Bank of America Q4 2024 Earnings Report

Bank of America EPS Results

• Actual EPS: $0.82
• Consensus EPS: $0.77
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $0.70

Bank of America Revenue Results

• Actual Revenue: $25.30 billion
• Expected Revenue: $25.12 billion
• Beat/Miss: Beat by +$183.36 million
• YoY Revenue Growth: +15.00%

Bank of America Announcement Details

• Quarter: Q4 2024
• Date: 1/16/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 16, 2025
• Conference Call Time: 11:00AM ET

Bank of America has a rich history dating back to 1800 and even earlier. It was begun by immigrants as a group of separate and unrelated banks that, over the years, merged and grew together. One such is the Bank of Italy which was founded in 1904 by Amadeo Giannini to serve Italian immigrants that were facing discrimination. He later buys out the Banca de America e de Italia (Bank of America and Italy) which was also located in San Francisco. Over the years additional mergers and changes in Federal banking legislation, as well as the boom brought on by WWI and then WWII, helped boost the bank to national prominence.

Things turned sour, however, in 1998 with a major bond default that led to yet another merger, this time with Charlotte, NC-based Nations Bank to officially become the Bank of America that exists today. At the time, the merger was the largest bank merger in history and the company has only grown in the time since.

Other additions to the new Bank of America include MBNA (a major credit card operator), Fleet Boston (then the US 7th largest and one of its oldest banks), and Merril Lynch, now Merril, which was added to the group in 2008 to provide an investment banking branch. Together the company dominates as one of the Big Four Banks in America. Bank of America lays claim to nearly 11% of all US deposits which ranks in line with its peer group and Bank of America Securities is listed as the world’s 3rd largest investment bank.

Today, Bank of America (NYSE:BAC) provides banking and financial services for individuals, small businesses, institutions, corporations, and governments worldwide. The bank operates in three segments Consumer Banking, Global Wealth & Investment Management, and Global Banking bringing in a combined revenue greater than $90 billion in 2022.

As of 2022, Bank of America serves approximately 67 million consumer and small business clients with approximately 4,200 retail financial centers. The bank also operates more than 16,000 ATMs and digital banking platforms with approximately 41 million active users.

Its Consumer Banking segment offers traditional banking and investment products for retail clients. These range from deposit accounts to savings, credit cards, consumer loans, and IRAs. The Global Wealth & Investment Management segment offers investment and wealth management solutions including, brokerage, banking, and trust and retirement products. The Global Banking segment provides lending products and services, including commercial loans and leases for businesses of all varieties. The Global Markets segment offers market-making, clearing, settlement, and custody services, as well as risk management, derivatives, and FX exchange services.

Bank of America Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, everyone, and welcome to today's Q4 Bank of America Earnings Announcement. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded. And I will be standing by should you need any assistance.

[Operator]

It is now my pleasure to turn the conference over to Lee McIntyre. You may begin.

[Lee McEntire, Head of Investor Relations & Local Markets Organization at Bank of America]

Good morning. Thank you. Welcome. Thank you for coming to the call to discuss our Q4 results. Our earnings release documents are available on the Investor Relations section of the bankofamerica dot com website, and they include the earnings presentation that we'll make reference to during this call.

[Lee McEntire, Head of Investor Relations & Local Markets Organization at Bank of America]

I hope everyone's had a chance to review the documents. Our CEO, Brian Moynihan, will make some opening comments before Alistair Borthwick, our CFO, discusses the details of the quarter. Let me just remind you before we start 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 the assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in the earnings materials and the SEC filings available on our website.

[Lee McEntire, Head of Investor Relations & Local Markets Organization at Bank of America]

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, I'm happy to turn the call over to Brian.

[Brian Moynihan, Chairman & CEO at Bank of America]

So good morning, everyone, and thank you for joining us. Before we begin today, I just want to express our deep concern for our communities, clients and teammates impacted by the California wildfires. Our top priority, of course, is ensuring the safety and welfare of our team and helping our clients and customers. Our imperturbable market President, Raul Anaya, is leading our team out there. We have teams on the ground assisting in any way we can and are monitoring the situation to extend support and resources.

[Brian Moynihan, Chairman & CEO at Bank of America]

So far, we have activated our client assistance program, donated $1,000,000 in disaster relief to the American Red Cross, additional contributions to the LA Food Bank and the LA Chamber of Commerce Small Business Efforts. With that, let's turn to earnings starting on Page 2 of the presentation. This morning, we reported $6,700,000,000 in net income. That is 0 point EPS for the Q4. That was a solid finish to another good year at Bank of America.

[Brian Moynihan, Chairman & CEO at Bank of America]

We grew revenue on a year over year basis in every category in quarter 4. We saw good loan and deposit growth. And Alistair is going to walk you through some of the details of the quarter in a moment, but I want to thank our team for another great year. For the full year of 2024, we generated $102,000,000,000 of revenue and reported net income of $27,100,000,000 of EPS of $3.21 We produced 83 basis points return on assets and 13% return on tangible common equity. We generated these results working from a strong balance sheet that allowed us to support clients and economies continue to grow.

[Brian Moynihan, Chairman & CEO at Bank of America]

The economy appears to be now settled into 2% to 3% GDP type growth environment. It has healthy employment levels in the resilient consumer. The immacency of the American consumer can be seen in our data. So far in the 1st 2 weeks in January, they're spending money at 4% to 5% clip over last year, similar to what they did in the Q4. And on our business side, the clients are profitable, they're liquid and seeing good productivity.

[Brian Moynihan, Chairman & CEO at Bank of America]

We ended the year with $953,000,000,000 of liquidity. We also ended with $201,000,000,000 of regulatory CET1 capital and a CET1 ratio of 11.9%, leaving us nearly 115 basis points of excess capital as we begin 2025. For Bank of America, the year was characterized by a few important highlights that played out as expected and were consistent with our communications to you throughout the year. First, we saw net interest income bottom out at $13,900,000,000 on an FTE basis in the Q2 of 2024. We ended the year with the 4th quarter on the same FTE basis at $14,500,000,000 Then that was a bit better than we expected.

[Brian Moynihan, Chairman & CEO at Bank of America]

This obviously provides a great starting point for 2025 and based on the assumptions Alistair is going to discuss a little later, we should report record NII in 2025. So how did we do that? We drove organic growth in all the businesses and that we have highlighted on Slide 3. We saw continued growth in net new checking, new households, new companies in commercial banking, growth in our institutional markets business. This organic activity enables us to grow loans and deposits at a pace we believe is to be ahead of our industry average and our peers.

[Brian Moynihan, Chairman & CEO at Bank of America]

A key for us obviously is the growth in our deposit franchise. If you look at slide 4, you can see we've now grown deposits for 6 consecutive quarters. In the most recent quarter, we saw growth in consumer balances and stability of our non interest bearing balances across all the businesses. We continue to price in a disciplined manner and rates paid moved lower this quarter across the board. Overall rate paid on deposits moved from 210 basis points in the 3rd quarter to 194 basis points this quarter and were lower in the 4th quarter and were lower in every business segment.

[Brian Moynihan, Chairman & CEO at Bank of America]

On the loan side, consumer loans grew in every category linked quarter. Commercial loan demand continued to build off the strengths we saw in Q3 of 2024 and commercial loans grew 5% year over year for the Q4 at a much faster annualized pace when comparing the Q3 to the Q4 of 2024. So back to slide 3, in our Wealth Management business we added 24,000 new households in 2024. We ended the year with $6,000,000,000,000 in total client balances that we manage for people in America across our global wealth and consumer businesses. Our consumer investments team, what we call Merrill Edge, crossed a new milestone this quarter and now sits in excess of $518,000,000,000 in balances.

[Brian Moynihan, Chairman & CEO at Bank of America]

Investment Banking gained share of industry revenue in 2024. Our sales and trading team put up the 11th straight quarter of year over year revenue growth and achieved a new full year record of nearly $19,000,000,000 in revenue. Asset quality stabilized and remained strong with net charge offs declining modestly from Q3. Earlier in the year, we highlighted that our expectation on consumer credit is that they would stabilize to normal level. And on commercial office losses, they would trend down during the year.

[Brian Moynihan, Chairman & CEO at Bank of America]

We saw both those trends continue into quarter 4. On the expense side, we continue to invest in our franchise. And even though spending increases in brand, people and technology and strong fee growth which drove incentive and transaction processing costs higher, we managed to create operating leverage in the Q4. Our digitalization engagement expanded across all our business. We saw more than 14,000,000,000 logins to our digital platforms in 2024.

[Brian Moynihan, Chairman & CEO at Bank of America]

Our Erica capability surpassed 2,500,000,000 interactions from its inception. And our CashPro app surpassed $1,000,000,000,000 in payments made through the app in 2024. It's also worth noting that digital sales in our consumer product areas crossed 60% in the 4th quarter again. You can see all these trends in our industry leading digital disclosure on slides 26, 2830 in the appendix. All this success and balance sheet straight allowed us to deliver more capital back to our shareholders.

[Brian Moynihan, Chairman & CEO at Bank of America]

We returned $21,000,000,000 of capital to shareholders in 2024, which was 75% more than 2023 and included an 8% increase in the common dividend. So in summary, for both the Q4 and for the year, we enjoyed good profitability, we drove healthy returns, we saw good organic client activity across all the businesses, we continue to manage the risk well and increase the capital delivered back to our shareholders and we positioned ourselves well for growth in 2025.

[Brian Moynihan, Chairman & CEO at Bank of America]

I want

[Brian Moynihan, Chairman & CEO at Bank of America]

to again thank my team for continuing to drive another year of responsible growth. And with that, I'll turn it over to Alistair.

[Alastair Borthwick, CFO at Bank of America]

Thank you, Brian. And I'm going to start on Slide 5 of the earnings presentation because it will provide just a little more context on the quarter. For the Q4, as Brian noted, we reported CHF 6,700,000,000 in net income or CHF 0.82 per share. And before we talk about comparisons between periods, I just need to remind you that our Q4 2023 GAAP net income number included 2 notable items. In the Q4 of 'twenty three, first, we recorded $2,100,000,000 of pretax expense for the special assessment by the FDIC to the industry to recover losses from the failures of Silicon Valley Bank and Signature Bank, and that reduced EPS last year by $0.20 Second, we recorded a negative pretax impact to our market making revenue of approximately $1,600,000,000 related to the cessation of Bisbee as an alternative rate, and that reduced earnings per share last year by $0.15 So when you adjust for the large FDIC assessment and the Bisbee cessation charge, Q4 'twenty three net income was $5,900,000,000 or $0.70 per share.

[Alastair Borthwick, CFO at Bank of America]

On Slide 6, we note some of the highlights of the quarter, and we reported revenue of $25,500,000,000 on a fully taxable equivalent basis, up 15% from the Q4 of 2023. And if you exclude the Q4 2023 bispe cessation charge, our revenues grew 8% year over year. As Brian said, all the revenue items are showing improvement year over year. NII grew 3%, investment banking grew 44%. This quarter, our CHF4 billion of sales and trading revenue marked a 4th quarter record and it grew 10 percent from the year ago period.

[Alastair Borthwick, CFO at Bank of America]

And investment brokerage fees rose 21% with both assets under management flows and market levels contributing nicely to the growth. Our card income and service charges grew 7%. Non interest expense was CAD16,800,000,000 and was up when adjusted for the FDIC special assessment driven by incentives paid for the strong revenue growth, as Brian noted, and the related activity cost that comes with that. Expense also included additional investments in people, technology and brand with some major partnerships announced recently. And it included what we expect to be the peak in quarterly costs associated with enhancing our compliance costs and controls.

[Alastair Borthwick, CFO at Bank of America]

The good news is we created operating leverage in the quarter. Provision expense for the quarter was $1,500,000,000 and was consistent with the previous 2 quarters. And lastly, returns in the 4th quarter were 80 basis points of ROA and 13% return on tangible common equity. Turning to the balance sheet on Slide 7. We ended the quarter at 3.6 sorry, dollars 3,260,000,000,000 of total assets, down $63,000,000,000 from the 3rd quarter, driven by seasonally lower levels of client activity in global markets, while loans across the businesses grew $20,000,000,000 in the quarter.

[Alastair Borthwick, CFO at Bank of America]

Otherwise, in the quarter, the investments of our excess liquidity saw a $9,000,000,000 reduction in hold to maturity securities. And at the same time, the combination of shorter term liquidity investments of cash and available for sale securities increased $28,000,000,000 On the funding side, total deposits grew $35,000,000,000 on an ending basis as both interest bearing and non interest bearing grew. Long term debt fell $14,000,000,000 driven by net redemptions and valuations and global market funding declined in line with assets. Liquidity remains strong with $953,000,000,000 of global liquidity sources. That is up modestly compared to the 3rd quarter, even as we paid down some debt and retired some preferreds.

[Alastair Borthwick, CFO at Bank of America]

Shareholders' equity was flat at around $295,000,000,000 And within all of that, we returned $5,500,000,000 of capital back to shareholders with $2,000,000,000 in common dividends paid and the repurchase of $3,500,000,000 in shares this quarter. Tangible book value per share of $26.58 rose 9% from the Q4 last year. Turning to regulatory capital. Our CET1 level improved to CAD201 1,000,000,000 and the CET1 ratio rose to 11.9%, remaining well above our new 10.7% requirement. Risk weighted assets increased modestly as increases in loans were mostly offset by lower RWA supporting our global markets client activity.

[Alastair Borthwick, CFO at Bank of America]

Our supplementary leverage ratio was 5.9% versus a minimum requirement of 5%, which leaves some capacity for balance sheet growth and our €460,000,000,000 of total loss absorbing capital means our TLAC ratio remains comfortably above our requirements. Let's turn to Slide 8. We can go a little deeper on loans by looking at average balances. And loans in the Q4 of $1,080,000,000,000 improved 3% year over year, driven by solid commercial loan growth. Overall, commercial loans grew 5% year over year.

[Alastair Borthwick, CFO at Bank of America]

And importantly, this included an 8% drop in commercial real estate loans. Commercial loans excluding commercial real estate grew 7% year over year and the consumer loans grew modestly both linked quarter and year over year. As Brian said, on a linked quarter basis, every category of consumer lending grew and you can see that at the bottom of Slide 8. If we turn our focus to NII performance and use Slide 9, regarding NII on a GAAP non fully taxable equivalent basis, NII in Q4 was 14,400,000,000 on a fully taxable equivalent basis, NII was $14,500,000,000 Several quarters ago, we signaled our expectation that NII would trough in the Q2 of 2024 and begin to grow from there. And this represents now our 2nd quarter of NII growth, and we expect that growth to continue in 2025.

[Alastair Borthwick, CFO at Bank of America]

In fact, if you look at the 2 quarters after the inflection point, NII is already growing at a 5% rate. 4th quarter NII on a fully taxable equivalent basis increased by $399,000,000 from the 3rd quarter, driven by a number of factors. First, it was led by improvement in deposits across the businesses. And even as deposit balances increased linked quarter, our interest expense on those deposits declined by 600,000,000 dollars Loan growth and fixed rate asset repricing also benefited us again this quarter. With regard to a forward view, interest rate expectations continue to drive volatility and predictability, but we'll provide some thoughts for future NII.

[Alastair Borthwick, CFO at Bank of America]

We expect to start the year in the Q1 with NII modestly higher than the 4th. Remember that the Q1 has 2 fewer days of interest, and that's roughly the equivalent of about $250,000,000 of NII equivalent. So even with that, we expect to grow modestly. Then we expect that growth to increase through the year to the point where it could be 6% to 7% higher in 2025 than 2024. We expect to exit the year at least €1,000,000,000 higher in the 4th quarter, and that would put us in a range of €15,500,000,000 to 15,700,000,000 on a fully taxable equivalent basis, and that's obviously significantly higher than the Q2 'twenty four trough of €13,900,000,000 I have to note the following assumptions.

[Alastair Borthwick, CFO at Bank of America]

First, we assume that the current forward curve materializes. And while the interest rate curve has changed significantly over a fairly short period of time, as of the 10th January, the curve was expecting only one rate cut in 2025 that may come in May or June. Based on our more recent growth experienced, we're assuming loan and deposit growth in 2025 that's higher than 2024 and more consistent with growth in a 2% to 3% GDP environment. The other elements of anticipated growth in NII expected are the benefits of asset repricing as fixed rate securities and loans and swaps roll off and those get repriced at higher rates. And those themes all remain consistent with our prior conversations with you in the last several earnings calls.

[Alastair Borthwick, CFO at Bank of America]

With regard to interest rate sensitivity, on a dynamic deposit basis, we provide a 12 month change in NII for an instantaneous shift in the curve, above or below the forward curve. And on that basis, a 100 basis point increase would benefit NII by roughly $1,000,000,000 while a decrease of 100 basis points would decrease NII over the next 12 months by $2,300,000,000 Lastly, note that our slide showing the trended investment of excess deposits is in our appendix. It's on Page 21. Deposit levels grew to $870,000,000,000 over loans at the end of Q4, and that's an incredible source of value for shareholders. And $649,000,000,000 or 54% of our excess liquidity is now in short dated cash and available for sale securities.

[Alastair Borthwick, CFO at Bank of America]

The longer dated lower yielding hold to maturity book continues to roll off and we continue to reinvest in higher yielding assets. Okay, let's now turn to expense and we'll use Slide 10 for the discussion. We reported $16,800,000,000 in expense this quarter and the Q4 of 2023 included the large FDIC special assessment charge and excluding that expense increased. The increased expense from prior periods was driven by a number of factors and was partially offset by a roughly $300,000,000 release of prior period accruals for the FDIC special assessment. Let's talk about the drivers of the expense.

[Alastair Borthwick, CFO at Bank of America]

First, in regard to revenue, our markets related businesses of Investment Banking, Investment and Brokerage and Sales and Trading. Those were up 20% year over year. Incentives for the firm were up 15% versus the Q4 of 'twenty 3 and were in large part related to these markets related revenue streams. On investments that we made, we added bankers and advisers across most of our businesses in 2024, and we also increased investments in our brand with significant sponsorships like the Masters and FIFA to name a few. And we increased our investments around technology as well as financial centers.

[Alastair Borthwick, CFO at Bank of America]

This quarter alone, we added 17 financial centers with 9 of those in our new expansion markets. We're a growth company and we continue to invest in our future. As far as headcount goes, we've managed our headcount carefully and we've held it fairly flat through the 4 quarters of 2024 at around 213,000 people. Lastly, we incurred additional costs to accelerate work on compliance and controls. As you likely saw in late December, the OCC issued a compliance consent order to Bank of America and that's a result of exams done more than a year ago.

[Alastair Borthwick, CFO at Bank of America]

This order is about correcting or enhancing certain deficiencies in some aspects of our processes that existed at the time. The order doesn't limit any of our growth plans and the order acknowledges we began taking corrective actions before the order was announced. And as a result of the work in process, we increased our resources substantially in the second half of twenty twenty four and those costs are already embedded in our quarterly run rate. Okay. Let's go back to expense and how to think about a forward view.

[Alastair Borthwick, CFO at Bank of America]

First, most importantly, we remain focused on growing the company and driving operating leverage. 2nd, we expect the Q1 to include some normal seasonal elevation, and we believe this amount will be roughly $600,000,000 to $700,000,000 primarily for payroll tax expense. So we think $17,600,000,000 is a good number to expect for Q1 before seasonally declining in Q2. And that's all part of our expectation that expense should be roughly 2% to 3% higher in 2025 compared to 2024. Let's now move to credit and turn to Slide 11, where you can see net charge offs of a little less than $1,500,000,000 improving modestly compared to Q3.

[Alastair Borthwick, CFO at Bank of America]

That's the 4th quarter now that net charge offs are around $1,500,000,000 We've seen consumer losses in a pretty stable range of $1,000,000,000 to $1,100,000,000 over those past few quarters. And on the commercial side, we saw losses of $359,000,000 which is down from the 3rd quarter, driven by the continued decline in commercial real estate office losses. The net charge off ratio this quarter was 54 basis points, down 4 basis points from the 3rd quarter. We don't see overall net charge offs or the related ratio changing much in 2025. Without much change in current GDP or the employment environment, we expect the net charge off ratio to be in the range of 50 to 60 basis points of loans for 2025.

[Alastair Borthwick, CFO at Bank of America]

Q4 provision expense was €90,000,000 lower than Q3 at €1,500,000,000 as reserve levels remained constant. And as it relates to reserve levels on a weighted basis, we reserve for an unemployment rate a little below 5% by the end of 2025, and that compares to the most recent 4.1% rate reported. On Slide 12, we highlight the credit quality metrics for both consumer and commercial portfolios and there's nothing really noteworthy here that I want to highlight on this page. So let's move to the various lines of business, starting on Slide 13 with Consumer Banking. That business made nearly $11,000,000,000 or 40% of the company's earnings in 2024.

[Alastair Borthwick, CFO at Bank of America]

In the 4th quarter, consumer banking generated $10,600,000,000 in revenue and $2,800,000,000 in net income. Both grew modestly from the Q4 of 'twenty three as fee improvement for card and service charges is now being complemented by the growth in NII. Consumer Banking continued to deliver strong organic growth with high quality accounts and engaged clients, and they achieved a new record of client experience scores in December. The organic growth activity noted on Slide 3 includes more than 200,000 net new checking accounts, which now takes us to 6 years' worth of quarter after quarter growth. And we show another strong period of card openings and investment account growth.

[Alastair Borthwick, CFO at Bank of America]

Investment balances grew 22 percent to $518,000,000,000 with full year flows of $25,000,000,000 and market improvement throughout the year. Expense rose 8% as we continued investments in our business. The biggest story in Consumer this quarter is deposits because these are the most valuable deposits in the franchise. And in the last 6 months, we believe we've seen the floor begin to form after several periods of slowing decline. Consumer banking deposits appear to have bottomed in mid August at around CAD 928,000,000,000 and ended the year at CAD952,000,000,000 on an ending basis.

[Alastair Borthwick, CFO at Bank of America]

Looking at averages, you can see then the deposits grew CAD 4,000,000,000 from the 3rd quarter to CAD 942,000,000,000 all while our rate paid declined to 64 basis points. Finally, as you can see in the appendix, Page 26, digital adoption and engagement continued to improve and customer satisfaction scores rose to record levels illustrating our clients' appreciation of enhanced capabilities from these investments. On Slide 14, we move to Wealth Management, where the business had a very profitable year, generating $4,200,000,000 in earnings from nearly $23,000,000,000 in revenue. In 2024, our Merrill Lynch and Private Bank Advisors added another 24,000 net new relationships. And the professionalism of these teams earned them numerous best in class industry rankings, as you can see on Slide 27 in the appendix.

[Alastair Borthwick, CFO at Bank of America]

With a continued increase in banking product usage from our investing clients, the diversity of revenue in the Wealth business continues to improve. The number of GWIM clients that now have banking products with us continues to grow. And at this point, it represents more than 60% of our clients. Importantly, about 30% of our revenue remains in net interest income, which complements the fees earned in our advice model, and those have also grown. Net income rose 15% from the Q4 of 2023 to nearly $1,200,000,000 In the 4th quarter, we reported revenue of $6,000,000,000 growing 15% over the prior year and led by 23% growth in asset management fees.

[Alastair Borthwick, CFO at Bank of America]

While expenses were up year over year, they grew slower than revenue creating the operating leverage in the business. Business had a 26% pre tax margin and generated a strong return on capital of 25%. Average loans were up 4%, driven by growth in custom lending, securities based lending and a pickup in mortgage lending. Deposits grew 2% from the 3rd quarter and the teams were quite disciplined on pricing of those deposits. Both Merrill and the private bank continued to see strong organic growth and that helped to produce excellent asset under management flows of $79,000,000,000 this year, reflecting a good mix of new client money as well as existing clients putting money to work.

[Alastair Borthwick, CFO at Bank of America]

We also want to draw your attention to the continued digital momentum that you'll find on Slide 28. Because, for example, 3 quarters of Merrill Bank and brokerage accounts were opened digitally this quarter. Slide 15 shows the Global Banking results. And this business generated $8,100,000,000 or 30% of the company's earnings in 2024, and it continues to be the most efficient business in the company at less than 50% efficiency ratio. The business saw a nice rebound in investment banking fees in 2024, which we expect to continue in 2025.

[Alastair Borthwick, CFO at Bank of America]

In Q4, Global Banking produced earnings of $2,100,000,000 Pretax pre provision results were flat year over year as improved investment banking fees offset lower NII and higher expense. The total earnings were down 13% year over year driven by higher provision expense that came as a result of prior period reserve release. Investment banking fees were CAD1.7 billion in Q4, growing 44% year over year. This was led by mergers and acquisitions. We also saw strength across debt capital markets fees, mostly in leverage finance and in equity capital markets fees.

[Alastair Borthwick, CFO at Bank of America]

And we finished the year strong, maintaining our number 3 investment banking fee position. The 4th quarter saw strong momentum as the election results provided a lift to sentiment for a more pro business climate and expectations for more deals to be completed. Expense in this business increased 6% year over year, driven by the 13% growth in non interest income and continued investments in people and technology. The balance sheet saw good client activity, and it was muted somewhat by the strength of the U. S.

[Alastair Borthwick, CFO at Bank of America]

Dollar. Year over year flatness in global banking loans includes this foreign exchange impact and the $6,000,000,000 decline in commercial real estate from pay downs. Otherwise loans in Global Banking were up 2%. Profits have been growing for many quarters now with our commercial and corporate clients. And total global banking deposits are now up 10% year over year, reaching a new record.

[Alastair Borthwick, CFO at Bank of America]

So we're seeing strong growth across all the categories from our corporate and commercial clients, all the way from the larger end to business banking on the lower end. And we also saw 10% growth in our international deposits. Turning to global markets on Slide 16. I want to focus my comments on results, excluding DVA as we normally do. Our team continued their impressive streak of strong revenue and earnings performance.

[Alastair Borthwick, CFO at Bank of America]

They achieved operating leverage and they continued to deliver a good return on capital. For the year, record sales and trading results of nearly $19,000,000,000 grew 7% from 2023, and they've been growing consistently now on a year over year basis for almost 3 years. This led to $5,700,000,000 in full year profits and represents more than 20% of the company's full year results. In the 4th quarter, earnings of $955,000,000 grew 30% year over year. Revenue, and again this is ex DVA, improved 15% from the Q4 of 2023 as both sales and trading and investment banking fees improved nicely year over year.

[Alastair Borthwick, CFO at Bank of America]

Focusing on sales and trading ex DVA, revenue improved 10% year over year to $4,100,000,000 This is the first time we've recorded more than $4,000,000,000 in our Q4 results and it included Q4 records for both FICC and equities. FICC grew 13%, while Equities improved 6% compared to the Q4 of 2023. FICC benefited from tighter credit spreads as well as increased volatility in interest rates, while Equities benefited from increased activity around the U. S. Election.

[Alastair Borthwick, CFO at Bank of America]

Year over year expenses were up 7% on revenue improvement and our continued investment in the business. And then on Slide 17, you can see all other with a loss of $407,000,000 in the 4th quarter. We spoke earlier about the Q4 'twenty three charges for Bisbee and the FDIC special assessment charge. Their reversal impacts the comparisons on revenue, expense and net income in this segment. Otherwise, there really isn't anything significant to report here.

[Alastair Borthwick, CFO at Bank of America]

Our effective tax rate for the quarter was 6% and excluding discrete items in the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been approximately 26%. Looking forward, we expect the tax rate for 2025 to be in a range of 11% to 13%, and this just includes our expectation for higher expected earnings in 2025 and relatively stable tax credits. Finally, this quarter on Page 18, we thought it was important to summarize some of the guidance points we talked through this morning, and we hope you find this page helpful. So in summary, we're looking for strong growth in NII, and we'll look to both continue important investments in the franchise and drive operating leverage as we grow throughout the year. We aren't expecting much movement around credit based on a pretty solid economic outlook And we remain with a very strong balance sheet with excess capital that we can deploy to grow the business and deliver back to shareholders as appropriate.

[Alastair Borthwick, CFO at Bank of America]

So with that, I'll stop there. I thank everybody, and we'll open it up for Q and A.

[Operator]

And we'll take our first question from Steven Chubak with Wolfe Research. Your line is open.

[Steven Chubak, Managing Director at Wolfe Research LLC]

Hi. Good morning, Brian. Good morning, Alastair.

[Alastair Borthwick, CFO at Bank of America]

Good morning.

[Steven Chubak, Managing Director at Wolfe Research LLC]

So I wanted to start off, Alistair, with maybe unpacking some of the drivers of the NII growth in 'twenty five. How much of the build that you're guiding to is attributable to loan growth versus some rate or repricing tailwinds, runoff of legacy swaps, what have you? And does that acceleration NII you cited for the second half continue into 'twenty six, given some of those tailwinds should remain in place beyond 'twenty five?

[Alastair Borthwick, CFO at Bank of America]

Well, first of all, I admire you asking about 'twenty six. I'm always reluctant to talk about the back half of 'twenty five. So I'll leave 'twenty six for another time. But we don't have a whole lot new, Stephen, relative to what we've talked about in the prior quarters. We're obviously pointing right now to deposit growth in particular because it's beginning to get back to something more normal.

[Alastair Borthwick, CFO at Bank of America]

There was a period there where deposit balances were declining as people got back to something more normal in their accounts. But we're highlighting here consumer found its floor in August, wealth found its floor in July, and that's giving some support then as we grow deposits. So that's helping us with the NII growth. But that hasn't changed. It's just that now we've got successive quarters of growth that we can actually point to.

[Alastair Borthwick, CFO at Bank of America]

The loan growth that you asked about is interesting in that there were several quarters there where we were bouncing around flattish on loans. In Q2, we added €9,000,000,000 of loans. In Q3, we added €19,000,000,000 in Q4, we added $20,000,000,000 So the loan growth has picked up a little bit. We can sort of see a little more optimism with clients, a little more activity, a little more demand from clients for loan growth. So those two things, a little more confidence around deposit growth, a little more confidence around loan growth, those obviously compound through the course of the year.

[Alastair Borthwick, CFO at Bank of America]

So that will help us in the back half of twenty twenty five. And then as you pointed out, we're still a beneficiary of the fixed asset repricing. That comes from some of the old loans that are on our books that come off in 2025 and we reprice. And then we've got some cash flow swaps that also will mature through the course of the year. So that's what leads us to this idea of we think the NII growth will accelerate to 6% to 7% and for the full year.

[Alastair Borthwick, CFO at Bank of America]

So a little bit of it a little bit faster in the back half of the year, we kind of just see that, but that's what gives us the confidence on NII.

[Steven Chubak, Managing Director at Wolfe Research LLC]

That's great, Alistair. And maybe a follow-up for Brian. Just at a recent conference, you spoke about the expectation of delivering 200 bps of sustainable operating leverage, laying out an algorithm where revenues grow 4% to 5%, expenses grow 2% to 3%. What gives you confidence in that ability to deliver that level of top line growth on a sustainable basis? Just want to unpack that a little bit further.

[Brian Moynihan, Chairman & CEO at Bank of America]

So I think what gives us confidence, we have periods with stable rate environments, stable economy growing at a slower rate than it is now and having produced that for 5 years in a row, I think it was by quarters or something like that. And so it's not something we haven't done. But if you think about the current environment, what's driving is different. Our revenue growth is going at twice that rate plus and the expense growth is growing close to that number. But when you get to higher growth rates, especially where it's coming from wealth management business, markets based business businesses, investment banking, it attaches a higher sort of instantaneous expense and yet it still produces EBITDA a little bit operating leverage at a higher growth rate, a good after tax, a good EPS result, a good net operating income result.

[Brian Moynihan, Chairman & CEO at Bank of America]

So there's different times, different models. This is a model the revenue is growing faster than it might grow all the time in more normalized environments. But the business is coming from those business which have the quickest move relative to expense. Give you an example that of the normalize last year's expense in this last year's expense and think about our expectations from 23% to 24%, and you look at the growth rate, a big part of the growth rate and expense about 45% 50% of it is the incentives to the wealth management teammates, which is a good thing. And so that means revenue is growing and we're taking about half of that in.

[Brian Moynihan, Chairman & CEO at Bank of America]

And if you look at the other pieces added to that. So Steve, simply put, we did it before, we know we can do it. You can see underlying setup and you see NII kick in the consumer business, which is more incrementally profitable because NII, you see that kick in and you see the expense base there flattening out. You see the revenue base of the company broaden out. You'll see that we'll get back to the operating leverage that we expected, albeit it may be a little slower year over year growth rate unless you're going to tell me the market is going to go up 25%, 30% every year and drive the wealth management.

[Brian Moynihan, Chairman & CEO at Bank of America]

When that slows down to more normal growth rate, that will slow down its expense growth rate also. Therefore, you'll see the opening up at that level. So it's not something we make up. It's something we put in our operating principles and it's something we have done a lot of quarters, but we have to sort of get the stability in the relative business position.

[Steven Chubak, Managing Director at Wolfe Research LLC]

And that's great color. Thanks so much for taking my questions.

[Brian Moynihan, Chairman & CEO at Bank of America]

And Steve, the easiest thing to think about is headcount. The other day, our costs are all people and that's been relatively stable and that will start to flow through because during the course of last year, we basically kept the headcount relatively stable. We had some offbeat expenses that we had to deal with, but now we're sort of settling into that 213,000 level people with a takeout on stuff through operating excellence and putting in on stuff into client coverage, expanding our pipes to draw more marketing, more client coverage, more technology investment. So we always are shifting expenses and that's how we make that operating leverage happen.

[Steven Chubak, Managing Director at Wolfe Research LLC]

No, it's a really good point. Thanks for the additional headcount nugget Brian. Much appreciated.

[Operator]

We'll move next to John McDonald with Truist Securities. Your line is open.

[John McDonald, Senior Research Analyst at Truist Securities]

Hi, good morning. Wanted to ask as a first question, just a follow-up to Steve's NII questioning. Alistair, is the deposit growth in the model that you've laid out for the year being used to pay down more expensive funding? You've talked about the ability to kind of self fund balance sheet growth. And then also, is there any sense of the yield pickup you get on the swap roll off and replacement that you could give us kind of ballpark on?

[Brian Moynihan, Chairman & CEO at Bank of America]

John, before Alistair starts, welcome back from the cold to be able to be back in coverage and covering our company. And it's always good to know that you're going to consistently ask about NII, but I'll turn it to Alistair to give you the

[John McDonald, Senior Research Analyst at Truist Securities]

Thanks, Brian. Got to be typecast.

[Alastair Borthwick, CFO at Bank of America]

There you go. So I think your first question was, if we get the deposit growth we anticipate, do we think we'll use some of that to pay off some of the higher cost liabilities on the balance sheet? The answer is yes. That's consistent with what we said in prior calls. We've done that.

[Alastair Borthwick, CFO at Bank of America]

If you look at the other institutional CDs, you'll see they came down by another $7,000,000,000 this quarter. So as we grow the really high quality parts of the deposit franchise, it allows us to take those down. And that's one of the things that's going to help grow net interest yield on an ongoing basis. It's not NII accretive necessarily, but it helps us with net interest yield. So that remains a part of the strategy, John.

[Alastair Borthwick, CFO at Bank of America]

You'll see that continue. As it relates to the cash flow swaps and how those reprice, no, we typically don't lay out the table of what we've got on and how it re prices over time, but it is embedded in our guidance. So each quarter, when I give you guidance for the next quarter, that will incorporate what we know is coming off on the cash flow swaps and how that does. The other fixed rate assets, you can kind of see in our supplemental information just based on the originations of resi mortgage, the originations of auto loans. And every time, obviously, we're booking new residential mortgage and old residential mortgages coming off, we're picking up 2 50 basis points every time there.

[Alastair Borthwick, CFO at Bank of America]

So you can see that happening each time you pick up the supplemental. We just don't tend to disclose the cash flow swaps. So I will do that for you each quarter as we go through the year.

[John McDonald, Senior Research Analyst at Truist Securities]

Okay. And then just to switch topics or Brian doesn't make fun of me.

[Brian Moynihan, Chairman & CEO at Bank of America]

That's all right, John. Just kidding.

[John McDonald, Senior Research Analyst at Truist Securities]

Now in terms of capital, how are you thinking about the CET1 target and the buffer that feels appropriate in this environment?

[John McDonald, Senior Research Analyst at Truist Securities]

And how does that play into your thinking on buybacks?

[Brian Moynihan, Chairman & CEO at Bank of America]

So I think we bought $3,500,000,000 this quarter. We'd expect to continue to step back to highest levels. We earn the money. We pay the dividend, we invest in the growth of the business and then we use the rest to buy back stock that was $3,500,000,000 in the past couple of quarters. So at this earnings rate that seems a level that makes sense.

[Brian Moynihan, Chairman & CEO at Bank of America]

We're 11.9 with a we think at a 10.7 requirement a buffer of a 50, that's 11.2. Obviously, there's going to be some sort of changes in the capital rules and we'll have to settle it after we see that. And we hope some relief in the volatility of CCAR outcomes because remember that last year we jumped quite a bit without a lot of correlation to the actual risk of the company and stuff. So hopefully we'll see that settle back in.

[John McDonald, Senior Research Analyst at Truist Securities]

Okay. Does that leave you towards a mid teens ROTC target, Brian, as NIM normalizes and capital normalizes?

[Brian Moynihan, Chairman & CEO at Bank of America]

Yes. I think the capital normalization will be more sort of holding that capital to grow through it, not have to retain more capital for growth, frankly, if there's math that helps us favor it. But the NIM is probably more critical to move the yield from sub-two percent this quarter to 2.10 percent plus at the end of the Q4 and then moving from there. That as you know is all that flows the bottom lines will continue to drive the ROTCE back up as if you look back in the areas where there was any front end Fed funds was 2%. We are running a couple hundred basis points more.

[Brian Moynihan, Chairman & CEO at Bank of America]

It's the huge zero interest deposit base, especially in consumer and low interest deposit base that provides a lot of leverage. So that will be a driver. The capital return would help some, but I think that will be more complex based on all the different rules and what happens.

[John McDonald, Senior Research Analyst at Truist Securities]

Got it. Thank you.

[Operator]

We'll take our next question from Glenn Schorr with Evercore. Your line is open.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

Hi. Thanks very much. I have a relative question on trading. I know how impossible it is to predict really the environments. But you took share in Investment Banking and you've invested and gotten benefits from that.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

You have invested in trading. So maybe it's a weird question because you just put up record revenues in FIC and Equities as you mentioned. But when we see good environments like this, some companies tend to really blow out numbers. You guys have 0 loss days, you don't tend to blow, blow out numbers. Is that a comment about gaps in the business mix that you'd like to invest more and fill in?

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

Is that a comment about risk tolerance? I'm just curious how to think about it on a relative basis.

[Brian Moynihan, Chairman & CEO at Bank of America]

I think you have to back up. Jim Demar and the team are driving the business 11 straight quarters of year over year growth. Frankly, I'm not sure any other company comes close to matching that. So other people have more volatile up and down as you're prospecting. But over the course of time we just want this to keep walking up the ladder and they've done a great job of doing that continuing to drive the business.

[Brian Moynihan, Chairman & CEO at Bank of America]

In fact, if you look at year over year comparisons because your point was obviously something we asked ourselves and we looked at the last 48 hours here, 24 hours. Basically a lot of people in the same range as opposed to Q4 where some people's last year's Q4 was down a lot from prior years, ours was more stable. And I think last year's Q4 was one of the highest 4th quarters we ever had. And then we put another 10% plus growth on top of it. So think of us as being that business that just is imperturbable, it just keeps calmly growing forward and driving itself up without having maybe some of that more traditional trading house up and down, not because we're not good at they're very good at it, not because they aren't gaining share because frankly if you won't look at the last 3, 4 years, they continue to gain share.

[Brian Moynihan, Chairman & CEO at Bank of America]

It's just we have a little less volatility in principal activity on a given day.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

Okay. I appreciate that.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

This might be a simple follow-up on your comments when talking about credit and reserves. Your reserve for unemployment a little bit below 5%, we're 4.1% now. I think that's the way this cycle is played out. I think that's typical BofA conservatism. I think that's the accounting.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

But I guess my question is, your reserves will be fine, your P and L will be fine. But if that plays out, does that completely change how we're thinking about the pickup in consumer spending, overall loan growth, things like that? Because that is we're talking about just the next 4 quarters.

[Brian Moynihan, Chairman & CEO at Bank of America]

Yes. This is where you got Glenn, you got to get away from reserve setting methodologies versus what we really believe is from our research team and your research team, your economics research team would tell you. Our core assumption is the GDP grows in the low-2s this year. The unemployment stays between 4.1-94 maybe gets up to 4.3 or something like that. So this is literally a weighting of a base case which would match that in an adverse case and some other cases just in the way we build methodologies for the reserves because you're reserving for uncertain future and that's how it has us.

[Brian Moynihan, Chairman & CEO at Bank of America]

So don't take it as a thought that we really believe we're going to see 4.8% unemployment in the next 4 quarters. And so hopefully that is That's all

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

I wanted to get out.

[Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore]

I appreciate that. Yes, thanks.

[Operator]

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

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Yes. Hi. Good afternoon. About to be good afternoon. My first question just as a follow-up.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Brian, I think I heard you say in response to John's question that you think the exit rate net interest margin will be 2.1% I think in 4Q 'twenty five. I just wanted to confirm that I heard that correctly. And underneath that Alastair, could you talk about the repricing or down deposit beta dynamics that you would assume to get to that net interest margin?

[Brian Moynihan, Chairman & CEO at Bank of America]

Yes. So the simple answer is you stated what I stated to John, but I'll let Alistair answer the second part of your question.

[Alastair Borthwick, CFO at Bank of America]

So generally, Erica, we're obviously following the Fed rate cuts, just re pricing things accordingly. There are I think 2 things going on right now that are interesting. The first one is generally speaking, in the commercial businesses with the higher end deposits, we're typically following the rate cuts and just going down 25 basis points. Obviously, at the other extreme on the non interest bearing, there's nothing we can do with that. It's already non interest bearing.

[Alastair Borthwick, CFO at Bank of America]

But we're following the Fed cuts, we're moving the rates with discipline accordingly. And then the second thing that's going on is there was some rotation going on over the course of the past 2 years where there have been a lot of things going from non interest bearing into interest bearing across the different parts of our businesses, that has slowed significantly. So you look at, for example, consumer non interest bearing, that seems to have bottomed out in February of last year. And the non interest bearing balances are growing now again. So that rotation is slowing also both of those things are factoring into our guidance?

[Brian Moynihan, Chairman & CEO at Bank of America]

Yes. So, Erica, if you look at the interesting part that's gone on in the last couple of quarters, just from a deposit behavior, if you look at our accounts that were here prior to the pandemic to now, you saw a run up and then you saw a little depletion and it's basically stabilized at a level. But if you looked at it in the aggregate, all the depletion is actually driven by the highest balance accounts like $250,000,000 $500,000 average balance was $1,000,000 and the others are still multiples of where they were before. That's been going on and they've been growing and they're growing 9% year over year in the lower balance accounts as people make more money and store more cash and have cash flow. So if you think about what happened is our average balance accounts that was around 7,000 went up to 11,000 and now it's basically stable at 9,000 checking accounts.

[Brian Moynihan, Chairman & CEO at Bank of America]

And that's kind of and you can grow out from there. That is very valuable because checking is either 0 or very low interest. And so it's where the growth we see coming as deposits grow in consumer that helps produce irrespective of the market dynamics of the higher at the market price deposits where you see the impact of the deposit franchise coming through. So consumer being down a basis point quarter to quarter doesn't sound like a lot, but you got to remember a lot of their stuff is it doesn't really price, but are they growing that stuff and each $10,000,000,000 of growth in that area is very important to us.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Got it. That's very helpful. And just as a follow-up, both you and Alastair have during over the course of 2024 started introducing the concept of a normalized net interest margin of 2.3%. With a neutral rate maybe around 4%, does can BofA get there more quickly, particularly given the deposit dynamics that you mentioned, Brian? I guess I'm trying to we're just trying to figure out you guys did introduce the concept of normalized NIM.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

So I'm not trying to seek out guidance in terms of 26% or 27% or whatever. But you had had to have told this that for a reason. And I'm just wondering if the forward curve or what the dynamics are that would lay out the path to achieve that over the medium term?

[Brian Moynihan, Chairman & CEO at Bank of America]

If the Fed funds rate stays higher, we'll get there faster. It's a simple because that's obvious because this year volume of loans are so if we're sitting here in October, I think when we're talking about that the amount of rate cuts was still, I don't know how many more 3 or 4 more than we've had so far. Now we're down to 1. So as it stays at a higher nominal rate, you'll see this adjustment come through. There are 2 caveats that one is we're carrying a larger market's balance sheet, which by definition is a little less robust in that area.

[Brian Moynihan, Chairman & CEO at Bank of America]

And then secondly, we're carrying a lot of low a lot of excess liquidity just because we're running that down as Alistair said. So during the pandemic, we've built up a lot of term financing and running off. So all that will help us, but it will go faster than we'd otherwise say mid last year to now just because the nominal rate environment stays higher.

[Operator]

We'll take our next question from Mike Mayo with Wells Fargo Securities. Your line is open.

[Mike Mayo, Managing Director at Wells Fargo]

Hi. So, you kind of upped your NII guide the next several quarters. And this was the first question asked. So how much is short rate? How much is long rate?

[Mike Mayo, Managing Director at Wells Fargo]

But most importantly, how much of this is a little bit more steepness in the yield curve and what part of the yield curve is most important for that and what's the sensitivity for every 10 basis points of additional steepness that adds how much to NII or something along those lines? Thanks.

[Alastair Borthwick, CFO at Bank of America]

So Mike, it's still the short end that drives probably 90% of the sensitivity around NII. Because if you think about it, we just don't have enough fixed rate assets repricing to really drive NII. In any given quarter, you've got a few $1,000,000,000 of resi mortgage, a few $1,000,000,000 of CVL repricing, let's call that $10,000,000,000 to $12,000,000,000 of hold to maturity securities repricing, but that's in the context of a $3,300,000,000,000 balance sheet. So it's still the short end that drives most of the NII. So when Brian says, obviously, we're helped by the fact that there might be 2 or 3 rate cuts less than there were previously, that's obviously helpful.

[Alastair Borthwick, CFO at Bank of America]

But the big thing is always for us in terms of year over year growth, it's always about deposit growth and loan growth. The fixed rate asset repricing is it turbocharges a little bit at the margin, but it's about deposit and loan growth and those are the important ones. And getting back to growth now in each of our businesses gives us a stronger foundation leading into 2025 than we had this year when we still had at the beginning of the year consumer coming down, wealth coming down. Now that they found a floor, it's slightly different.

[Mike Mayo, Managing Director at Wells Fargo]

Got it. And then a big picture question, Brian, with the new incoming administration in a different tone as it relates to bank regulation. In fact, the incoming Treasury Secretary said he would like to reinvigorate banks. So if you were to talk to them and maybe they're listening, what would you like to see changed as it relates to bank regulation? And then a specific question, I know it's going to be tough, if you give me any sense, it would be great.

[Mike Mayo, Managing Director at Wells Fargo]

But your CET1 ratio, if you didn't have gold plating, if you had a level playing field, if you took out some of the extraneous operating risk penalty, how much would your CET1 ratio increase in that sort of world? Thanks.

[Brian Moynihan, Chairman & CEO at Bank of America]

So Mike, I think your second question brings up the places that our industry, our company been advocating heavily is that we've had a little bit of a situation from pre pandemic to post pandemic where you've seen capital requirement required capital go up normally 10%, 15%, 20%, and not a big change in the risk of the companies. And that's just all this mathematics behind all the accounting, right? And so we're saying, woah, woah, wait, we aren't indexing the GSIB. So therefore, our relative sized economy isn't growing as fast as it was intended to be indexed on that basis, isn't there. You've had, as you said, sort of an accretion of sort of methodologies that keep pulling more in including the stress test volatility that we've all pointed out to them.

[Brian Moynihan, Chairman & CEO at Bank of America]

And then the last point you make it is, if you look at this concept of Basel III making equivalent around the world is completely off in a different world because we're using advanced excuse me, the rest of the world is using advanced. We're using standardized gold plated whatever you want to talk about. It's just apples and oranges. And so I would never think that we go if we ever got to Europe, our numbers would be probably a big a lot, lot higher, but that's not going to happen because just we're going to have we as a society will have a more conservative really capitalized industry. So I think it's simply put, if they were to take into account our clear statement, our clear advocacy about as an industry about index of G SIB, you take the volatility out of CCAR, how can it change so much of the relatively same scenario.

[Brian Moynihan, Chairman & CEO at Bank of America]

And also behind the scenes all the changes in accounting, not accounting, but accounting for risk, you're increasing capital requirements without any explicit decision to do so. And we think that that would be worth probably up to 100 basis points or so if you really sat back and thought about it. How do you get there? Mike, think about our volatility in CCAR outcomes. I think we went from we went up by 50 basis points, 70 basis points last year, whatever it was.

[Brian Moynihan, Chairman & CEO at Bank of America]

The risk in the company didn't change. A matter of fact, it probably went down honestly. And so that's what we're working on. So we want to see that. And then in a day to day supervision, we just want to see people focused on safety and soundness and good management and making sure there's the regular agencies cooperate on things like BSA and AML and things that everybody's all over the place and the industry is trying to sort it out in the middle and we've given them precise points to look at and we'll see what happens.

[Brian Moynihan, Chairman & CEO at Bank of America]

Okay. And then points to look at and we'll see what happens.

[Mike Mayo, Managing Director at Wells Fargo]

All right, great. Thank you.

[Operator]

We'll move next to Jim Mitchell with Seaport Global Securities. Your line is open.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Hey, good afternoon. Maybe just dialing in on the deposit growth, you clearly have been outperforming the peer group, but maybe just want to focus on consumer for a second. You generated $1,100,000 of net new checking accounts, which seems best among peers. I think that's showing up in better consumer deposit growth in 4Q. So what do you think you're doing differently that's generating that kind of consistent success in adding new accounts?

[Brian Moynihan, Chairman & CEO at Bank of America]

Look, at the end of the day, our brand is best received in terms of our scores. Our customer service capabilities are scoring at the highest they've ever come. The fairness of our account structures, the transparency, the digital capabilities, just winning in the market. It's in a $1,000,000,000 net new checking accounts and not 92%, 90% whatever they are, our primary. They start with an average balance of 2,000 to 3,000.

[Brian Moynihan, Chairman & CEO at Bank of America]

They move to 6,000,000 to 7,000 over the course of 6 months. This is just a great job done by Dean Athanasia and Aaron Levine and Holly O'Neil that run this business for us, just continue to drive it. Then on top of that, we've layered in ways with various business lines to help generate accounts. So our work we do with companies to offer our best products and services as a benefit to their employees helps us generate some extra growth. Our ability to do business around the college campuses, which is not huge for this quarter's growth, but because we are generating the amount of openings at twice the rate of young people exist in society for our customers 5 years ago, 5 years later, the people are out working and they're great customers.

[Brian Moynihan, Chairman & CEO at Bank of America]

So it's a whole bunch of things. So and it's but it's relentless and sustainable. And yet we still have lots of ways to grow. And we weren't in we just entered a lot of markets over the last 5 years, Denver, Cleveland, Columbus, Cincinnati, Indianapolis, Minneapolis, Milwaukee now, Lexington, etcetera. That's one way.

[Brian Moynihan, Chairman & CEO at Bank of America]

And then if you think about in wealth management teammates and Katie Knox and Lindsay and Eric do a great job there. But we have a lot of room to go where we continue to outfit those clients for the full range of services of Bank of America and even Merrill Edge has a lot going on there. So there's a fair amount of deposits that come from our Merrill Edge originations, which are 300,000 accounts year over year. And those are all $100,000 starting accounts, not 3,000.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Right. That all makes sense. And then maybe pivoting on the expense side, the guidance of 2% to 3% growth, it's kind of a pretty decent step down from what we saw in the back half of the year. So what areas do you see sort of slowing on the expense side given the your optimism on organic growth? How do you kind of decelerate the expense growth in 2025?

[Brian Moynihan, Chairman & CEO at Bank of America]

I think three key things. One is, if we get the year over year growth in the markets related businesses in the high double digits or 20% growth, that expense guidance might be a little tight. But again, you would cheer for that. So this is assuming a 5% to 6 percent growth in the S and P type of numbers. So that takes some of the growth pressure off.

[Brian Moynihan, Chairman & CEO at Bank of America]

The aggregate numbers are locked in at a high level and growing from there. And then the second thing is frankly just getting a lot of this work behind us and some remediation and look back some things are all completed and behind us. And then 3rd is just keeping the headcount and getting continue to focus on OpEx and generating capabilities. And so as we stepped into some of these national brand campaigns around some of the major properties we've affiliated with most recently yesterday women's soccer, U. S.

[Brian Moynihan, Chairman & CEO at Bank of America]

Soccer including men's and women's teams, FIFA, the master. These are all things we're paying by just driving other efficiencies. So from a company that for years have gone down in expenses, the idea of growing 2, 3 is not that hard a concept, albeit the growth in the back half of this year was a bit driven by the incentive explosion that happened because explosion in markets. When they took off, our teammates did a great job of capturing revenue and incentives went.

[James Mitchell, Senior Equity Analyst at Seaport Global Securities]

Okay. Yes, that's fair. Thank you very much.

[Operator]

We'll move next to Vivek Juneja with JPMorgan. Your line is open.

[Vivek Juneja, Analyst at JP Morgan]

Hi. I have 2 separate questions. First one with expenses. Just want to clarify to the last question, Brian, what you said. So what are you assuming for incentive comp in 2025 in your guidance?

[Vivek Juneja, Analyst at JP Morgan]

Is it flat year on year? Are you assuming some increase? Any color on that?

[Brian Moynihan, Chairman & CEO at Bank of America]

It would grow with the markets and stuff, but we have other efficiencies that offset some of that growth.

[Vivek Juneja, Analyst at JP Morgan]

Okay. Second one, I guess, I can't leave you disappointed, I must given you and Alastair love NII. So let me ask a little netty question on that. Bisbee hedges, since those started to accrete this quarter, how much was the benefit this quarter? And what is the cadence of that as we look out over 2025?

[Alastair Borthwick, CFO at Bank of America]

So we think about the Bisbee accreting back into the P and L, kind of like the same way we do with the other cash flow swaps, Vivek. So I'd say a couple of 100 this quarter. And then when we give you the guidance with all the cash flow swaps, it's all included in there. So when I say that we think this year Q1 should be up modestly, that is after the €250,000,000 of day count adjustment and it's including deposit growth, loan growth and all the cash flow swap activity.

[Vivek Juneja, Analyst at JP Morgan]

Okay. So that $200,000,000 a couple of $100,000,000 that probably given that it's $1,600,000,000 to be recovered over a couple of years that should continue at this pace all through 2025 then, right? At least that particular item?

[Alastair Borthwick, CFO at Bank of America]

That will continue. Most of it will take place in 2025. It sort of burns back into the P and L. And then there'll be a little bit in 2026 and a tiny bit in 2027.

[Vivek Juneja, Analyst at JP Morgan]

And then, sorry, if I may, another one. Brian, to your comment on capital, you said you want to keep a 50 basis point buffer, your CET1 of 11.9, 50 basis points 11.2. Is there a plan to go down to the 11.2% at some point and therefore step up your buybacks or what's the thinking there?

[Brian Moynihan, Chairman & CEO at Bank of America]

I wouldn't assume that we're going to take it down through a lot of buybacks in your modeling. It's going to be there to support growth. But Vivek, the simple answer is we've got to get a set of rules that quit moving around on us. And once we get them, then we can give you better guidance on that. Because it's just hard to estimate when you could have more excess if they did what I we as industry expect them to do and then we have a different conversation.

[Brian Moynihan, Chairman & CEO at Bank of America]

Right now we'll probably grow part of that away through the good work of our team in terms of loan growth and in the markets business we continue to invest in that business. So don't expect us to deplete that ratio down quickly. But I'm holding my right to change that if we get the capital level straightened out of the new rules.

[Operator]

Our next question comes from Matt O'Connor with Deutsche Bank. Your line is open.

[Matthew O'Connor, Managing Director at Deutsche Bank]

Hi, thanks for taking my question here towards the end. Just if there was some relief on capital, are there areas that you would incrementally lean into? Obviously, without knowing all the rules, it's hard to know for sure. But just other areas that you're like, if we had that extra 100 basis clients or if it's 50 or 150, you would do a little bit more in some areas than you have been?

[Brian Moynihan, Chairman & CEO at Bank of America]

None of our businesses are constrained because of capital. So if the consumer team had more credit card loan growth that was based on what they think the right risk balances and getting paid for it, etcetera, that's got on. He saw us just grow balances last quarter, the auto loans or whatever. And so I think it I don't see that wealth management obviously not much of a RWA user in a lot of ways. And then the real question is, is in a global banking business again, if they're getting strong loan growth, there's nothing that we're slowing them down.

[Brian Moynihan, Chairman & CEO at Bank of America]

In the markets business, we continue to drive the capital up being the lowest return on equity business we have. We have to be a little careful that we don't do it. But Jim and the team have done a great job and we've basically their balance sheet is $300,000,000,000 larger than it was 4 or 5 years ago. And they've grown their we've grown through the GSIBs as you know from 2.5 to 3 and we'll keep probably growing through those and that we use some. But it's not like we'd say you can't have it because of capital.

[Brian Moynihan, Chairman & CEO at Bank of America]

It's really just bundling the company and keeping the balance and the overall management of the risk and where we want to take risk and how we do it. And then frankly it's they come up with business plans that we've never had to say we don't have enough capital to do that. That's not the issue.

[Matthew O'Connor, Managing Director at Deutsche Bank]

And I guess so like depending on how the capital rules are tweaked it could make some businesses just more profitable, right? So even though you have enough capital to put to those businesses, if the returns aren't making your hurdles, maybe it could with some tweaks. And I've heard some of your peers talk about like equity prime brokerage as one area that could have higher returns of capital requirements reduced. And again, we don't know exactly how it's going to play out, but do you envision any kind of changes to how you evaluate businesses? Thank you.

[Brian Moynihan, Chairman & CEO at Bank of America]

Yes, I think it won't change how we evaluate businesses because regulatory capital is only one of the ways we look at it. We look at the risk and sort of market based capital and other things. But it could take the sort of, for lack of better term, a little bit of the penalty to some of these businesses down some. But you also have to remember the ROA and the mix of businesses and there's another side of this because we have 6% tangible common equity and we got to produce returns on that and low ROA businesses affect that. So there are things that will favor it under regulatory capital, but not favor it under sort of market based disciplines.

[Brian Moynihan, Chairman & CEO at Bank of America]

So we work through all I don't expect to see change in how we do it, but also don't think that any of our businesses are constrained because we're not having capital. So if Jim and the team have a chance to go prime brokerage and make it work, in our company, we could have other businesses which have very high ROAs to make up for it. In some other companies, it'd be more important for them because they don't have those other businesses in relative size of the markets business.

[Operator]

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

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Hi, Brian. Hi, Alistair.

[Brian Moynihan, Chairman & CEO at Bank of America]

Hi, Gerard.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Brian, we've talked about this in the past and also with you, Alistair. Obviously, credit quality for you and your peers has been is very strong. And in view of the rate cycle, we just came through where we went from 0 to plus 5% at the short end of the curve and really never saw a surge in charge offs due to rates going up that much. When you guys look at credit quality, is it due to better underwriting standards or sticking to your underwriting standards or is it your customers themselves because we all went through the pandemic are just much stronger balance sheets, more resilient. What would you account for so far that this credit cycle has been fairly benign for you and your peers?

[Alastair Borthwick, CFO at Bank of America]

Yes. Look, it's definitely been benign. I think one thing that hasn't changed, our underwriting strategy, our standards, our risk appetite, our client selection, those really haven't changed, Gerard. But I think you're right. Look, things are obviously different than 2019.

[Alastair Borthwick, CFO at Bank of America]

2019, we didn't have this rate structure. So that's a little bit harder at the margin for the consumer. At the same time, consumer is stronger. I mean, we can see that in the deposit balances. We can see it right now in the consumer spending in the 3% to 4% range.

[Alastair Borthwick, CFO at Bank of America]

We can see it in the balances being elevated over 5 years ago. We can see it in the unemployment level, the income level, home prices, wealth effects. So look, 2019 was freakishly low in terms of like a historical norm. But things have settled in here. We sort of said a year ago, we thought they would plateau right around where we are.

[Alastair Borthwick, CFO at Bank of America]

We're glad to see 3 or 4 quarters now with some stability. It feels pretty good on the consumer side. It feels very good still on the commercial side. So that's why we're sort of laying out. Our expectation is unless there's a big change in the economy, we think we're going to be around in this 50 basis points to 60 basis points over the course of the next year or so.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Very good. And then as a follow-up, I share your optimism on the outlook for the economy and many of your peers in the Capital Markets business. I think many investors do.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

What are the

[Gerard Cassidy, Managing Director at RBC Capital Markets]

risks? I mean, when you guys sit down at night and everything is going well, what do you talk about is what curve balls do we have to watch out for? Is it a rate environment that changes quickly without anybody really expecting it? Is it complacency? What are some of the risks that you guys think about?

[Brian Moynihan, Chairman & CEO at Bank of America]

Well, you have wars and hopefully a resolution of one that's just happening as we speak. But we have wars, you have trade wars etcetera that bothers you have availability of resource around the world whether it's physical resource or human resource to do work and shortages of that because unemployment rates in a lot of countries are pretty low. And so can you get the productivity and keep growing the economy. But all the usual things. But if you think about it, Gerard, just to be clear, we've seen a 15 year run from after the pandemic excuse me, after the global financial crisis or more, your run where you've seen constantly improving credit statistics that then interrupted in the pandemic a little bit and then because the stimulus dropped down again and now it's back to normal, but that's a long term trend.

[Brian Moynihan, Chairman & CEO at Bank of America]

So it's not complacency, it's just that how much leverage is building up in the system that there'll be difficulties with either at the household level, at the corporate at the company level. And then a lot of it's outside the banking system. So we worry about that and how it reverberates into the banking system because just leverage that exists out there that higher levels than we traditionally have given in the banking system still will affect us because that means if people can't carry it, there'll be restructurings of companies and bankruptcies and things like that, which are going on today, but they're going on a level which is very manageable. So we worry about all those things and the federal debt levels and the pinch that will come out of state and federal spending if they have to they need to slow down the growth. All those things are factors which we think about and the way we manage the company is to run it so that given those events we can continue to operate.

[Brian Moynihan, Chairman & CEO at Bank of America]

And that's why the stress testing quite frankly is a good thing because it makes you think about the Pareto Horrible's happening even though they don't happen and make sure that you are positioned to survive them. And if you said to the question Alistair answered, one of the big impacts across time here in the bank industry is because the top 30 institutions are doing stress testing, which assumes that you're wrong in your underwriting and the economy goes from 4% unemployment to 10% employment overnight, unemployment overnight. Think about the impact of that on bringing the underwriting narrower so that you can afford that capital that you have to hold for that outcome even though that outcome has occurred. That's going across a big portion of the bank industry. So I just think it's more fundamentally structured, but leverage is going to be the issue it always is and you're always trying to find the P, where is the excess leverage and how do you make sure you're avoiding it.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

No, that's very helpful. Thank you. And Alistair, I liked your comment about when you're talking about the 17 financial centers that you're a growth company, hopefully that will be reflected in the PE shortly.

[Alastair Borthwick, CFO at Bank of America]

Well, there's plenty of room on the PE multiple, but I'll let you work on that, Gerard. We'll work on the E part.

[Gerard Cassidy, Managing Director at RBC Capital Markets]

Okay. Fair enough. Thank you, gentlemen.

[Alastair Borthwick, CFO at Bank of America]

Thank you.

[Operator]

And we'll take our final question from Betsy Graseck with Morgan Stanley. Your line is open.

[Betsy Graseck, Managing Director at Morgan Stanley]

Hi, good afternoon. Thanks so much for taking my question. So Brian, here's the question. Small business optimism is up and you've got a flat curve at the front end. And so I'm kind of wondering how that feeds into C and I demand.

[Betsy Graseck, Managing Director at Morgan Stanley]

And I'm wondering what your conversations with not only small business, mid business, corporate, it'd be really interesting to hear how you think they're preparing for this change? Thank you.

[Brian Moynihan, Chairman & CEO at Bank of America]

Sure, Betsy. So small business small, medium sized businesses, so in our business banking category in our so we have small business, business banking, we have global commercial banking, I think middle market. Across that environment, the draw rates and lines of credit stuff are still much lower than they were in a pre pandemic and things like that. And to your point, the higher interest rate environment affects them most quickly and importantly because they use lines of credit to do things, buy a piece of equipment, hire some more people, win the payroll dynamics of that, whatever it is. And they might permanently finance that, but immediately they use lines and the draw rates, 400 basis points over where it normally runs, so to speak, which means that they're drawing at less rate and that probably means they're doing a little less.

[Brian Moynihan, Chairman & CEO at Bank of America]

And so we haven't seen that move a lot. That's a to come in terms of loan growth as Alistair mentioned earlier. But their optimism has changed and you saw that and that's really around the other things when you talk to our small business customers and we made these points to people in Washington is the over the regulation, the impact, it's hard to do business, hard to get things done, The rules coming out, they don't have the big staffs that we do and other companies do that can deal with all that. And so it all confuses, slows them down and makes them hesitate. Their belief is that that's changed and that's why you see the optimism come up and then we got to translate that optimism into activity and then you'll see the loan growth come.

[Brian Moynihan, Chairman & CEO at Bank of America]

But I think it was a it's a quick change and it's based on their view of how easy it will be for them to get things done both at the state and federal level.

[Betsy Graseck, Managing Director at Morgan Stanley]

Yes, I'm just looking at you, our Bank of America is one of the few that actually has small business loan growth year on year and I know a lot of that came a couple of quarters ago. But with this very sharp increase in small business optimism, I would think that could potentially be something you could benefit from.

[Brian Moynihan, Chairman & CEO at Bank of America]

No question. And so but the real dollar volume of benefit is going to be the small business loans I think group have been growing quarter after quarter year over year for a good chunk of time now. And we feel good about that. But the dollar volume change in the middle market business from a little more drawing and the lines consistent with what people have done before is a lot of loan balances. There's $200,000,000,000 of balances in that business.

[Brian Moynihan, Chairman & CEO at Bank of America]

So it doesn't take a lot to kick it up.

[Betsy Graseck, Managing Director at Morgan Stanley]

Right, I got that.

[Brian Moynihan, Chairman & CEO at Bank of America]

So I think look we're the largest lender to small business and those customers tell us they're optimistic and they see forward and the issues were I couldn't get enough people and that's something we got to be careful of. The regulations were hurting me and then the interest rates and the interest rates coming down a little bit helps them and the other 2 the strong belief is that will be more readily available.

[Operator]

And it does appear that there are no further questions at this time. I would now like to turn it back to Brian for any additional or closing remarks.

[Brian Moynihan, Chairman & CEO at Bank of America]

Sure. Well, thanks everyone for joining us today. We finished 2024 with good momentum as we enter 'twenty five. The economy is resilient and healthy. The consumers continue to spend at a solid and healthy rate.

[Brian Moynihan, Chairman & CEO at Bank of America]

The employment levels are strong. The asset quality we can see is very good. Our loans have now grown for several quarters in a row here. Deposits have grown for 6 straight quarters. The rate environment continues to be constructive.

[Brian Moynihan, Chairman & CEO at Bank of America]

And then the added value in the last couple of quarters of the fee businesses have come on strong given the extra market activity. All that sets us up well for 2025. Thank you for your support. We look forward to talking to you next time.

[Operator]

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

Participants

Executives

• Lee McEntire, Head of Investor Relations & Local Markets Organization
• Brian Moynihan, Chairman & CEO
• Alastair Borthwick, CFO

Analysts

• Steven Chubak, Managing Director at Wolfe Research LLC
• John McDonald, Senior Research Analyst at Truist Securities
• Glenn Schorr, Senior Managing Director & Senior Research Analyst at Evercore
• Erika Najarian, Managing Director & Equity Research Analyst at UBS Group
• Mike Mayo, Managing Director at Wells Fargo
• James Mitchell, Senior Equity Analyst at Seaport Global Securities
• Vivek Juneja, Analyst at JP Morgan
• Matthew O'Connor, Managing Director at Deutsche Bank
• Gerard Cassidy, Managing Director at RBC Capital Markets
• Betsy Graseck, Managing Director at Morgan Stanley