fines agreed to last quarter on a comparative basis. And it's nice to bring resolution to these matters. Without the costs associated with the resolutions in both periods, expenses would have been just less than $15 billion. We continue to make steady investments in our people, technology, marketing and financial centers. And what allows us to help pay for these investments are the operational process improvements we've talked about and the increased digital adoption rates by our customers and by our bankers. Our headcount this quarter increased by 3,500. And if we adjust for the release of our summer interns, our headcount is actually up by closer to 5,500. We welcomed 1,800 new full-time associates from college campuses around the world into our company this quarter and we hired another 3,800 net new people on top of that. That included just less than 3,000 across our various lines of business and another 1,000 in staff and support and technology positions to support those lines of business. And with all the great benefits and talented people already at this company and with our great brand, it highlights that Bank of America is a great place to work. As we look forward, we'd expect our fourth quarter expenses will land our full year reported expense at approximately $61 billion. That obviously includes the cost noted for resolving the second quarter and third quarter regulatory and litigation matters. So without that, our expenses are expected to be a little more than the $60 billion level we talked about earlier in the year. And we're proud of our team's discipline around expense particularly in this inflationary environment, while at the same time, we're modestly increasing our level of investment in the company's future and our growth. Turning to asset quality on Slide 13, and I want to start by saying just as Brian did that asset quality of our customers remains very healthy. The net charge-offs of $520 million declined $51 million from the second quarter. That decline was driven by prior period charge-offs associated with the sale of some noncore mortgage loans we discussed last quarter. Absent those losses, net charge-offs were relatively stable with the prior period. Provision expense was $898 million in the third quarter, and that was $375 million higher than the second quarter. And we built $378 million of reserve in the period compared to a modest release in Q2. The reserve build in the quarter primarily reflects good credit card loan growth and a dampened macroeconomic outlook. Even as we build our reserves for the future, this quarter, we saw many of our asset quality metrics continue to show modest improvement as NPLs and reservable criticized both declined from Q2, and you can see that in the supplement. On Slide 14, we highlight the credit quality metrics for both our Consumer and Commercial portfolios. And there's only one point I want to make, looking at this slide and that is delinquencies because our consumer delinquencies remain well below pre-pandemic levels. And as Brian noted earlier, we're watching closely the early-stage card delinquencies as they begin to increase modestly. Lastly, the recent Hurricane Ian impacted some areas where we have strong market shares for many of our businesses, and our teams have spent the past days assessing the damages and insurance coverage down to the loan level. And we've already incorporated that analysis into our reserves for the quarter. We compared our analysis to other large storms in recent years like Sandy, Harvey and Irma where we incurred just a small amount of financial losses. Turning to the business segments, let's start with Consumer Banking on Slide 15. And Brian shared earlier, we've got organic growth across the checking accounts, the card accounts and investments picking up this quarter, not necessarily because of anything we're doing differently in the past 90 days, but as a result of many years of retooling and continuously investing in the business. We have the leading retail deposit market share. We have leadership positions among all of the important products. We're the leading digital bank with tremendous convenience capabilities for consumer and small business clients. We've got a leading online consumer investment platform and the best small business platform offering for our clients. So as a result, customer satisfaction is now at all-time highs, and that is helping us to drive strong financial results. The Consumer Bank earned $3.1 billion on good organic growth and delivered its sixth consecutive quarter of operating leverage while we continued heavy investments for the future. The impact of strong year-over-year revenue growth of 12% was partially offset by an increase in provision expense. And the provision increase reflected reserve builds this period, mostly for card growth versus a reserve release in the third quarter of '21. Our net charge-offs remain low and stable. While our reported earnings were only modestly up year-over-year, pretax pre-provision income grew 12% year-over-year which highlights the earnings improvement coming through without the impact of the reserve actions. Card revenue was solid and increased modestly year-over-year as spending benefits were mostly offset by higher rewards costs. Service charges were down $338 million year-over-year as our insufficient funds and overdraft policy changes were in full effect now by the end of Q2. And because of the scale of the business and the diverse revenue, we fully absorbed that revenue impact and are now more benefiting from the benefits of overall customer satisfaction, lower attrition in our client base and lower cost associated with fewer customer complaint calls associated with less nuisance fees. Expense increased 11% from business investments for growth, including people, digital and marketing along with costs related to opening the business to fuller capacity. Much of the company's increased salary and wage moves in the quarter impact Consumer Banking the most. We also continued our investment in financial centers, opening another 16 in the quarter while we renovated nearly 200 more. Both digital banking and operational process improvements are helping to pay for those investments. And as revenue grew, we've improved the efficiency ratio to 51%. Moving to Slide 16. Wealth Management produced strong results, earning $1.2 billion, and that's a particularly strong result given both equity and bond market levels. If they remain unchanged for the rest of the year, this would be only the first time since 1976 that both equity and bond markets were down for the year. Now the volatility and generally lower market levels have put pressure on revenue in this business. And what's helping to differentiate Merrill and Private Bank right now is a strong banking business; in this case, to the tune of $339 billion of deposits and $224 billion of loans. So while many of our brokerage peers faced declines in revenue and margin, we've seen year-over-year revenue growth of 2% and a margin of 29%, driving the sixth straight quarter of operating leverage. And we saw enough revenue growth from banking products in Q3 that more than offset declines in assets under management and brokerage fees. Our talented group of financial advisors, coupled with our powerful digital capabilities, allowed modern Merrill to gain 5,200 net new households and the Private Bank gained 550 more in the quarter, both up nicely from net household generation in 2021. We added $24 billion of loans since Q3 of '21, growing 12% and this marked our 50th consecutive quarter of average loans growth in the business, consistent and sustained performance. Assets under management flows were $4 billion in the quarter and $42 billion since this time last year. Expenses increased 2%, driven by continued client facing hiring and higher other employee-related costs as our advisors are increasing their in-person engagement with clients, and that's partially offset by lower revenue-related incentives. On Slide 17, you'll see our Global Banking results, where we earned $2 billion in Q3 on strong revenue growth as higher NII more than offset lower noninterest income. Earnings were down year-over-year, driven in large part by the absence of a prior period reserve release. Our 7% revenue growth is quite healthy given the more than 40% decline in investment banking fees, coupled with lower leasing revenue. While the company's overall investment banking fees declined $1 billion year-over-year in a continued tough market, investment banking fees did improve modestly from Q2 and the teams did a nice job of holding on to our number three ranking in overall fees in a tough environment. Otherwise, in fees, we saw a decline in corporate service charges as enterprise credit rates rose with increased rates, and that outpaced the growth in gross treasury service fees generated from new and existing clients. I'd also remind you that GTS benefits greatly from the NII off of deposits that more than offsets this. So our year-over-year total GTS revenue was up 44%. We also had lower leasing related revenue comparatively. The provision expense increase reflected a reserve build of $144 million in Q3 '22 compared to a $789 million release in the year ago period. And with regard to expenses, they increased 5% year-over-year, driven by continued investments in the business. For example, in Commercial Banking, our strategic hiring over the years has just continued to increase our quality and prospect [calling] efforts. Switching to Global Markets on Slide 18. And as we usually do, we'll talk about segment results, excluding DVA. Inflation, continued geopolitical tensions and the changing monetary policies of central banks around the world continue to drive volatility in both the bond and equity markets. As a result, it's another quarter that favored macro trading while credit trading businesses faced the continued challenging market environment with wider spreads and recession concerns. So the third quarter net income of $1.1 billion reflects a good quarter of sales and trading revenue. Focusing on year-over-year, sales and trading contributed $4.1 billion to revenue, improving 13%. FICC improved 27% while equities declined 4%. The FICC improvement was primarily driven by growth in our macro products, while our credit traded products were down. And we've been investing heavily over the past year in several macro businesses that we identified as opportunities for us, and we were rewarded this quarter. The decline in equities was driven by lower client activity in Asia and a weaker performance in cash, partially offset by good performance in derivatives where we saw increased client activity. Year-over-year expense declined, reflecting the absence of costs associated with the realignment of liquidating business activity that we took in the fourth quarter of '21, and the business generated a 10% return in the third quarter. Finally, on Slide 19, we show All Other, which reported a loss of $281 million, declining from the year ago period, driven by the litigation settlement that I noted earlier and higher tax expense. On income tax expense, I just want to mention one thing that made our tax rate a little higher this quarter, and that is with the recent passage of the Inflation Reduction Act of 2022. Among other things it incorporated, there is a change that allowed solar energy investments to elect production tax credits versus upfront investment tax credits. And those production tax credits have the potential to earn more credits over the expected life of the production facility. So as a result, our third quarter tax expense is approximately $150 million higher due to the net reversal of tax credits accrued for 2022 solar deals taken in the first half of 2022 that were recognized under initial investment tax credits at the time and we were placed with production tax credits. So a little impact this quarter but net benefit to the shareholder over time. This drove the effective tax rate a little higher this quarter to more than 14%, still obviously benefiting from our ESG investment tax credits. And excluding the impact of ESG tax credits, tax rate would have been approximately 24%. Given the change noted for solar investments, we expect the fourth quarter tax rate to be similar to the third quarter tax rate and we’ll examine the further effects of these changes and how they impact full year 2023 and report on that next quarter. And with that, I'm going to stop there and open it for Q&A.

James Mitchell :

Maybe just on NII. I think there's a lot of uncertainty around deposit behavior, betas, what the catch-up rate could be with deposit pricing. But you guys indicated that you do -- you're still pretty asset sensitive. So how do you think about the trajectory of NII next year? Can it kind of keep growing from sort of the Q4 level through next year?

James Mitchell :

Assuming forward curve is realized? Sorry.

James Mitchell :

On 4Q run rates.

James Mitchell :

Okay. And then maybe as a follow-up, you guys have done a pretty great job on hedging AOCI risk and the AFS book. My understanding is that the -- those are sort of delayed start swaps. Is there a material benefit coming from those swaps in the fourth quarter and beyond, how we think about?

Operator:

We'll go next to Erika Najarian with UBS.

Brian Moynihan :

So Erika, we continue to invest heavily along multiple dimensions, people, technology restructuring all the physical plant, marketing. And so -- but yes, through the core operational excellence, discipline this company has and has shown, as I said earlier, seven years later, we have the same number of people. The company is a lot bigger than it was in 2015. And so we continue to reposition money from things we can eliminate the work by the engineering and work and the technology investments that we make enabling the customer uses that technology and pile back into the production side of the company. And so we don't -- I think if you think about just this year's third quarter '22 versus third quarter '21, if you take out the litigation, there's about $600 million increase in expenses year-over-year, $100 million of that is marketing. Another chunk is -- another couple of hundred million dollars is technology. This is quarterly, not annually, quarterly numbers. And then on top of that, the amount of physical plant change in that time is huge, not only in our branches, but all over our company. So we feel strong. We continue to increase investments, technology will go up 15% this year versus being '23 versus '20 and those expense numbers we're giving you, but we pay for it by not investing and hoping something happens. We expect the things to fructify in near term and bring forward the fruit and drive the expense efficiencies and effectiveness. And that's how we can take the managers in that time period I gave you the headcount slot, the managers came down 10,000 people in that period of time. We invested all in frontline people to help serve our clients.

Brian Moynihan :

So we bought back shares this quarter and still grew the capital. Our job is to drive our company to serve our customers in that first order of business for our capital has always helped the growth in the balance sheet, especially on the lending and market side. And so you should expect that buybacks will continue to increase. But remember, we are now sitting above what we are supposed to be sitting at on 1/1/2024. And so next year is already here. So obviously, the trade between building the buffer up a little bit more, as you said, from where we are now to [50] basis points over the requirement is a little bit different. We already exceeded the requirements. So we'll put a little bit towards the buffer. We'll support the organic growth a little bit towards a buffer and the use of rest to send back to you guys.

Glenn Schorr :

I'm curious, you -- as your capital build was -- thanks to RWA mitigation, you mentioned no loss days in the quarter despite all this market volatility. So I think you mentioned some loan sales. I don't know if that has to do some of the levered loans working off book. So I wonder if you could talk about RWA mitigation going forward and including that, what's left in delivered loan book to distribute?

Glenn Schorr :

It was awesome. I appreciate that. And I guess, very much related, you've just touched on it a little bit. But I'm curious, you’re a prime and super prime bank in consumer lend, you gave us enough details. I know how you're thinking about growth there. On the commercial side, given what we're all facing in this potential real buzz of the economy, how do you approach risk and what business to take on? I don't know if you could include in that thought what kind of maturity wall you're looking at on the commercial side of the book?

Operator:

The next question comes from John McDonald with Autonomous Research.

Alastair Borthwick :

Well, on the loan side, I'd say we talked about at the beginning of the year that we thought loans would be high single digits, and we've slightly outperformed that, obviously. This quarter was a little bit of a 90-day reset for us in some ways. You didn't see that so much in consumer because the card growth just came through. And in commercial, certainly, we probably held up back just a touch. So we think we'll resume that sort of high single-digit, maybe mid if things begin to slow a little bit. So we've got that in our forecast, we sort of resume the path that we've been on. With respect to deposits, I'd say on betas, obviously, we're just increasing those because we've got to be competitive in this environment. And around balances, I think there's a sense that the industry will be flattish, maybe down. We think we're going to outperform the industry ever so slightly. So that's what's largely baked into our assumptions at this stage.

Alastair Borthwick:

Yes. So the securities portfolio runs off at about $15 billion a quarter. It was a little more this quarter because we actually had an opportunity to sell some securities that offset some gains, some losses and freed up some RWAs. So we took advantage of that this quarter. And so the securities number this particular quarter was a little larger. But I think on an ongoing basis, John, you should assume that we've got $15 billion that just comes in. And then broadly, we've got $175 billion of cash at the Central Bank and we got another couple of hundred billion of stuff that's mostly treasury swap to floating. So we've got lots of ways to pay for loans growth in the future.

Brian Moynihan :

Yes, I think we said at. Yes, it includes the litigation. And the next year, we said, yes, basically -- yes, this year includes litigation. The next year, we said at some point, we'll get back to the 1% to 2% rise. We'll just have to see how some of the ins and outs play in terms of some of the stuff running off this year still left over then. But look at the 15.3% for three quarters in a row. Honestly, each quarter has had a little bit of something in it. John, if you think about the first quarter when we had [FICA] and that type of stuff and the second quarter had regulatory [exempts to core] obligations. So we're bouncing around low 15s. We expect that run rate to kind of hold.

Michael Mayo :

I'd like a little bit more detail on how you add employees and resources for the additional revenues. From the second quarter to the third quarter, your profit margin on the new revenues was 100%. I mean, revenue is up $2 billion, expenses up zero. Clearly, that's not sustainable. But I would like you to, if you can tie that into Slide 22, more digital users and sales Zelle, Erica, 1 billion interactions. Your headcount is not growing a whole lot. How long can you keep that going? And theoretically, all this digitization over the past few years equates to like how many employees or how much in expenses or what's a terminal efficiency level relative to the past?

Alastair Borthwick :

Mike, I think it's -- we don't necessarily translate it into that sort of idea of how many more people this digital replacer productivity metrics. But if you look at by different line of business, you just take consumer for a moment, if 50% of our consumer sales now are taking place digitally, you almost think about that being the equivalent of 4,000 more financial centers. And it turns out if you get 35 million people banking in the pocket with a mobile phone, makes a big difference.

Brian Moynihan :

Yes. That's -- we said it last quarter and I hope that proved it true there to what you asked about last quarter. one thing Mike to think about is, go back and look at the consumer page in the deck, you'll see the cost of deposits, which is the overall cost of all the stuff against deposit basis continues to basically be 110 basis points, 120 basis points, which is down from 300 basis points 15 years ago. And that is extremely leverageable. And by the way, the profit margins on back up to 30% and drive them through it. So we're letting that NII pull through, which then drives those numbers in.

Brian Moynihan :

The consumer -- if you go to the page on deposits, there's only one -- there's a distinguishing fact that goes on a consumer at our company and generally, which really drives up the tremendous value proposition we have to be the core transaction, core relationship bank for our customers. And if you look at Page 10, you can see that the interest checking noninterest-bearing accounts, the dollar volume of deposits as a total percentage of deposits are a very high percentage, and that's where we focus on. And that allows you -- those are zero or very low rates because the amount of services that come around them. They access to 3,900 branches to the call centers to the digital platform to the ability to resolve payments, et cetera, et cetera. And that's what drives it. So it's a -- the beta is a product of a mix more than it is a product of any pricing strategy. Zero based -- zero interest -- noninterest bearing checking or zero in any rate environment.