Bank of America Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 19, 2022

Key Takeaways

  • Q4 net income of $7 billion and record full-year earnings of $32 billion were driven by strong organic growth and a return to positive operating leverage across all businesses.
  • Net interest income rose 12% since Q1 2021 and is expected to grow robustly in 2022, even after a ~$250 million headwind in Q1, with $6.5 billion of asset sensitivity per 100 bps rate move.
  • Deposits increased by $270 billion in 2021 to $2 trillion, loans saw a record $50 billion of organic growth in Q4, and digital adoption drove net new checking account growth for 12 consecutive quarters.
  • The bank plans to hold full-year 2022 expenses flat versus 2021 while continuing investments for growth, following two quarters of positive operating leverage and $32 billion of capital returns in 2021.
  • Revised overdraft policies—eliminating NSF fees and cutting overdraft charges from $35 to $10—are forecast to reduce fee income by about 75% from 2021’s $1 billion level over the next year.
AI Generated. May Contain Errors.
Earnings Conference Call
Bank of America Q4 2021
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day, everyone, and welcome to the 4th Quarter Bank of America Earnings Announcement Call. 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 this call may be recorded. I will be standing by if you should need any assistance.

Operator

It is now my pleasure to turn today's conference over to Lee McIntyre. Please go ahead.

Speaker 1

Thank you, operator. Thank you for joining our quarterly earnings call. Good morning to everybody. I'm sure by now you've all had a chance to review the earnings That were released before 7 this morning. As usual, they're available, including our earnings presentation that we will refer to during the call On the Investor Relations section of the bankofamerica.com website.

Speaker 1

I'm going to first turn the call over to our CEO, Brian Moynihan for some opening comments And then we will hear from Alistair Barthwick, our CFO, who will cover the details of the quarter. Before I turn the call over to Brian and Alistair, Let me just remind you that we may make some forward looking statements and refer you to the non GAAP financial measures during the call Regarding various elements of our financial results, our forward looking statements that may be made are based on management's current expectations and the assumptions therein and 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 the SEC filings that are available on the website. Information about the non GAAP financial measures, including reconciliations to those can also be found in our earnings

Speaker 2

So with that, let me turn it over to Brian. Take it away. Thank you, Lee, and good morning to everyone, and thank you for joining us again. I hope all of you are continuing to manage safely through the new variant. First, I'd like to start this call by recognizing that Paul, our CFO for many years has now moved on to help us with our efforts helping our customers make a just transition To a low carbon footprint and I want to thank him for his many years of service and welcome Alastair to the call.

Speaker 2

Our new CFO has been In that role since November 1, and he's off to a great start, and you're going to hear from him in a minute. So just stepping back on the cover slide, today we reported $7,000,000,000 After tax net income or $0.82 per diluted share, that's up significantly from the year ago period. This quarter was a repeat The themes we discussed with you in the last few quarters, the pre pandemic organic growth engine that is Bank of America is fully back in place and producing success. We had strong organic and responsible growth across all our businesses. We grew revenue and produced positive operating leverage.

Speaker 2

We continue to see very strong asset quality metrics. We support our clients and our need for capital and we made further progress in support of local community efforts I want to congratulate you congratulate importantly and thank our 200,000 teammates around the globe for all the great work They did in 2021 that enabled us to deliver for our clients, our team, our shareholders and our communities. Let's go to start on Slide 2 and a few comments about our full year results. This quarter capped a record year of $32,000,000,000 in earnings for 2021 and represented significant growth in net income over 2020. We even saw a more significant growth in EPS as share count dropped.

Speaker 2

We generated more than $7,000,000,000 of earnings in every quarter in 2021. Revenue grew 4% year over year and activity gained momentum throughout the year. NII grew well in the second half of the year, which complemented fee growth, especially in our markets related businesses. Wealth Management, Investment Banking and Sales and Trading Revenues were all strong in 2021. Pausing NII, Recall that in the Q1 2021, we noted at the time that our expectation is that quarterly NII could progress Up by $1,000,000,000 per quarter as we entered the 4th quarter.

Speaker 2

And in fact, we have recorded 4th quarter NII that That is $1,200,000,000 or 12 percent better than Q1 2021. Our teams managed well through the rate volatility and we grew loans and deposits with our customers as the year That sets us up nicely for 2022 and Alistair is going to talk about that in a minute. Expense was well managed, But expense did go up as we continue to invest for growth, that's Axiomatic. Our COVID related costs remained elevated and revenue related costs grew. So we do not see full year operating leverage.

Speaker 2

We did, however, return to strong operating leverage in each of the last two quarters of the year, restarting our streak that we had before the pandemic. Credit remains stellar through 2021. Charge offs consistently improved each quarter. Our commitment Bonzo Growth remains well placed. We are growing faster in the market and keeping credit costs in check.

Speaker 2

The economic improvement and our strong credit allowed us to release much of the reserves we built 2020. When you look at the balance sheet, we grew deposits $270,000,000,000 in 2021. That was on top of the $360,000,000,000 of growth we had in 2020. Our loan growth accelerates throughout the year. 4th quarter represents the strongest quarter of organic loan growth we have experienced at Bank of America.

Speaker 2

Now of course, that's absent the Q1 2020 At the start of COVID, which had $70,000,000,000 of panic drawdowns in a few weeks. At the end of the day, we produced strong ROA and a 17% ROTCE for your shareholders. We returned $32,000,000,000 in capital during the year. Let's go to Slide 3. The best way to highlight the drivers behind the earnings success is to look at the momentum and client activity across the businesses.

Speaker 2

This shows organic growth Engine is running hard. More and more of this client activity is powered by our digital transformation, which is foundational to everything we do. We are proud of our digital stats and continue to spotlight our results later in the materials as usual. See pages 24 to 28. But some key stats on this page.

Speaker 2

Consumers logged into our digital channels more than 2,700,000,000 times in the 4th quarter alone. Erica, our digital financial assistant completed more than $400,000,000 requests from our clients in the year 2021. Half our consumer sales were digital in the 4th quarter. 86% of all the check deposit transactions are now digital. Customer used Zelle to transfer $65,000,000,000 in the most recent quarter.

Speaker 2

The number of Zelle transactions now surpasses the checks written by our consumers. Cash flow approvals by our commercial and corporate clients to move money grew 2 40% since the pandemic. So the digital journey continues And that supercharges our relationship manager driven model and together that is driven the growth in loans and deposits and fees. Net new checking accounts have grown in each of the past 12 quarters. This contributes to the continued growth in our core deposits.

Speaker 2

This also demonstrates the extent of our leadership position with U. S. Consumers in deposits. We have 1,400,000,000,000 And deposits from all American consumers. On credit cards at roughly 1,000,000 new accounts in the 4th quarter alone, That's now operating at the same level of new card production as it was pre pandemic.

Speaker 2

We're going to continue to drive that opportunity. When you think about consumer investments, Merrill Edge as we call it, we opened 525,000 new accounts in the year 2021. Those accounts carried when renewed at opening $70,000 in balances for each of those accounts. This demonstrates the deep penetration of the mass affluent customer base of America. Sales of bank products in both Merrill and our private bank teams have remained strong.

Speaker 2

Now when you combine Merrill, the Private Bank and Consumer Investments, they produced more than $170,000,000,000 net client flows In 2021, in Global Banking, we had record years of investment banking fees combined with strong GTS results. In global markets, we saw record equity sales and trading revenue. These are just a few examples of the types of client activity that are driving market share gains for our company. As I've done in the past, I want to spend a few minutes on the broader economy and I'll use our own customer data To make a few points, let's go to Slide 4. First on consumer spending, I'd offer a few thoughts.

Speaker 2

We are provider of choice for individuals and businesses when paying for goods and services. Our award winning and easy use capabilities across all forums help clients budget save, spend and borrow carefully and confidently. We look at all forms of consumer spending, including ACH wires, bill pay, P2P, cash and checks. Many firms and many people discuss credit and debit spending. But as you look at the chart on the lower left hand side of Page 4, you can see that 80% of the money moves in other form.

Speaker 2

So what happened in 2021? Well, consumer spent record amounts And for context on comparing 'twenty one against the pre pandemic period of 'nineteen, and you can see that in the upper charts on both sides of the page. Bank of America's 67,000,000 clients made $3,800,000,000,000 in total payments during 2021. That was an increase of $0.24 over pre pandemic levels, an all time high. 4th quarter and December payments also reached record highs.

Speaker 2

4th quarter payments were up 28% over 2019 and December payments were up 30% over 2019. These are the dollar volume payments, but likewise the numbers of payments were up double digits also and showing more and more activity. Just focusing on debit and credit spending for the holiday period of November December, spending was up 26% over 2019. This data confirms that consumers continue to spend into the holiday season. And so far this year that strength continues.

Speaker 2

For all the spending Of all types through January 17, 2022, we have seen it up over 11% versus the start of 2021, which is well up over 2019. That bodes well for the rest of the year quarter. Focusing on the channels of payment in the lower right hand chart, that should expect cash and check volumes are down 24% for 2021 compared to 2019. This simply means more and more customers are using our digital capabilities to achieve their goals each year. Now importantly though, this allows us to grow our consumer business with lower costs.

Speaker 2

We believe there's lots of potential spending capacity left as average Deposit balances continue to move up to the end of the year despite the heavy spending you see. We had 1 segment, 1 cohort of deposits That dipped for 1 month out of last part of the year. In November, we had a small dip in customers who had $2,000 or less in their balances pre pandemic. They dipped by 1%. Other than that, every cohort from June, July, August, September, October, November December all grew every month.

Speaker 2

And what's striking Is that the balances for people had less than $2,000 average balances before the pandemic, they're now sitting with 5 times the balances they had pre pandemic. For those customers at $10,000 in their accounts before the pandemic, they're now sitting with 2 times in their accounts. The teams track this data carefully and it shows the Spending power left in the American consumer. Another economic signpost worth noting due to our customer activity was acceleration of loan growth in the 4th quarter. Earlier this year earlier last year, we talked about the green shoots of loan growth we saw in the Q1 and we saw that turn into growth as we move through the quarters, culminating with $50,000,000,000 in record loan growth this quarter.

Speaker 2

We note these borrowers, both consumer and commercial, have strong capacity to continue to borrow if they So desire as lines across the border in low usage status. We provide Slide 5 To show you the daily outstanding loans again this quarter, which gives you a sense of progression across time. Every loan category saw improvement this quarter except for home equity. What I would draw your attention to on Slide 5 is the addition of the pre pandemic starting points to give you some reference. Well, some of the growth this quarter was in global markets and that business evidence flows with the market activity.

Speaker 2

Dollars 35,000,000,000 of that 50,000,000,000 was in the core consumer and commercial book. So far in January, the businesses other than global markets continue to show growth over the end of the year. So let's start and talk about the commercial portfolio where we have moved above the pre pandemic level with the most recent growth. Commercial loans Excluding PPP, grew $43,000,000,000 or 9% linked quarter. Compared to quarter 3, growth this quarter was broad based across all segments of commercial lending.

Speaker 2

We saw improvement in both new loans as well as improved utilization from existing clients. This reflects the intense relationship manager effort our teams have done and across the last couple of years and adding more and more relationship managers. Commercial loans and wealth management clients extended their growth trend this quarter as these customers barred for Various liquidity needs for asset purchases. In Small Business Lending, the all important small business segment, lending activity is running consistently above And especially in our practice solution group that supports medical, dental and veterinary practices, we continue to see continued momentum and finished one of the best years across all small business with our Businesses Advantage Rewards Cards. Turning to consumer loans, card loans grew 4 point This occurred as spending increased and even occurred as payment rates Paying off the card completely trended higher for the quarter.

Speaker 2

Card balances still remain well below the pre pandemic levels of $95,000,000,000 and we continue to push that opportunity. Mortgage loan levels grew 2% linked quarter as origination remained at high levels and paydown slowed down. On the next Slide 6, I would like I would say that while we deliver the capital back to our shareholders $32,000,000,000 and we invest in our teammates, We also continue to invest in our communities through our local teams across the country focused on our markets. I call out the reference in the bottom of slide Middle bottom middle of Slide 6 to the sweeping changes we announced last week in our NSF policies. These updates continue the work we began over a decade ago to Fire products set and allow a great experience for our clients and an efficient capability for our operations, Eliminating NSF fees and reducing the overdraft charge per occurrence from $35 to $10 and the other changes we're making It's a big win for our clients.

Speaker 2

It's going to have an obvious impact on those fees, which have fallen dramatically since 2,009, 2010, But currently run about $1,000,000,000 in 'twenty one and we expect them to drop by 75% over the next year or so. With that, let me turn it over to Alistair.

Speaker 3

Thank you, Brian, and good morning, everyone. I'm going to take us to our 4th quarter results on Slide 7, Focusing on comparisons against the prior year quarter, and I'll also talk through the high level commentary on Slide 8. As Brian noted, we produced $7,000,000,000 In net income, which grew 28% from Q4 2020, while earnings per share of $0.82 improved At a faster 39% pace due to our share repurchases. Looking at our top line improvement on a year over year basis, Revenue rose 10%. The improvement was driven by a $1,200,000,000 increase in NII And a little more than $800,000,000 increase in non interest income.

Speaker 3

Each business segment produced strong non interest income results. And as you look at significant components of revenue, it was pretty consistent through the quarters in 2021. One important aspect of Responsible Growth has been to grow consistently and sustainably. And I think we executed on that in 2021 with Investment Banking over $2,000,000,000 each quarter sales and training, trading near or above $3,000,000,000 each quarter Investment in brokerage services revenue over $4,000,000,000 each quarter. With regard to expenses, Our revenue related costs increased, and we continue to make investments in our people and our capabilities to grow the franchise.

Speaker 3

At the same time, lower COVID costs and further digital engagement have helped to offset some of those increases. In the Q4, revenue growth outpaced expense growth on a year over year basis, which produced operating leverage of 400 basis points And a 19% year over year improvement in pretax pre provision income to $7,300,000,000 With regard to returns, our ROTCE was 15%, ROA was 88 basis points, both of which improved nicely Moving to Slide 9. During the quarter, the balance sheet grew 85,000,000,000 To a little less than $3,200,000,000,000 and this reflected the $100,000,000,000 of growth in deposits. These deposits funded $51,000,000,000 of loans growth and we also added $14,000,000,000 in securities and saw our cash increased by 68,000,000,000 Partially offsetting these increases were typical year end moves in our Global Markets balance sheet. Our liquidity portfolio grew to $1,200,000,000,000 or a little more than a third of our balance sheet, And shareholders' equity declined $2,400,000,000 from Q3, driven by the $8,900,000,000 of capital distributions, which once again outpaced earnings in the Q4 as it did in Q3.

Speaker 3

With regard to our regulatory ratios, CET1 under the standardized approach was 10.6% and remains well above our 9.5% minimum requirement. CET1 ratio declined 50 basis points from Q3, driven by excess capital reduction as well as an increase in our RWA due to the strong loans growth. And we're happy to see that capital usage increasingly needed to support customers and to fuel their growth, while still producing plenty of capital to return to our shareholders. Earnings alone in the most recent quarter contributed 45 basis points to our CET1 ratio before the other capital impacts of share repurchase. Given our deposit growth, Our supplemental leverage ratio declined to 5.5% versus a minimum requirement of 5%, which still leaves plenty of capacity for balance sheet growth.

Speaker 3

And our TLAC ratio remained comfortably above our requirements. Turning to Slide 10. We included the schedule on average loan balances, but in the interest of time, I don't have anything to add beyond what Brian noted earlier. Moving to deposits on Slide 11. We continue to see significant growth across the client base as we deepened relationships and added Net new accounts across our deposit taking businesses.

Speaker 3

Combining both consumer and wealth management customer balances, I would highlight that retail deposits grew $48,000,000,000 from Q3. Our retail deposits have now grown to nearly $1,400,000,000,000 And we lead all competitors. We also saw continued strong growth with our commercial clients. And remember, the deposits we're focused on And are gathering the operational deposits of our customers in both consumer and wholesale. Turning to Slide 12 and net interest income.

Speaker 3

On a GAAP non FTE basis, NII in Q3 was $11,400,000,000 but I know as investors you tend to focus on the FTE NII number, which was $11,500,000,000 So focusing on the change on an FTE basis, net interest income increased $1,200,000,000 from Q4 2020 Or 11%, driven by deposit growth and related investing of liquidity. NII versus Q3 of 2021 was up $319,000,000 driven by deposit growth and then higher securities levels as well as loans growth. Premium amortization declined roughly $100,000,000 to $1,300,000,000 in Q4 and the positive NII impact of lower premium amortization offset lower PPP fees. Given continued deposit growth and low rates, Our asset sensitivity to rising rates remains significant. It's modestly lower quarter over quarter as long end rates moved higher And we recognize some of that sensitivity in our now higher reported level of NII.

Speaker 3

So I'd like to give you a couple of thoughts on NII expectations for 2022. First, I want to start by reiterating Paul's comment last quarter We expect to see robust NII growth in 2022 compared to 2021. That assumes we see continued loans growth and the rising rate expectations embedded in the forward curve. And in the Q1 specifically, we expect 2 headwinds. First, there are 2 less interest accrual days in the quarter.

Speaker 3

And as a reminder, we picked those back up in the subsequent 2 quarters. 2nd, we expect less PPP fee benefits. Combined, those two headwinds add to about $250,000,000 Despite those headwinds, we would still expect Q1 To be up about a couple of $100,000,000 from Q4 and should grow nicely each subsequent quarter in 2022. Again, that's, of course, dependent upon the realization of the forward curve and some loans growth. Lastly, as we see the forward curve now expecting a new rate hiking cycle to begin, we added Slide 13 as we thought it might be helpful from the Historical context to see the trend of NII across the years since the last rate hike cycle.

Speaker 3

And what I draw your attention to is the stark difference in the size of our balance sheet today. And because of that balance sheet differential, Today's NII is already at the NII level we saw when we were well into the middle of the last rate cycle. And importantly, our short end asset sensitivity today is twice what it was in the Q3 of 2015 as that cycle begins. Okay. Let's turn to costs and we'll use Slide 14 for that discussion.

Speaker 3

Our Q4 expenses were $14,700,000,000 an increase of $291,000,000 from Q3. Higher revenue related costs and to a lesser degree, seasonally higher marketing costs drove the increase. As Brian noted at the mid quarter conference, our Q4 expenses were a bit higher than we anticipated when we ended the last quarter. Revenue continued to hold up well and the company had a good year, both resulting then in higher incentive costs. Compared to the year ago period, expense growth was driven by incentive costs associated with all of our markets related improvements.

Speaker 3

As we look forward, we continue to invest in technology and people at a high rate across our businesses, and we continue to add new financial centers So let me say 2 things about 2022 expenses. 1st, Relative to Q4 expense, we expect Q1 to include 2 elements of seasonality. We typically experienced seasonally higher payroll tax expense, And that was about $400,000,000 in 2021. Also, Q1 is typically our best period of sales and trading revenue, which results in modestly higher associated costs. 2nd, with regard to full year 2022, Our best expectation currently is we can hold expenses flat compared to 2021, which finished just below 60,000,000,000 This guidance incorporates our expected continuing investments, strong revenue performance And the inflationary costs we experienced in the second half of twenty twenty one.

Speaker 3

It also relies upon our continued expense discipline, Operational excellence improvements and the benefits of digital transformation to deliver the operating leverage we seek. Turning to asset quality on Slide 15. The asset quality of our customers remains very healthy And net charge offs this quarter fell to a historical low of $362,000,000 or 15 basis points of average loans. They continued a steady decline through the quarters of 2021 with Q4 down $100,000,000 from Q3 And down more than $500,000,000 from Q4 last year. Our credit card loss rate was 1.42% and that's less than half of the pre pandemic rate.

Speaker 3

It improved each quarter during the year. Several other loan product categories have been in recovery positions throughout the year. Provision was a $489,000,000 net benefit in Q4, driven primarily by asset quality and macroeconomic improvement And was partially offset by loans growth. This included a reserve release of 850,000,000 primarily in our commercial portfolio. And on Slide 16, we highlight the credit quality metrics for both Our consumer and commercial portfolios.

Speaker 3

Turning to the business segments, let's start with Consumer Banking on Slide 17. I'll start by acknowledging what a strong year the consumer bank has had as they generated nearly $12,000,000,000 of earnings, which is 37% of record year results for the company. Consumer opened over 900,000 net new checking accounts. And in fact, this quarter represents their 12th consecutive quarter of net new consumer checking account growth. And in turn, consumer grew deposits by more than $140,000,000,000 They opened 3,600,000 credit cards And grew card accounts in 2021 by more than any of the past 4 years.

Speaker 3

This helped card balances grow in Q4 Despite payments remaining high, they also opened 525,000 new consumer investment accounts, And that helped us to reach a new record for investment balances of $369,000,000,000 growing 20% year over year As customers continue to recognize the value of our online offering. Yes, market valuations grew balances and We also saw $23,000,000,000 of client flows since Q4 'twenty. So Q4 was a strong finish to these results. And in the quarter, the business produced $3,100,000,000 of earnings, off $8,900,000,000 of revenue and managed costs well. Our 8% revenue growth was led by NII improvement as we continued to recognize more of the value of our deposit book.

Speaker 3

And while revenue grew, expense declined by 1% year over year, generating over 900 basis points of operating leverage. Lower COVID costs An increased digital adoption by clients more than offset our continued investments in people and our franchise. This expense discipline has now driven our cost of deposits to an industry leading 111 basis points. Net charge offs declined and we had $380,000,000 of reserve release in the quarter. And as you can see and as I already noted, Deposits continued to grow strongly both year over year as well as linked quarter.

Speaker 3

Importantly, our rate paid remained low And stable. Turning to the Wealth Management business. Bank of America continued to deliver Wealth Management at scale Across a full range of client segments. The continued economic progress, strong market conditions and the efforts of our advisers Contributed to strong client flows and net new household growth. This allowed Wealth Management to generate more than $4,000,000,000 in earnings in 2021, Up more than 40% from 2020.

Speaker 3

In Q4, this powerful combination of Merrill Lynch and our private bank produce records for revenue, earnings, investment balances and asset management fees as well as record levels of loans and deposits. In fact, with regard to loans, this is the 47th consecutive quarter of average loans growth in the business. It's consistent and it's sustained. Q4 net income was $1,200,000,000 improving 47% year over year and driven by strong revenue growth, Good expense controls and lower credit costs. Revenue growth of 16% was led by strong improvements In both AUM and brokerage fees as well as higher NII on the back of solid loan and deposit increases.

Speaker 3

Expenses increased 8% in alignment with the higher revenue and resulted in 800 basis points of operating leverage. Client balances of $3,800,000,000,000 rose $491,000,000,000 up 15% year over year, driven by higher market levels as well as very strong net client flows of $149,000,000,000 Within these flows, Deposits grew $68,000,000,000 year over year to $390,000,000,000 and loans grew $21,000,000,000 year over year to $212,000,000,000 And that loan and deposit growth is further evidence that more and more Merrill and Private Bank clients are using the bank's products broadly. Net new household generation is getting closer to pre pandemic levels as advisors are meeting in person more with clients And are building their pipelines back following the shutdown during the pandemic. This quarter, Merrill Lynch net new households of 6,700 And Private Banking Relationships net new of 500 were both up more than 30% from the year ago period. The clients of this business continue to lead our franchise in digital adoption, utilizing digital tools to access their investments And also for other banking needs like mobile check deposits and lending.

Speaker 3

The evolution is forming a modern Merrill, which is advisor led And powered by digital. Moving to Global Banking on Slide 19. The business momentum through the back half of the year was strong. Net interest income grew on the back of accelerating loans growth. Investment Banking fees reached record levels and deposits continued to grow as clients navigated the pandemic.

Speaker 3

We also saw strong demand from our clients around ESG investments, driving improvements in bottom line results. Net income for the full year was a record $9,800,000,000 or 31 percent of the company's overall net income. The business earned $2,700,000,000 in Q4, improving nearly $1,000,000,000 year over year, driven by higher revenue And lower provision costs, partially offset by higher expenses. Revenue improvement of 24% year over year Reflected more than 30% growth in Investment Banking fees in this segment, and net interest income increased 18%. This Investment Banking performance allowed us to gain market share and record a number 3 ranking in overall fees In what was a very strong Q4 market.

Speaker 3

We ranked number 1 in investment grade and number 2 in leverage finance with market share improvement compared to the year ago period, And we also saw another record M and A period. And most importantly, our investment banking pipeline remains quite healthy. Provision expense reflected a reserve release of $435,000,000 compared to a $266,000,000 release in the year ago period. And what I draw your attention to here is the reduction in net charge offs year over year from $314,000,000 in Q4 of 2020 The small recoveries in Q4 'twenty one, that year ago period included some losses from clients in those industries that were heavily impacted by COVID. Finally, given the strength of revenue, we saw expenses increase by 12%, which is still only half of our increase in revenue.

Speaker 3

Switching to Global Markets on Slide 20. Full year net income of $4,600,000,000 reflects another solid year of sales and trading revenue. This included a record year for equities, up 19% versus 2020. Investments made in this part of the business are seeing good results as our financing clients are doing more business with our company. As we usually do, I'll talk about the segment results, excluding DVA, even though net DVA was negligible in both Q4 21 Q4 2020.

Speaker 3

In Q4, Global Markets produced $667,000,000 in earnings, $167,000,000 lower than the year ago quarter. Focusing on year over year, revenue was modestly down driven by sales and trading. Sales and Trading contributed $2,900,000,000 to revenue, a decline of 4% year over year. FIC, down 10%, While equities improved 3%. Thick results reflect a weaker credit trading environment in Q4 'twenty, And the strength in equities was driven by growth in client financing activities and the multiplier effect.

Speaker 3

The year over year expense move was driven by investments and revenue related sales and trading costs, partially offset By the absence of costs associated with the realignment of a liquidating business activity to the all other units in Q4. Finally, on Slide 21, we show all other, which reported a loss of 673,000,000 which declined a little more than $250,000,000 from the year ago period. Revenue declined as a result of higher volume of deals, Particularly solar and partnership losses on ESG Investments. That's offset by the tax impact in this reporting unit. Expense increased as a result of costs now recorded here after the Q4 realignment out of Global Markets, which was partially offset by decrease in various other expenses in the segment.

Speaker 3

That realignment obviously had no bottom line impact on our company overall. As a reminder for the financial statement presentation in this release, the business segments are all taxed On the standard fully taxable equivalent basis. And in all other, we incorporate the impact of our ESG tax credits and any other unusual items. For the full year, the effective tax rate was 6%. And excluding the Q2 'twenty one positive tax adjustment triggered by the UK tax law change and other discrete items, The tax rate would have been 14%.

Speaker 3

Further adjusting for ESG tax credits, our tax rate would have been 25%. And looking forward, we would expect our effective tax rate in 2022 to be between 10% And 12% absent any tax law changes or unusual items. And with that, I think I'll stop, And we'll open it up for Q and A.

Operator

Our first question today comes from Glenn Schorr with Evercore. Your line is open.

Speaker 4

Okay. Thank you. I'll try to ask this as easy as possible. But in the wave of a Couple of other companies in the space talking a lot about compensation and stepped up investments. I think a lot of shareholders love See and hear your comments about all else equal, flattish expenses in 2022.

Speaker 4

And so the simple enough question is How do people take comfort to know that you're making all the right investments to continue to compete And take share and migrate digitally like you have been doing, but we are seeing so much competition across all your business lines. So Just looking for some warm fuzzy blanket words of encouragement. Thanks.

Speaker 3

Well, I'll just start, Glenn, by Reiterating what you just said, you said we're taking market share. So I'd say we've sustained our technology investments all the way through the pandemic. We've sustained our financial center renovations. We've sustained our marketing. We've sustained our investment in relationship managers.

Speaker 3

And the result of that is in many cases record client experience. And you can see I think in our numbers that we're doing more business with our existing clients. We're adding net new clients and we're growing market share and we're getting the 3rd party recognition as well. So I think it's results It's how you will judge us on the technology, but we're obviously very competitive in that regard.

Speaker 2

So Glenn, let me just throw Couple of things. One, obviously, it's actually a matter that revenue from markets related business, whether it's in wealth management Investment Banking teammates or it's in the markets business. So Jimmy Demara and Matthew Coder and Andy and Katie have done great jobs and that's just that's a given. They're going to go up and you see that. Those numbers are up dramatically over the last couple of years as markets have But you invest a lot of ways.

Speaker 2

So we'll never have the temerity to say that we know every possible competitive thing could happen over the next decade in this company. But If you look across history, which is what Alistair is referring to, we've invested new technology development, dollars 3,000,000,000 to $3,500,000,000 year after year after year and we tend to invest in things that work and then drive them and scale them. And so You see that if you look at pages 24, 25, 26, 27 and just start to think about what we said earlier. Zelle is more transaction count than checks written. You think about that change.

Speaker 2

Think about the change in the branches that Basically, in our expense guidance, we'll open 100 new branches this year on top of the 200 and some we've opened in the last 3 years. But importantly, we shifted from other places and that we brought branch count overall down as we've been doing that. That means we're opening up new markets, gaining market share, as Alistair said, And using expense base and others. So whether and then in our broad based teammates, we basically have gone to $21 an hour. Our attrition rates are similar to where they were in 2019, which was a 10 year low.

Speaker 2

So think about we've invested heavily, we've invested broad based, But you're seeing the activities going. And if you start to think about the retail deposits per branch or multiples of other people, so you think about We have 4,100 branches. We have $1,000,000,000,000 in consumer deposits and $400,000,000,000 in wealth management deposits. So That operating leverage is what we do. So we're an operating leverage company.

Speaker 2

We're not a cost takeout company anymore. We haven't been. But we see the path Forward of flat expenses next year and frankly there was a lot of one time stuff that went through the last couple of years that is coming to an end and that will Reposition that to help pay for the types of things, revenue related growth and investments that we think are important. But just look at those stats and see what we've done. And I think That's where we get the confidence.

Speaker 4

All right. I'll leave it at that. Thanks very much.

Operator

The next question comes from John McDonald with Autonomous Research. Your line is open.

Speaker 2

Good morning. Alistair, I was wondering if you could unpack the outlook for robust net interest income growth in 2022. Kind of wondering what kind of loan growth assumptions are you building in for the year and how do liquidity deployment and premium amortization assumptions

Speaker 3

Okay. So let's start with loans growth. We're pretty optimistic on loans growth. You can see on Slide 5 just the consistency. That's daily.

Speaker 3

You can see the consistency of the growth. It's broad based Today relative to where our loans were in 2019 pre pandemic. So we know there's some potential for catch up there. And we can see that in our data too, John. Our revolver utilization rates are still lower than historic levels.

Speaker 3

So we feel like there's some potential there. And in things like Card payment rates are still elevated. So there's a variety of things there that make us feel good about loans growth, certainly more bullish than we might have been In a pre pandemic GDP type 2% to 3% kind of environment. So we're pretty optimistic on loans. I think you need to think about that in the sort of high single digits.

Speaker 3

And then when it comes to you can see when we put forth Our asset sensitivity numbers at $6,500,000,000 for a parallel shock is meant to give you an idea of how we believe we're levered to rates. I'd say about 75% of that is probably the short end, probably 25% is the long end with things like premium amortization And that's probably how we'd break it down. Okay.

Speaker 2

And then as a follow-up, can Can you talk a little bit about how you're managing to your capital minimums? What kind of cushion do you want to keep to the SLR? Just remind us the target on CET1 and how to buybacks, which seems like you've accelerated in the back half of 'twenty one. How does that factor The overall calculation of managing growth and capital. Thanks.

Speaker 2

Sure, John. If you go back, John, for many years in our discussions, we've had excess capital despite the many ways that the Capital process increased the capital requirements for large companies like ours including the introduction of the G SIPI buffer etcetera, etcetera and then the stress testing and SLR Etcetera. So we've always said we'd maintain 50 basis points to 100 basis points of cushion. We're now getting close to that. But the reality is that we are seeing the kind of organic growth that is what you want us to see investing in the client franchise, whether it's in the Markets business having 20%, 25% more balance sheet deployed and seeing that pickup and having a record amount of revenues, whether it's the deposit growth We're now $2,000,000,000,000 deposits and $1,000,000,000,000 in loans and it has grown well.

Speaker 2

So expect us to have a different equation, which is We'll still pay out dividends around up to 30% like we said. We used to say the other 70% would come back to you. Now there'll be some for organic growth if in fact we get down to the 10.5% levels and the rest we repurchased on a quarterly basis. But at an earnings rate of $7,000,000,000 there's a lot of capital deployment even embedded in that.

Speaker 5

Okay. Thanks, Brian.

Operator

We'll go next to Mike Mayo with Wells Fargo. Your line is open.

Speaker 6

Hi. I guess first Brian and then Alistair. You talk about the benefit of higher rates, but I think for you and the industry, it's the benefit of Better relationships to the extent that relationships are sticky as rates increase. So if you can just give some metrics around Retention. And then specifically, as far last year, you gave an NII guide of $1,000,000,000 higher.

Speaker 6

Can you give us some sense where you expect NII to be from 4Q 2021 to 4Q 2022? Thanks.

Speaker 2

I think on your very last point, Alistair gave you the starting point and gave you robust strong enough because it And a little bit on the path forward, we're $6,500,000,000 of rate sensitivity, 100 basis point increase as we said. So We'll let you figure out when those rate changes come through. But backing up to your broader point, Mike, at the end of the day, In the consumer business, what drives our capabilities there is the preferred group of customers that are 80% plus of the balance retention rate through preferred rewards and the millions of people we have in it is 99% plus. And those customers have tremendous relationship with us And we invest across whether it's the preferred rewards as you know go across the whole business and not just by products. So those customers Get rewards and credit card that they pay for by giving us deposits.

Speaker 2

If you go to wealth management, you can see if you look at the stats, You can see the strong growth not only in what you'd expect in the AUM side, but the client flows in deposits and other products as the We continue to drive the core deep relationship across in the private bank, but importantly Merrill across all And even as we enter new markets where we didn't have banking capabilities, Columbus, Ohio, for example, there was robust Merrill capabilities we're building underneath. So Yes, that relationship and then if you move to commercial side, it's the same thing. So our deposits in commercial are strong. They are all operating deposits The lion's share of them, they're part of what we core do, but they build off the backs of that great relationship management practice and the GTS capabilities of which we 1,000,000,000 of dollars in across the last things. And what seals that all together is not that these are decillion group of enterprises that I'll go off and operate is the common Things that they have together which are things like the digital capabilities which we give you the capabilities that backbone It goes across all our customer sets and that enables us to drive it.

Speaker 2

And also how they work together in the markets. We will set a record. In 2021, we ended up getting back to where we were referrals from 1 business to the other in every market and those are important ways that we cement the relationship. Our Commercial Banking Investments Group, as we call it, has millions of customers that through our corporate relationships that have priority access. So It is about how you build the franchise and concentrating on 8 lines of business and how they work together.

Speaker 2

Our merchant sales are back Way over where they were when we had the joint venture. Our 4 1 engagements are way up and again that's going through the franchise. So we feel good about the relationship

Speaker 6

Well, Brian, aren't you tempted to take some of the assuming you get $6,500,000,000 of benefits, Aren't you tempted to take some of that and spend more? Because it seems like you're letting that fall to the bottom line. What are your considerations when you say, and we'll let that fall to bottom line instead of making additional investments? And also, what do you think about expenses, say, in 2023?

Speaker 2

Well, I think when we we're flat next year. We Mike, if you remember back leading in the pandemic, we had I think 20 quarters of operating leverage in a row. But we are starting to make the turn from expenses going down and then flattening that we're going to have to start growing again to allow for the Rate of investments in compensating our teammates well, etcetera. So we feel that that rate of investment is embedded in the run rate. And would we start to grow expenses at I think that will be based on really some of the market related revenue and incentives that drive it.

Speaker 2

But We still have a lot of room to go on a day to day basis and cost takeout in this company from reinvesting that in OpEx and stuff. It is Yes. Think about that check 2 years 24% less checks going through the system. That's by driving those capabilities allows be more efficient. So it will go to the bottom line because frankly most of that value comes off the consumer franchise, which has been investing Heavily in whether it's Merrill Edge, whether it's a card business, whether it's the rewards, which are huge investment in our client base, Meaning that those charges go up and the revenue doesn't go up as much.

Speaker 2

That's actually investment. And whether it's the branches and the new branches, new markets and then But Dean and the team have been experts at repositioning expense base for more efficient execution.

Speaker 6

Now do we start counting again the number of Quarters in a row that you achieved positive operating leverage, you're at 2. You're trying to break your 20 quarter record or?

Speaker 2

Well, we're at 2. So if we got some room to go. So We're working on it, Mike, and we'll keep plugging away. But you know us, we know how to manage expenses in this company. I wouldn't be here if we didn't I think we could do it the right way and invest in.

Speaker 2

So I think people should be confident that We count heads. We're down 4,000 people in the quarter in the year from 2 12 to 2 0 8. And all those people are going to make more money because they've had a fabulous year. But The reality is we keep managing the overall human countdown, which is our biggest cost.

Speaker 6

All right. Thank you.

Speaker 5

Thanks, Mike.

Operator

We'll go now to Jim Mitchell with Seaport Global. Your line is open.

Speaker 7

Hey, good morning. Maybe a question on credit. I think we're all sort of ignoring that now, but you've seen your all time loan net charge offs, particularly in the card business. I think the consensus is that we'll see a normalization process in the back half of this year and into 2023, but we're not seeing any change really in delinquencies. Are you in that camp that we're going to see normalization?

Speaker 7

What are the drivers that or is there some sort of behavior mix change Among customers that maybe we can be a little bit more optimistic on charge offs over the next 18 months?

Speaker 3

Well, Jim, we're seeing the same thing you are. So when we're looking at our 30 days past or 60 days past or 90 days past, they're staying at those same low levels you talked about. When Brian talked about customer balances being elevated, in some cases up 5 times where they were pre pandemic, That's probably what's accounting for a lot of the consumer credit quality improvement. We're anticipating at some point it will Go back towards more normal historical levels. We just think it's going to bump around here for a little while.

Speaker 3

So we don't see we don't have a particular timeline on that at this point, but I'm not sure we'd be betting on behavioral change.

Speaker 7

Okay. Thanks for that. And then just as a follow-up on the Wealth Management business, there's nice acceleration in new households and deposit growth and net flows. But even as FA headcount kind of trickles down, I guess, how are you improving productivity there? And do you see A time where you start to see net FA headcount grow to kind of accelerate that growth?

Speaker 2

Yes. Jim, if you look at the Quarter by quarter progression on that in the supplement or something, you can see it's starting to flatten out. A lot of that adjustment in the recent past has been due to The work that Dean and Andy did with Aaron Levine and others on their combined training programs. So we're training we had 2 training programs Running and etcetera. We combined all that and so that now has sort of stabilized and so you'd expect us to see Slow growth out.

Speaker 2

For the Merrill Edge customer, it's largely a digital execution and that's where the real growth comes from and that's sort of implement leverageable. That deposit that balance is there $300,000,000 plus 500,000 new customers growing well. And for Merrell In the private bank, it is people and you'll see that flatten out come up, but that had largely due to the repositioning of the training program that the team Accomplished. And so now we train one set of advisors. They have different career paths in our company, but it makes us more efficient going to the ability to keep managing expenses.

Speaker 2

And so you're seeing good household formation. The marginal productivity of our advisors is through the roof And you can see that, but the reality is you want to have the growth in flows in that $170,000,000,000 for the year is a pretty substantial increase over any Year passed, I think it's either twice or almost three times. So we feel good about it. In a year when remember you still couldn't meet face to face with your clients a lot, It was it's not the easiest year to develop business too. So the team did a great job.

Speaker 7

Absolutely. Thanks, Brian.

Operator

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

Speaker 8

Yes. Hi. I just wanted to ask Alistair, a follow-up question on NII. In that $6,500,000,000 number, what kind of deposit repricing is embedded in your And as you look at potential actual performance for the year as opposed to the sensitivity, How should we expect total deposits to trend in terms of growth or attrition and also repricing?

Speaker 3

Okay. So obviously, it feels like right now we're at the beginning of a new rate hike cycle. And so we're looking back towards 2015 to 2019 is the most recent rate hike cycle. During that period, Erica, we had deposit beta probably between 20% 25%, Somewhere in the middle of that. We'd like to think this time around it'll be something similar, hopefully a little bit better based on what we've learned and based on the value we add to our customers.

Speaker 3

And then in terms of deposit growth, we have deposit growth moderating Back towards more normal growth over time, just recognizing we're coming off of 2 years of extraordinary monetary and fiscal stimulus.

Speaker 8

Just to confirm, given the deposit growth that you're seeing, you mentioned that most of your growth is Concentrated in operating accounts, you don't expect declines in deposits as rates rise?

Speaker 2

We didn't see it last time. From 2017 to 2019, we saw our we continue to grow deposits Better than history and they grew throughout that period of time. And so because of the nature of what they are, We get the economists to go through all the withdrawing and the things and because of some of the off balance sheet financing the Fed has put together. But there's a strict matter. The last time we did not see deposits go down as the Fed's balance sheet shrank by from $8,000,000,000,000 or whatever the peak was down around 4.

Speaker 8

Got it. And just taking a step back, this question is for Brian. Brian, one of your closest peers, JPMorgan, Sort of gave a medium term ROTCE target of about 17%. And as you think about BofA over the next A few years, when you think about normalizing rates, your comment about self funding the investments, A much bigger balance sheet. I don't think we've seen high single digits growth in quite some time.

Speaker 8

As we put all of that together, what would you tell Your investors with your ROTCE medium term target would be in a normalized rate environment?

Speaker 2

We've always said that our job is to keep that well in excess of our cost of capital and we've done it. And I think Again, because of the leverage and rate increases instantaneous impact to business like the consumer business, which It doesn't need any more capital and we'll grow. We feel good about it. But we have focused people on that. We'll continue to grow the earnings at returns that are Yes.

Speaker 2

We used to say 10% to 12%, now I'd say 15% and we'll continue to do that. But we need to balance the Rob, nominal returns of growth and last year we had good RTCE and we expect to maintain that.

Speaker 8

Thank you.

Operator

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

Speaker 5

You made some significant announcements on overdraft NSF, and I think you framed the drop versus 2010, if I remember correctly. But just how much we'll be modeling if that goes down in the next couple of years, say, versus the 'twenty one level? And then also remind us what else is in service charges. I think you have a bunch of commercial fees and there's always some confusion in terms of what that is.

Speaker 3

So let's start with NSFOD. What Brian's outlined is we think there's about $1,000,000,000 in there have come down over time, probably around 75% of that this year, just to give you some idea. Obviously, we're making those changes as we update systems and processes, etcetera. So that's some in February, some in May. I think Lee and his team can help you with timing, but that gives you a ballpark for how to think about that.

Speaker 3

And then just ask me the service charges, just Explain that one more time.

Speaker 5

Yes. I think a lot of investors look at service charges and think it's all consumer, but I think there's a lot of commercial fees in there too. And What exactly are those and remind us like how those react as interest rates go up?

Speaker 2

Yes. So those are the GTS fees, so Global Transaction Services. So people can pay us cash fees or they can pay us the balances of which we get the earnings Great. Let me get my credit as you all know. So generally when rates go up, the dollar value of the earnings credit goes up and therefore people Shift a little bit to that.

Speaker 2

So I look, Lee could take you through some of the dynamics. But yes, there'll be Pressure on that feline, but we'll be earning money a different way. Believe me, all in you make a lot of money and It's different for largest companies versus small businesses and things like that. So it's a complex thing and it also comes back to how you The deposit betas in the commercial business that Alastair referenced earlier. Also in that fee line is monthly maintenance fees for accounts on both Commercial small business consumer side, there's other things in there.

Speaker 2

But the NSF is the one that we in OD, we wanted to focus on, which we gave you about $1,000,000,000 in Change and it's down 75%. Other than that, it ought to bounce around and kind of go up or down a little bit, but I wouldn't be too overly worried about the other pieces.

Speaker 5

Okay. That's helpful. And then just a quick clarification question. Also, you mentioned about high single digit loan growth in 'twenty two. Was that on a full year kind of average basis or period end or what how would you frame that?

Speaker 3

Yes. I'd say that's kind of a full year kind of a growth rate average. And I would just say, it's early in the year, but I guess what we're trying to impress upon you is we're pretty optimistic based on everything we've seen.

Speaker 5

Okay. Thank you.

Operator

We'll take our next question from Ken Usdin with Jefferies. Your line is open.

Speaker 9

Hey, thanks. Good morning. Just wanted to follow-up on the rate sensitivity in the NII Look, obviously, what you give us in the $6,500,000,000 is the banking book. Can you help us just understand the rest of the balance sheet, the institutional part that's I think historically more liability sensitive. What's the best way of us trying to understand like how that nets out in terms of the true underlying benefit From rates as we move higher overall for the balance sheet?

Speaker 3

Yes. So we'd say our markets business, generally speaking, is Pretty liability sensitive. So the short end will have a modest impact negatively on us. And then it's Liability works in our favor on the long end. So obviously, when we're carrying things short, longer assets, we We end up making some money there.

Speaker 3

So it's probably a few 100,000,000 negative at the short end over a 12 month period. It's probably a Couple of 100,000,000 positive at the long end over a 12 month period, but that's ballpark how to think about it.

Speaker 9

So it's really not a meaningful net down impact then?

Speaker 3

No, not compared to our asset sensitivity. The power of the franchise is liability price insensitive deposits.

Speaker 9

Yes. Okay. And on that second point about the deposit growth is just outstanding. And you mentioned earlier that It's good to see the good stuff growing, but you are getting tighter on your SLR and your CET1 versus your targets. So as you go forward, would you consider issuing more press to keep that buffer free?

Speaker 9

Or is it more that you just Let the balance sheet grow and take the RWAs at the trade off of lower buyback.

Speaker 3

So I'll talk about the SLR. I think Brian talked about CET and buyback earlier. But obviously with SLR, we've got a couple of different levers there. One is prefs. As you saw in Q4, we issued about $1,300,000,000 in pref, which obviously Get some more balance sheet flexibility where we need it and when we need it.

Speaker 3

And look, I'd just say, when we have customers coming in here about to establish a relationship For the course of the next 50 years or in the case of commercial clients for the next decades, we're going to make sure that we're in a position to take their deposits And establish that relationship for the long term.

Speaker 9

Yes, that's exactly why I asked. Okay. Thank you very much.

Operator

We'll take our next question from Betsy Graseck with Morgan Stanley. Your line is open.

Speaker 10

Hi, good morning.

Speaker 3

Good morning.

Speaker 10

Alistair, a question just sorry, as we think about Securities reinvestment in this rising rate environment, should we think about Trying to keep pace with where the yields are today and shortening the duration of the book, which reduces potential AOCI risk Or should we anticipate that you would be more likely to keep duration where it is and benefit from a yield pickup as rates rise?

Speaker 3

So I'd say with respect to our securities reinvestment, Right now, we're finding that we're we've got the kind of loans growth that we want to see generally speaking. It's obviously we've come off a period where We didn't see that loans growth. So with the excess liquidity, we were in a position where we were looking primarily in first at securities. Now we're moving more towards loans. So if you looked at our last this last quarter, we added $51,000,000,000 loans.

Speaker 3

We added $14,000,000,000 in securities. Now we're obviously going to be careful with respect to the OCI impact. And when you look at our balance sheet, you'll see most of the securities available for sale Our treasury swapped to floating. So that's going to have obviously a pretty substantial offsetting effect to anything that happens with higher rates. And then I'm not sure we're going to necessarily change our duration profile around the securities portfolio.

Speaker 3

Remember, we have a lot of that rolling off every quarter And then we tend to just put more back in the stack over time. So with any luck, we'll continue to see the loans growth. That will be our primary focus.

Speaker 10

Okay. No, that's great. Very helpful. Thank you. And then, Brian, I know we talked a lot about reinvestment In the franchise and the platform, I wanted to ask that question from a slightly different angle.

Speaker 10

We get Obviously, we're all very well aware of FinTech Competition and what's going on, technologically speaking, that enables Not only competitors in the banking space, but non banking space to be more active in finance. When you think about your current platform, Is it at the end state that you want or is there more to do with regard to leveraging cloud and AI To enhance the efficiency of the organization overall or maybe that's not even a potential outcome of shifting the technology, maybe there's something else I'm not thinking about?

Speaker 2

I don't I think cloud AI is different, but cloud Our internal clouds, what we do with external has largely to do with cost, flexibility, security, what apps, Applications that we're running and how do we do that, but security and the ability to integrate it and the ability to be never down and things like that I'll hide our minds. I could put that aside. The ability to continue to improve our platform is infinite. And you see it. I mean, you could have asked me this question 2 quarters ago and You would have had, if you look at the pages in 24 to 27, look at the statistics from 2 quarters ago.

Speaker 2

And what drives these Changes is things like Erika going from 17,000,000 to 24,000,000 users and 30,000,000 interactions to 120,000,000 Q4 last year, the Q4 this year is because of the feature functionality and capabilities that go up. Our life plans, 7,000,000 people I think are using them. They have 20%, 25% more balances because of what they're doing. So we'll never be at end state. I mean that's where we continue To drive investment, digital sales capabilities, we're only starting to be able to take full advantage of it frankly across the platform because You had to get end to end, you had to get it all knocked together and then it's kind of interesting because it's growing Quickly now.

Speaker 2

So small business capabilities, the whole merchant services, we finally got a new platform out of a cost of $300,000,000 it's now being sold. Those are Major investment. So the question is do we appeal? And we open at twice the population rate For young for people between the ages 18 24 in terms of new accounts, we seem to be gaining share in that segment and the usage by that segment is high. And so we feel very good that our platforms appeal to obviously appeal to every cohort of age And experience and that's what we're driving at.

Speaker 2

And then look at Merrill Edge, 500,000 new accounts, dollars 70,000 average balance. Those are deep clients with real money put into work. And so are we satisfied? Yes, we can take a look at all the awards and the Growth and feel good and feel spectacularly good about it. But you can be satisfied that way, but that would be dangerous.

Speaker 2

So we continue to invest and you can see the numbers of patents We will continue to invest heavily in this platform and what it takes us to, it is still ahead of us.

Speaker 10

Okay. And when you think about where you are leveraging the technology in the consumer and wealth versus Maybe the high net worth piece of your business versus the institutional piece, are you do you feel like you're running a pace at each of those? Or is there More significantly more do in one of the sleeves.

Speaker 2

I think the investment in the Commercial cash management side is just as we continue to drive global business continues to be high. And I'd say Yes. That is Ahmed and the team there continue to challenge themselves to how much more we could do. The investment, We've invested in merchants, now we've got to sell it and Mark Monaco and the team are driving that. And so there's I think there's a different again, this is A group of businesses have commonalities and differences and the investment in markets, technologies and stuff is critically important, but we built The data capabilities, I think, called quartz over the years at $1,500,000,000 cost That enables us to build on that platform for risk and finance and markets.

Speaker 2

And then now we're continuing to enhance that. So I'd say each one is a different story, But all will be better and all we're investing heavily and we've made choices about the Biggest constraint is doability. How much stuff can you get done? It's not the money. It's really a question.

Speaker 2

You got to make sure you do it right and don't screw it up And that it's going to really stick to the ribs when you start driving.

Speaker 10

Thanks, Brian.

Operator

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

Speaker 11

Hey, good afternoon. So, wanted to start off with just a clarifying question on some of the ESG investments. I know you provided the guidance on the tax rate of 10% to 12%, which includes that benefit from those investments versus 2021, is there any incremental drag to other income Now we should be thinking about as the pace of those investments steadily builds.

Speaker 3

Yes. So Stephen, I think we're continuing to do More with our clients in terms of the ESG side. So I think when you're modeling, I'd use Say $400,000,000 to $500,000,000 for Q1 to Q3, and then I'd use just a few $100,000,000 higher for Q4.

Speaker 11

Great. And just a question on follow-up on capital. I was hoping you could just provide some Early insights or perspective into how you're handicapping the impact of Basel IV adoption in the U. S? And how you think your position relative to peers given lots Significant changes to the regime, some positive, but also quite a few negative.

Speaker 2

Good. Like any other regulatory change when it comes, we'll deal with it. But these things have impacts, like you said, plus and minus and life will go on. It It may cause the staff to adjust a little here and there, but we still have optimization ahead of us in the balance sheet that we can continue to But when they develop a real set of when a set of rules get developed and put in front of us and become final, we'll implement them. But my guess is it won't be anything that we It won't be as dramatic as going from $60,000,000,000 of required capital to $175,000,000,000 of tangible common equity over the last decade, believe me.

Speaker 11

Fair enough. If I could just squeeze in one more follow-up, just a clarifying question on the NII guidance. Just to help with benchmarking versus peers, they've all guided On 'twenty two NII based on the forward curve, I was hoping you could provide just more explicit guidance for full year 'twenty two NII if in fact The forward curve materializes.

Speaker 3

Yes. So look, one of the reasons we don't provide full year It's because we don't control what the Fed does in terms of number of hikes, but nor the size of each, nor the timing. And those things we can control like expenses, we're quite comfortable with. So So I think beyond any guidance we've given today, Stephen, I would just follow-up with Lee probably.

Speaker 11

Okay, understood. Thanks so much for taking my questions.

Speaker 3

Thank you.

Operator

We'll take our final question today from Gerard Cassidy with RBC. Your line is open.

Speaker 2

Hey, Gerard.

Speaker 12

Hi, Brian. How are you? Frank, can you share with us your thoughts? You guys have committed to, I think, it's $1,500,000,000 in sustainable finance Commitments out to 2,030. And I'm not asking so much on the climate change and that Type of risk, I think we all understand that.

Speaker 12

But can you share with us what the financial risk is? When you think about Your credit card receivable delinquencies, obviously, the unemployment rate was to double or triple those delinquencies, obviously, would go up. So we could kind of measure Where we think delinquencies could go based on economic activity, but what should we be looking at when it comes to sustainable finance? Just some of the risks that we should be aware of out there. Again, not the climate part, I'm thinking more the financial part.

Speaker 2

Well, at the end of the day, these are companies and projects that have to be underwritten. And so if some of them don't go well, So some of the renewable things don't work the way people want them to. So it's a good core and you got to Bruce Thompson and the team in credit And Jeff Green and her team in Risk, I think our track record underwriting credit is strong. And so there's a business plan and our investments are to help our clients make the Transition, we already invest $80,000,000,000 to $100,000,000,000 and this is a step up from that as we move forward in 2021 was a step up. So it's not some We've got to go out and do things we haven't been doing.

Speaker 2

We have to just do more of what we've been doing. Each individual deal is underwritten. So So what's the risk? The risk on the renewable side doesn't work and the risk on the other side is the value of assets comes down because the cash flow start to get impaired by regulation, Customer change and things like that. And so as we go forward, additional consideration of the business plan of A heavily emitting industry will be will its business model sustain in the change in customer behavior In use of things, in the near term demand for all energy is going up and the challenge for society is how we meet the needs to Have adjust transition occur for everyone while changing the emission structure.

Speaker 2

But over time, business plans of both the emitter side and renewable It will come cleaner based on customer behavior. People like ourselves reducing our demand for energy, it infects our power companies and how they Supply and our demands of our power companies do more renewables, that's going to reverberate through our 30,000 middle market clients and our millions of small businesses piece by piece by piece. So I don't know if that's entirely where you're going Gerard, but it's going to come down to good core underwriting given the circumstances of the individual company, its business and its Plans and what its transition plans are and the disclosures they make to us the underwriting process. But we've done a great job in commercial underwriting. You'd have to agree with that over the decades.

Speaker 2

So I think We'll adjust each deal and each quarter, each deal and each company and each portfolio as we move along.

Speaker 12

No, no, that is helpful. Thank you. And you haven't done a good job with the underwriting, absolutely. The follow-up question, Brian, You've expanded into some new markets. I think you mentioned on the call today, maybe Columbus, Ohio, if I recall, was a relatively new market Minneapolis, Minnesota, are there other markets that you intend to expand into like you've done in those two markets?

Speaker 12

Or are you all set? You're satisfied with the expansion physically into new areas of the country?

Speaker 2

Yes. So a couple of things. 1, So why are we expanding these markets? We first this is a prioritization. We first looked at the largest markets that we weren't and said, why aren't we there?

Speaker 2

Because We're a nationwide brand and capabilities. And by the way, in a lot of those markets, we had wealth management clients. So we started in 2014. This has It's been a long effort. So we did Denver starting in 2014 and Minneapolis, Indianapolis, Pittsburgh, Salt Lake, Columbus, Cincinnati, Cleveland, Lexington.

Speaker 2

So there's a list of other markets that we continue to go down largely starting originally the key was to close the top 30 markets, Which we weren't in 7 if I remember right, Gerard, at the time and we're now in all those. So there's really think of the next Several years of being going down to the top 50 markets, which starts to cover the substantial part of the population where you aren't. But also even within those markets, take Grand Rapids, Michigan, We're not to the level we want to be there. And by the way, in a place like Columbus, we're now number 5 in the market. We grew at 9%.

Speaker 2

We only have 12 financial And state will be another 8, 10 type of number. And so we're still building out in these markets and it's working. I mean it works because of The way we do it, so that all be a move, but expect us to keep working down by population markets. But think about 2 dimensions. 1 is more markets and the second is also making sure every market what we do is we look at the We look at like markets and compare them, same size capabilities.

Speaker 2

And we expect every market will get to the 70 5th percent of the Bank of America Business Comparative. So why is that? So that means like even in Los Angeles, we're 4% or 5% wealth If I remember right versus DC where we have equal representation in consumer DC we're 15%, 20% market share in wealth management. That means we should be 15% in L. A.

Speaker 2

That's a heck of a lot of work that Danny and Katie and team have to do. So we look at this that way in terms of trying to Drive our market share by market and sometimes it's people, sometimes it's branches, sometimes it's advertising, sometimes it's charitable work, sometimes community work, all the above. But think of us as trying to close out most of the U. S. Population centers over the next several years.

Speaker 12

Very good. Thank you.

Speaker 2

Okay. I think that's all our questions, operator. So let me just close by saying, Yes. As I said earlier, the number one point to remember is the organic growth engine that we had before the pandemic is fully back in gear and driving. We've had good expense discipline.

Speaker 2

We continue we're now up to 2 quarters of operating leverage and we're working towards driving our streak again. The client activity across the board was strong. Loan growth, deposit growth, net new households and wealth management, commercial GTS fees, Capital markets activity, investment banking activity. And so those investments across the last several years continue to drive our strong growth And in the end of the day, last year was a record year of earnings and we returned $32,000,000,000 of capital to our shareholders. Thank you for your support and we look forward to talking to you next

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