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What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Sports analytics may be outnumbered when it comes to artificial intelligence
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway

Bank of America Q1 2022 Earnings Call Transcript


Listen to Conference Call

Participants

Corporate Executives

  • Lee McEntire
    Senior Vice President of Investor Relations
  • Brian Moynihan
    Chair of the Board and Chief Executive Officer
  • Alastair Borthwick
    Chief Financial Officer

Presentation

Operator

Gooday everyone and welcome to today's Bank of America Earnings Announcement. [Operator Instructions]

It is now my pleasure to turn today's program over to Lee McEntire.

Lee McEntire
Senior Vice President of Investor Relations at Bank of America

Good morning. Thank you, Catherine. Welcome. I hope everybody had a nice weekend, and thank you for joining the call to review the first quarter results. I trust everybody has had a chance to review our earnings release documents. As always they are available including the earnings presentation that we will be referring to during this call on our Investor Relations section of the bankofamerica.com website.

We're going to first turn the call over to our CEO, Brian Moynihan for some opening comments and then ask Alastair Borthwick, our CFO to cover the details of the quarter. Before I turn the call over to Brian, just let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call.

These forward-looking statements are based on management's current expectations and the assumptions that are subject to risks and uncertainties. Factors that may cause actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available on the website. Information about non-GAAP financial measures, including reconciliations to US GAAP can also be found in the earnings materials that are available on the website.

So with that, take it away, Brian.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Thank you, Lee and good morning to all of you and thank you for joining us.

As we open our earnings call this quarter, we want to acknowledge that there is a -- the humanitarian crisis continue to take place in Ukraine and remain watchful and have provided assistance from our Company to the Ukrainian citizens and stand ready to help further where we can. Before we get into some discussion on the current outlook and activity, I want to step back and focus on the big picture about Bank of America this quarter. In a quarter that had a lot of variable show up, we delivered responsible growth again. We reported $7.1 billion in net income or $0.80 per diluted share. We grew revenue, we reduced cost and we delivered our third straight quarter of operating leverage coming out of the pandemic. Net interest income grew 13% and is expected to grow significantly from here. We saw a strong loan growth, we grew deposits, we saw strong investment flows. We made trading profits every day during the quarter. We grew pre-tax pre-provision income by 8%. We had a return on tangible common equity at 15.5%. All this came in a quarter that saw geopolitical conflict rising interest rates of pandemic, rising inflation concerns and much, much more.

I want to thank our team for delivering a responsive growth once again. So if you look at the statistics on slide 2, you can see some of those highlights. You can see the organic growth engine that our Company is delivering once again. In our banking business, you can see the strong loan and deposit growth. We grew and expanded customer relationships across every business, in fact we grew net new checking accounts by more than 220,000 this quarter alone. We opened new financial centers and we renovated many others.

We added more digital capabilities and crossed 50% in digital sales. In our Wealth Management business, as you can see over $160 billion of client flows over the year and more than $4 trillion in client balances including Merrill Edge. We saw both strong investment flow performance in addition to banking flows. Over the past year, we brought on a significant number of net new households 24,000 in Merrill and another 2000 in the private bank. Across the combination of our consumer and wealth businesses, we saw more than $90 billion of investment flows. We now have managed client balances including deposits loan investments of more than $5 trillion with us. In Global Markets, Jim DeMare and his team had a solid quarter sales and trading results, which included a record quarter for equities. Despite the market turmoil, we had zero days trading losses.

While the Investment Banking fee line was down from the record quarters of the past year, Matthew Koder and his team produced solid results with a strong forward pipeline and we gained market share with several areas including moving to number 2 in that mid-cap investment banking. From a broader enterprise perspective, part of managing costs while comes from the drive -- the drive we have in the Company to provide enhanced digital capabilities to our customers, which in turn drives adoption for the digital engagement and lower costs.

If you look at slide 23 and beyond, you can see we are now selling more digitally than we are in person. It takes both to be successful. What makes them even more impressive is all the financial centers are now open and back to operating at the usual great capacity. So adding the digital capacity clearly increases our total production capability. You could also see our digital sales are now twice the pre-pandemic level just three years ago. Even more impressive, look at Zelle and Erica volumes up more than four times than pre pandemic levels. We are now possibly more outgoing Zelle transactions than checks and our CashPro mobile app with our commercial clients, we see many $5 billion usage days. But lot more stats in those slides showing strong digital growth. I [Technical Issues] to you to see how a high touch, high-tech innovative company drives organic growth.

This quarter, our resilience was tested and once again, we maintained a focus on what we can control grew responsibly and earned our way through the turmoil. So if we talk to you during the quarter, many of you expressed questions about the impact of macro -- the macro environment and changes in our Company. The lingering impact of the pandemic on supply chains and business opportunities, inflation and fed reduction of monetary accommodation, the impacts of Russian Ukraine war both on a first order effect and second order effects. We do remain mindful of all these, so could a slowdown in the economy happen? Perhaps. But right now the size of the economy is bigger than pre-pandemic levels, consumer spending remain strong. Unemployment is low and wages are rising.

Company earnings are also generally strong. Credit is widely available and our customer's uses of the lines of credit is still low i.e. they have capacity to borrow more. We are all focused on the ability of Fed user tools to reduce inflation. We all know that will take interest rates -- with rate hikes and a reduction in the balance sheet. We predict it will slow the economy from 3% growth in 2022 to little below 2% in '24 -- '23, excuse me, that is back to track. So, the interest rate hikes comes better NII because the Fed have to push harder to sell inflation perhaps. That is why we run stress test each quarters to look at scenarios to see what will happen in a highly inflationary environment. If rates move fast, are there implication to capital? Sure, as you saw some in this quarter. But in the context of the capital built, those impacts are manageable.

The impact increases earnings also and then over time the bonds pull back to par. All that results in a rebuilt of the capital quite quickly. But for some short period of time that capital usage along customer usage might slow share repurchase a little bit, that will be temporary. What if wrong and things do get tougher. We already know what that looks like. In 2020, as we build significant reserves we also built 90 basis points of capital during the economic shutdown period. Rates moved against this and earnings fell. So we have already proven resilience. We continue to focus on responsive growth and the things we control.

If we got to slide 3, I want to mention the -- shows some of the strength we see in our US consumer base. Bank of America consumer spent at the highest ever quarter one level, which is double-digit percentage increase over the 2021 level that you can see in the upper left. From our card spend data, we have seen a strong recovery in travel, entertainment and restaurant spending, in the upper right, you can see that. By the way even with fuel costs up 40% and more from last year. Fuel represents about 6% of overall debit and credit card spending and a lot less of overall spending as cards, you can see in the lower left is 21% of all spend.

Importantly despite March of last year, including a stimulus bonus, we saw the spending in the month of March 2022 on a comparable basis to 2021, 13% higher by dollar volume and we saw a 7.4% increase in the number of transactions, so both dollar volumes and numbers of transactions rose nicely. And as you would expect, the methods by which people spends continues to shift away from cash and checks to be replaced with digital alternatives and you can see that here. Our data show continued growth in the average deposit balance across all customer levels which suggest capacity to strong spending continue.

On an aggregated basis, average deposit balances were up 47% from pre-pandemic levels and 15% higher than 2021 and the momentum continue through quarter one, particularly in the low balance accounts, which grew in February to March, continuing its streak since mid last year. Now a couple of examples, so you can see how this works. We looked at the pre-pandemic customers who had $1,000 to $2000 of cleared balances BAC. Today they have an -- at that time, pre-pandemic they had an average balance of 1.4 around $1400.

You take that same cohort of customers, the same customers in 2022 versus 2019 and they have an average cleared balance of now of $7400, so an increase from $1400 to $7400. If you go to the next cohort up, those with $2000 to $5000 of cleared balances in the pre-pandemic. Their average was $3250. Now the same customers today have an average cleared balance of $12,500. What does that tell us? The consumers are sitting on lots of cash. Why this is true while you know, high wage growth, high savings limited by -- by limited enabled spending, but what it means is a long tail to consumer spend growth and in April through the first two weeks, spending is growing in faster at 18% over April 2021.

Another economic sign posted a continuation of loan growth. A year ago we highlight the green shoots of our loan growth. We then delivered growth in quarter two and quarter three and quarter four despite PPP run off and the change in economic conditions. To convey where we are today, we focus on any loans to give you a progression through the quarter. If you go to slide 4, you can see the highlights of that growth. In the upper left 100 -- in the upper left of the slide. I would remind you that in quarter four, we highlighted to you that of the $55 billion of growth in that single quarter, $16 billion was Global Markets. And we did not expect that to hold true for quarter one of 2022. So as we thought, Global Markets did come down $5 billion this quarter,

Despite that overall commercial loans grew $13 billion from quarter 4 excluding PPP. That means commercial loans excluding Global Markets grew $17 billion. Every single customer group Global Banking, Large Corporate, Middle Market business banking grew, as well as commercial loans and wealth management. That improvement came from new -- both new loans as well as improving utilization rates from existing clients.

You can see in the top chart loans have moved back above our pre-pandemic levels on the right hand side of the slide, and you could see it being led by commercial. Consumer loans continue to grow linked quarter as well. This is despite typical seasonality and despite the continued suppressed credit card balance, as you can see in the lower left. Mortgage loans grew $4 billion. Originations remained at high levels and pay-downs declined. Card loans declined $2 billion from quarter 4, driven by the transfer of $1.6 billion within the card loan portfolio to the held for sale category. Absent that transfer card loans would decline very -- very modestly, whereas the previous quarter on quarters they've declined several billion. On slide 5, we provide data around consumer clients leverage and asset quality as compared to pre-pandemic periods, which further supports our belief that consumer remain in good shape. On the upper left, we looked at our customers that have both the credit card and a deposit account with us. As you will note, the average card balance of our credit card customers that had deposit relationships are still 8% lower than they were pre-pandemic.

They continue to pay down their balances on a monthly basis at a higher rate than pre-pandemic. And as you know, delinquency rates are significantly lower. Further as you can see to my earlier point, these borrowing customers have built additional -- significant additional savings and their average deposit balances were up 39%. So lot of strength or dry powder this fiscal. So what if we went to the modest -- modest FICO -- more modest amount of low FICO customers who had a BAC. Looking at that small subset of our base, you can see a similar trend, even stronger on cash balances and lower debt levels. And you see in the bottom charts, we believe this is not just a phenomenon of BAC, as industry data points around debt service levels are hovering near historic lows and household deposit and cash levels has returned higher than we entered the crisis. Now a word on Russia. This is not an area that you have direct exposure of Bank of America. More than a decade ago, we've reduced our exposure in Russia, and it's resulted in having 90% less before the most recent crisis. Our current very limited activities in Russia are focused on compliance with oil sanctions and other legal and regulatory requirements.

Our lending and counterparty exposure to companies based in Russia totals approximately $700 million and is limited to nine Russian based borrowers. It is largely comprised of top tier commodity exporters with a history of strong cash flows, who continue to make payment. Prior to the Ukrainian invasion, these exposure were mostly investment grade. We report all of them on our reservable criticized. Our quarter one allowance includes increased reserves for this direct exposure.

And I just note that even with the addition of these loans to reservable criticized, we still declined $1.7 billion in this category during the first quarter. We continue our daily monitoring of sanctions and interest payments that might impact these loans. We also evaluate our portfolio and will continue to do so considering second order impacts of this crisis. Currently, we believe this to be modest and reflect our international strategy that focus on large multinational clients that have geographically diverse operations. Our quarter one allowance for credit loss reflects all of these things as well. On Russian counterparty risk, our teams have done a tremendous job trending down our exposures and at the end of the quarter, we have de minimis meaning less than $20 million counterparty exposure with a single Russian based counterparty and very limited impacts from quarter -- in any of those impacts of -- in our trading results for this quarter. So a responsible growth has served us well here and if you might note after the 2014 Crimea conflict, we intentionally do such exposure and Russia has not been on our top 20 country risk exposure table since 2015.

So a few comments on NII. On NII, remember the rate increases came late in the quarter and had little first quarter 2022 NII impact and there were too fewer days of interest in the quarter and decreased PPP fees per NII growth. Yet we still grew NII by $200 million in line with our guidance we gave you last quarter. Given the forward curve expectation for higher interest rates and our expectations of further loan growth, we expect significant NII improvements through the next several quarters.

Alastair will expand on this point for you. We have more than $2 trillion of deposits and $1.4 trillion of those are with our consumer wealth management clients with more than 40% of those in low to no interest checking. That is a franchise that isn't viable. We will benefit as the rates move off the zero floors allowing us to earn more money on those checking deposits. Our deposits, I know some -- several of you are wanting the deposits continue to grow as rates begin to rise. So we went back and looked at the last rate rising cycle, in the last decade. We pinpointed the peak rate paid to customers during quarter, reflective of the peak Fed tightening.

We then went back and looked at the 12 months proceeding growth rate in deposits and in fact, during the 12 months preceding that peak, deposits grew 5% driven by organic growth engine, our market share gains and overall economic growth. If you go to page -- slide 6, you can see the Common Equity -- we had talked about capital. Just to start off, our capital remain strong with 10.4% CET1 ratio well above our 9.5% minimum requirement.

As you can see $7 billion of earnings net of preferred dividends generate 41 basis points of capital. As you look on the right hand side of the page, you can see that 13 basis points of that capital was used to support our customers' growth. That's a good thing. We also returned $4 billion to shareholders and common dividends of share repurchase will represent about 27 basis points of use. The spike in treasury and mortgage-backed securities rates caused the fair value of our AFS debt securities to decrease and lowered our CET1 by 21 basis points. That's the point that goes through the calculation of the capital, while one wouldn't expect this impact every quarter, we're well positioned. We were well positioned for the spike.

As you recall, we invested much of our securities books in held to maturity due to our huge excess and stable deposit base. We have $2 trillion deposits and less than $1 trillion in loans. In addition to be cautious, we hedged a large portion of securities in the AFS portfolio protecting it from much larger hit to AOCI. I'll remind you, as the securities mature, the AOCI reverses and a higher rates results in higher NII over relatively short period of time. That result in higher earnings that will benefit CET1 ratios on an ongoing basis and more than offset the negative upfront AOCI impacts. Last thing I would note is our balance sheet growth to support our customer means our G-SIFI buffer will probably move higher by 50 basis points beginning in 2024, i.e. to 10% regulatory minimums. Well, this is nearly two years away. We continue to move towards it. Given this new higher minimum over the next couple of years, we will look to gradually move to target CET1 range of 10.75 towards 11%.

Importantly, while we grow into this range, we will be able to support our clients, we will be able to continue to increase our dividends, and we will be able to continue to buyback stock.

With that, let me turn it over to Alastair.

Alastair Borthwick
Chief Financial Officer at Bank of America

Thank you, Brian. And I'll start with the summary income statement on slide 7, where you can see our comparisons illustrating 3% year-over-year operating leverage produced by growing revenue and managing our cost now. That was nearly enough to overcome the change in provision expense driven by the $2.7 billion reserve release in the year ago period compared to $400 million release this quarter.

On asset quality more broadly, we continue to see very strong metrics. Net charge-offs remained low. And in fact, they've done more than 50% in just the past year. Consumer early and late stage delinquencies are still below 2019 levels and reservable criticized moved lower again in Q1. Looking ahead, we continue to feel good about the asset quality results of our consumer and commercial businesses near term given our customer's high liquidity, low unemployment and rising wages.

We produced good returns again this quarter with an ROTCE of nearly 16% and we delivered $4.4 billion of capital back to shareholders, driving average shares lower by 6% year-over-year. Looking forward, and with continued expectations at growing NII combined with strong expense control, we expect to drive operating leverage and see our efficiency ratio work back towards 60%.

So let's turn to slide 8 and the balance and you can see during the quarter, our balance sheet grew $69 billion to a little more than $3.2 trillion. This reflected $14 billion of growth in loans and the growth of our global markets balance sheet as customer's increase their activity with us. A decline in cash this quarter was associated with that growth in global markets.

Our liquidity portfolio was stable compared to year end and at $1.1 trillion it represents roughly a third of the balance sheet. Shareholders' equity declined $3.4 billion from Q4 with a few different components I would note. Shareholder's equity benefited from net income after preferred dividends of $6.6 billion as well as the issuance of $2.4 billion in preferred stock, so that's $9 billion that flowed into equity in Q1 and we paid out $4.4 billion in common dividends and share repurchases.

AOCI declined as a result of the spike in loan rates that Brian referenced and we saw the impact in two ways. First, we had a reduction from a change in the value of our AFS debt securities that was $3.4 billion. That's the piece that impact CET1 as Brian noted. And second, rates also drove a $5.2 billion decline in AOCI from derivatives that does not impact CET1 that reflects cash flow hedges against our variable-rate loans, which provide some NII growth and protected CET1 at the same time.

With regard to regulatory capital since Brian already talked about CET1, I'd simply note that our supplemental leverage ratio was stable at 5.4% versus the minimum requirement of 5% and still leaves us plenty of capacity for balance sheet growth and our TLAC ratio remains comfortably above our requirements.

Turning to slide 9, we included the schedule on average loan balances and in the interest of time, the only thing I would add to Brian's earlier comments and for your perspective, it's simply a reminder that PPP loans are down $19 billion year-over-year. There's just a few billion of those left and excluding PPP, our total loans grew $89 billion or 10% compared to last year.

Moving to deposits on slide 10. First, let's look at year-over-year growth and across the past 12 months, we saw solid growth across the client base as we deepened relationships and added net new accounts. Our year-over-year average deposits are up $240 billion or 13%. Retail deposits with our consumer and wealth management businesses grew $190 billion and our retail deposits have now grown to more than $1.4 trillion where we lead all competitors.

Looking at linked quarter growth from Q4 and combining consumer and Wealth Management customer balances, our retail deposits grew $53 billion in just the past 90 days. With our commercial clients, they are up nicely year-over-year and we simply note that Q1 declined which is entirely consistent with previous year's seasonal trends.

Turning to slide 11 and net interest income. On a GAAP non-FTE basis NII in Q1 was $11.6 billion and the FTE NII number was $11.7 billion, so I'll focus on FTE, where net interest income has now increased $1.4 billion from the first quarter last year. As Brian noted that's 13% increase driven by deposits growth and our related investment of liquidity. NII was up $200 million versus the fourth quarter as the benefits of lower premium amortization and loans growth more than offset the headwinds of two less days of interest accruals and lower PPP fees.

So let's pause for a moment to discuss our asset sensitivity, because I want to make a couple of points as we begin what the Fed has signaled to be a significant rate hike period. Remember asset sensitivity is how we measure out NII for the next 12 months above an expected baseline of NII, given changes in interest rates and other assumptions. In an environment of sharply rising rates each quarter, the baseline of NII -- actual NII increases and therefore the future sensitivity declines, now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates above the forward curve. And on that basis, asset sensitivity at March 31 was $5.4 billion of expected NII over the next 12 months and 90% of that sensitivity is driven by short rates. That $5.4 billion is down from $6.5 billion at year end, largely because higher rates are now factored into and running through our actual or baseline NII.

Now you asked the question last quarter about the same sensitivity on a spot basis relative to our current curve and given that the yield curve is projecting 125 basis points of rate hikes over the next [Indecipherable], we thought it was appropriate to provide that disclosure. So in a 100 basis point shock to the current curve using spot rates, our sensitivity to that kind of move would be $6.8 billion or $1.4 billion higher than on a forward basis.

So assuming rising rates as reflected in today's forward curve and if we see continued loans growth, I would just reiterate what we said last quarter that we expect to see robust and NII growth in 2022 compared to 2021. We're not going to provide numerical guidance for the full year because the changes in interest rates have proven quite volatile in just the last 90 days, let alone a year. We do provide that asset sensitivity so that you can use it as guardrails to think about changes as you modify your own assumptions. I do, however, want to provide a nearer term expectation and say that if loans grow and rates in the forward curve materialize, we would expect to see NII in Q2 increase by more than $650 million over the Q1 level and then grow again significantly on a sequential basis in each of the following two quarters.

Okay, let's turn to expenses and we will use slide 12 for that discussion. Our Q1 expenses were $15.3 billion down a couple of $100 million from the year ago period. I'll focus my remarks on the more recent comparison versus Q4, where we're up $600 million and as expected and we conveyed to you last quarter, the Q1 increase was driven mostly by seasonality of payroll tax expense or roughly $400 million. We also experienced modestly higher wage and benefit costs. As we look forward, we continue to invest heavily in technology, people and marketing across our lines of business and we've continued to add new financial centers in expansion and growth markets.

We modestly increased our full year new tech initiative budget for the year to $3.6 billion and that's on top of more than $35 billion that we put to work over the past 12 years to help us build powerful more secure and scalable technology platforms. This -- the investment that's allowed us to maintain a leadership position in patents among our peers. We had 512 of them granted in 2021 and we are maintaining a similar pace this year. We think this is one of the things that's helping us to protect our moat around leadership positions in places that matter most to customers.

In addition to modestly higher marketing costs this year, our investments also include adding up to 100 new financial centers and we also plan to renovate more than 800 more during the year. We will also continue our upward march on minimum early wage toward $25 by 2025. Now how do we pay for all that? Through continued work on operational excellence and digital engagement.

And as we look to Q2, we expect our expenses to be down modestly from Q1 as much of the seasonal payroll tax expense abates and is somewhat offset by investment timing, inflation and the cost of opening up more fully for travel and client entertainment because it feels like we've got a lot of pent-up demand for face to face meetings by our clients and our people.

So let's turn to asset quality on slide 13. And as you can see, asset quality of our customer's remains very healthy. Net charge-offs this quarter were better than our expectations once again and remained below $400 million down 52% compared to Q1 2021. Provision expense was $13 million in Q1 as reserve release of $362 million closely matched net charge-offs in the quarter and that reserve release was primarily in our consumer portfolios.

On slide 14, we highlight the credit quality metrics for both our consumer and commercial portfolios and I'm happy to answer any questions later, but a couple of things are worth repeating. Consumer delinquencies remain well below pre-pandemic levels and despite reporting our commercial Russian lending exposure in reservable criticized, those levels still declined $1.7 billion from Q4.

NPL saw a modest increase. And that simply reflects a small amount of consumer real estate deferrals expiring with the expiration of the CARES Act. Turning to the business segments, one thing we'd ask you just keep in mind for each of the businesses is Q1 expense includes the seasonal payroll tax expense which has negatively impacted efficiency ratios or profit margins in Q1. Also and as usual, Q1 of every year includes segment capital level evaluation and you'll note, we put additional capital against each of the businesses due to their growth. And as usual, we've tried to include business trends and digital stats for each segment. So let's start with Consumer Banking on slide 15, where you can see the consumer bank are nearly $3 billion that's 11% up over Q1, 2021 as revenue growth more than offset the larger prior period reserve release.

It's probably most easily identified by looking at pre-tax pre-provision earnings, which grew 32% year-over-year. Revenue grew 9% on NII improvement and expense declined 4%, creating 13% operating leverage and the fourth consecutive quarter of operating leverage for our Consumer team.

Notable customer activity highlights included our 228,000 net new checking accounts opened in Q1, which represents our 13th consecutive quarter of net new consumer checking account growth. Now this occurred as we began to implement our previously announced insufficient funds and overdraft policy changes, which lowered our service charges above $80 million. So during this time, we saw accounts grow and we saw expenses decline. We also grew investment account 7% and we saw those balances grow 10% from Q1 '21 to $350 billion and that included $20 billion of client flows. And once again, we opened nearly a million credit cards in the quarter and grew average active card accounts and so growth in combined credit and debit spend of 15%.

Our continued investment in digital capabilities drove liquidity with our customers as we crossed 50% in digital sales this quarter and we continued investment in our financial centers, opening another eight n the quarter. It's also worth noting that small business saw continued growth in loans, in deposits and in spending. Small business card spend was up 28% year-over-year. It gives you an idea of how small businesses are reopening for business.

I'd also draw your attention to slide 22 in the appendix. We've shared this with you previously and it simply highlights the origination strength and quality of our consumer underwriting. Throughout everything, our underwriting standards have remained consistent.

Moving to slide 16, Wealth Management produced strong results earning $1.1 billion and that represented 28% year-over-year growth driven by strong revenue improvement, good expense management and low credit costs. Bank of America continues to deliver Wealth Management at scale across a full range of our client segments and with the best advisors in the industry according to balance rankings. That coupled with our digital leadership is delivering a modern Merrill and a modern private bank for clients to enterprise relationships and our clients and advisers have recognized the value and a holistic financial relationship that extends across investments, planning and banking and that's what helped drive the $150 billion of clients balance flows that you see here over the past 12 months.

Not only did we see strong investment flows of more than $70 billion but deposits grew $59 billion up 18% and we added $22 billion in loans over the same period, marking our 48th consecutive quarter of average loans growth in the business just consistent and sustained performance from the team.

Revenues grew 10% to a new record and were led by 25% growth in NII on the back of those solid deposit and loans increases as well as a 9% improvement in asset management fees. Expenses increased 4% driven by higher revenue related costs and resulted in over 600 basis points of operating leverage and we generated nearly 7000 net new households in Merrill and more than 800 in the private bank this quarter.

Moving to Global Banking on slide 17. The business momentum with our commercial clients remain strong in the first quarter. The business earned $1.7 billion in Q1, down $450 million year-over-year driven by the absence of a large prior period reserve release and lower investment banking revenue.

Revenue improvement of 12% year-over-year reflect higher leasing related revenue and NII growth, partially offset by those lower investment banking fees. Net interest income grew on the back of strong loans and deposits growth. And the leasing revenue improvement included more ESG related investments particularly in solar, as well as the absence of weather-related losses recorded last year.

While the Company's overall investment banking fees of $1.5 billion declined 35% year-over-year, we gain market share in some important areas and recorded a number 3 ranking in overall fees and importantly, our investment banking pipeline remains quite healthy. Provision expense reflected a reserve build of $177 million compared to a $1.2 billion release in the year ago period and this quarter's provision includes results taken for Russia exposure and other considerations for loans growth offset by continued improvement in asset quality metrics.

Finally, we saw expense decline by 4% driving strong operating leverage. Switching to Global Markets on slide 18 and as we usually do, I will talk about the segment results excluding DVA. Q1 net income of $1.5 billion reflects a solid quarter of sales and trading revenue and it includes a new record for equities. The business generated a 15% return in Q1 even with a 12% increase in capital allocated to the business.

Our investments in this business saw good results since our financing clients continue to increase their activities with our Company. Focusing on year-over-year sales and trading contributed $4.7 billion to revenue versus Q4 that was a 58% improvement, a little higher than typical seasonality and versus Q1 '21, we saw a decline of 8% as the prior year included higher commodities results due to weather related events. FICC declined 19% while equities improved 9%.

That FICC decline reflects the higher prior period commodities and a weaker credit trading environment and it was partially offset by improved performance across our macro products, especially rates and foreign exchange. The strength in equities was driven by strong performance in derivatives. And year-over-year expense declined reflecting the absence of costs associated with the realignment of a liquidating business activity to the all other unit, as well as some Q1 '21 accelerated cost for incentive changes. Absent those impacts, expenses were up modestly.

Finally on slide 19, we show all other, which reported a loss of $364 million declining $620 million from the year ago period. Revenue declined as a result of higher volume of deals particularly solar and therefore higher partnership losses on ESG investments and this is partially offset by the tax impact in this reporting unit.

Expense increased as a result of costs now recorded here in this segment following the Q4 realignment of that liquidating business out of Global Markets. And as a reminder for the financial statement presentation in this release, the business segments are all taxed on a standard fully taxable equivalent basis. So in all other, we incorporate the impact of our ESG tax credits and any other unusual items.

For the quarter, for the Company our effective tax rate was 10% benefiting from ESG investment tax credits and excluding the tax credits, the tax rate would have been roughly 24%. We expect our effective tax rate in 2022 to be between 10% to 12%, absent any tax law changes or any unusual items.

And with that, let's open it up please for Q&A.


Questions and Answers

Operator

[Operator Instructions] We'll go first to Glenn Schorr with Evercore. Your line is open.

Glenn Schorr
Analyst at Evercore ISI

Hi, thanks very much. And forgive me if this is a drop long but listening to all your comments about the consumer, about spending, about no real stresses in credit, net charge offs, non-performings, debt service levels, all that sounds great. And in the past, I think higher rates were designed to pull leverage from the system and caused some recession and so the markets trying to assign some percentage chance towards the recession, yet every comment I hear out of your mouth doesn't sound like we're going towards a recession.

So I want to see if I could, a, get your comments on your thoughts around today's environment versus history. And then also specifically as what you did with the ins and outs and reserves and if you've changed any macro scenarios as you bake in CECL reserves. Thanks for that. And thanks for bearing with me.

Alastair Borthwick
Chief Financial Officer at Bank of America

Thanks, Glenn. So you're right to pick up on the commentary because Brian highlighting the strength of the consumer, which remains extraordinary, and at the same time, what we see on the asset quality side of commercial is just continued steady improvement as the economy reopen. So that's what we're seeing, that's contemporaneous.

Now you're asking question about what does it look like in the future? And we are obviously aware of what the Fed is trying to engineer. So going through this, every quarter as we always do, we have an opportunity to think about how we look at our reserves and this quarter, we took some of the upside out, we've got a little more weightings towards a baseline, a little more towards downside. So that's one thing we've done.

Second thing we've done is we've upped our forecast for inflation. So we see that flowing through and those scenarios are a little more weighted towards inflationary. And third, we have adjusted GDP growth down largely based on blue chip consensus. So we like you are looking at two things, number 1, we're looking at what we're seeing in the actual results. And number 2, we are thinking about how we balance that going forward with our scenarios.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Glenn. I think this generally that has a task to bringing inflation out of the system and our GDP assumptions Carl Anderson, our founding partner team for the economy to slowest growth rate from this year to next year. The other question of great debate is a soft lending, hard lending etc. But I think, that's -- what's unusual this time is how much cash is sitting in the consumer's accounts, if you and I are sitting here, we made -- start normalizing rates in the middle of last decade, late in the middle of last decade, you wouldn't have seen the consumer balances sitting with those multiples, I gave you earlier in their accounts and then having tremendous borrowing capacity left in terms of unused credit lines and same on the commercial side.

New lines are bouncing along just above the low point. And so we continue to adjust our reserve levels to as Alastair said to factor in our base case includes higher inflation through the rest of the year into next year. Our seats reserves set by that base case, which is a 40% waiting to adverse frankly equal maybe 40% of the actual reserves we have because the rest are judgmental and in precision and things like that. So we're very strong in reserve and we're very mindful of that, I think it's very different to think about the situation where the consumer's -- unemployment is already so low and the consumers are sitting on money and I think that puts more attention on the Fed to have a architect to successful change and they know that. But on the other hand, it's a better place to start.

Glenn Schorr
Analyst at Evercore ISI

I appreciate all that. One little tiny follow-up is in Global Banking, I notice $2 billion more allocated capital, deal activities down, but you mentioned pipelines are good, so maybe you could just talk about just what's going on there? Thank you.

Alastair Borthwick
Chief Financial Officer at Bank of America

Well, we don't have a great deal to add there. Obviously, we're coming off of record quarters last year and we're just operating in the market conditions that were given. The volatility has obviously been hardest felt in equity capital markets and in high yield and across the board, we'd say our pipelines look very strong. So I think, when I asked Matthew, he said somewhere between strong and very strong. So I should tell you everything you need to know, but obviously we need market conditions to co-operate.

Glenn Schorr
Analyst at Evercore ISI

Perfect. Thanks so much.

Operator

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

John McDonald
Analyst at Autonomous Research

Hi, good morning. I was wondering if you could talk a little bit about expenses and operating leverage. Are you still thinking that expenses will be flattish this year in the $60 billion ballpark, Brian. And you did mention expectations for the efficiency ratio as your operating leverage improves with NII. Maybe that March is down from kind of the mid 60s to low 60s. I think you said.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Yeah and Alastair gave you some detail but just simply put, John, we expect to be relatively flat for 2022 versus 2021. That's the guidance we gave you last quarter, we don't see anything different this quarter.

John McDonald
Analyst at Autonomous Research

Okay, that's helpful and then. Alastair maybe just a little more fleshing out about the capital and how you are managing the CET1, obviously, you generating already capital each quarter above what you're paying out the dividend, it seem like 30 basis points this quarter and that probably gets better. At the same time, it sounds like you maybe going to manage up to around 11 over the next year, maybe you could just give us some of the dynamics there and how that plays into the ability to do some buybacks through the rest of the year. Thanks.

Alastair Borthwick
Chief Financial Officer at Bank of America

So no change to our approach, John relative to prior years. I think the waterfall that we laid out on slide 6 is pretty constructive. First priority for us will remain just invest in growth, it will support our clients, what then get after -- the teams get after the loans to help our clients there. Secondly, we will make the dividend payments and then, we'll have capital leftover for share buyback as we have had in the past and we will make those decisions in the context of future rate environments and future capital requirements. I think, Brian pointed out to you that we're going to -- we're going to build capital over the course of the next couple of years by about 50 basis points. We've got seven quarters. So it's a small -- small amount every quarter that we'll be doing.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

John just, you said operating leverage, I am proud of the team. We have three straight quarters of operating leverage. PPNR growth was strong. That's different than what we've seen out there generally, but remember, during -- it's a rate throws in a pre-pandemic setting and Glenn's question about soft lending, hard lending and inherently weighs in those mind. The simple fact is we had 20 straight quarters of operating leverage and we're starting to see that come through. And if you look at the consumer efficiency from the first quarter, last year this quarter, you point at efficiency ratio. This is all come through NII at it all falls at the bottom line. And therefore, you end up with a fairly significant impact in those businesses which are obviously high sense of growth in NII.

John McDonald
Analyst at Autonomous Research

That's helpful, thanks very much.

Operator

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

Mike Mayo
Analyst at Wells Fargo Securities

Hi, Brian and Alastair. I wonder if you can just make a distinction tree in the economic regulatory and accounting outlook. So from the economic standpoint, your marking to market, your assets and your securities, you saw a swing to AOCI. But you don't mark to market that $1.4 billion of deposits. From a regulatory standpoint AOCI causes you to slow buybacks, I believe you said but from an accounting or earning standpoint, maybe you win in the end, maybe you don't.

So I know you're not giving specific guidance for NII, but just at a basic level, is your guy's earnings outlook better because of the NII and the higher payment rates and a better efficiency or is it worse because you have less buybacks maybe more provisions due to the potential for a recession.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Mike, those are all the pieces that simply put I think Alastair said, NII pick up next quarter. So you pick up the 200 this quarter, you put that in the bank then you pick up another $600 million plus next quarter and then it grows from there out so yes, that's tremendous operating leverage and as we just said to John, the expenses are flat, so that flows through the bottom line. All are different vagaries of not only regulatory accounting versus GAAP accounting, but also what kept the comps in the capital ratio calculation versus not and today, you said $1.4 trillion -- it's $2 trillion of deposits -- $1.4 trillion for just on the consume -- for people side of the business, and even on the business side, we only have operational deposits and so, the end of day those very long deposits.

We extract the value through investing and that's why, we put it held to maturity and cash flow off that held to maturity portfolio is $20 billion odd a quarter even in rate environment changes, so that -- whatever hit, we had the CET1, the growth in NII. And the growth in earnings power and the covers up this of the year. And so we feel very good about that. So the better -- a rate environment where we come off the zero floors makes us a lot more money. You know that and we know it.

Mike Mayo
Analyst at Wells Fargo Securities

Can you elaborate a little bit more on what you mean by operational deposits. I know you've talked about that and the linkages, and I guess, that's the reason why you would expect deposit to be more sticky, but can you elaborate a little bit more, you mentioned that Zelle and Erica volumes were at four times higher than pre-pandemic. So I guess you have a little bit more lock in. But if you could elaborate more?

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

On the consumer side, people being wealth managers consumers and general consumers, of the$1.4 trillion we're 40% more in checking accounts and that's the money people have in motion in a given day and what the big volume of those comes from frankly 35 million checking holders, which is a new record for us. And so that's important and all the feature functionality helps them -- our retention for our preferred customer base in the consumer segment, which represents 70% or 80% of all the deposits is 99 point something.

And so those customers stay with us long time. When I met operational accounts on the commercial side, we -- all the cash is money in motion for those commercial customers, meaning it's part of the data cash flow. So whether it's small business customers, whether it's business banking customers, which are under $50 million revenue companies or even middle market, this money is coming in and out every day. And so it's very stable. It doesn't disappear from the scenes.

And if you look at our GTS revenue, you can see the global transaction services revenue on the page on Global Banking, you'll see it's grown nicely year-over-year and that's due to the stability of that deposit base and what we see. So it's not going to move away from the balance sheet. That's the point I said about in a rate rising cycle -- loss rate rising cycle as money supply shrank, the end of the day, we grew deposits 5% and so we'll see what happens because it's different but we feel pretty confident.

Mike Mayo
Analyst at Wells Fargo Securities

Thank you.

Alastair Borthwick
Chief Financial Officer at Bank of America

The other thing I'd add is when Brian talks about operating -- that's one of the reasons we highlight that 92%, 93% of our consumer accounts are primary and we've had 99% plus retention rate on those accounts. So these are sticky deposits such what we're just trying to make sure you -- everyone understands.

Mike Mayo
Analyst at Wells Fargo Securities

All right, thank you.

Operator

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

Betsy Graseck
Analyst at Morgan Stanley

Hey, thanks, good morning. Two questions, one on expenses, I know you mentioned this year that you're still anticipating relatively flat and that you would deal with inflation pressures, etc., from some of the opportunities you have to get more efficient. Can you give us a sense as to how long you think you can stay flat for, like is that going to be into '23 as well? And can you unpack some of the things you're doing to get more efficient. I know you did a ton of efficiency pre COVID, so what's last? Thanks.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

So Betsy if you remember, coming into the pandemic, we had hit the point, we brought expenses down and said we -- now we are an operating leverage company. So we'll get revenue grow faster and expense growth, but we'd start to grow modestly. Then the pandemic had a lot of expenses coming in now. But, and so when we say flat year-over-year, basically it mean '23 versus '22, in that $59 billion to $60 billion range.

Our view is that our goal is to keep that down to a modest expense growth if any and as we move to '24 etc., but we are fighting all those discussion, you had, but the key is to have the revenue grow much faster and that's what we -- that's what expect to see as NII kicks back up and the efficiency ratios as Mike or John referenced out of kick back down pretty nicely.

Betsy Graseck
Analyst at Morgan Stanley

Got it. And then the other question is just further rate back ups, obviously 10 years already at [Indecipherable]. It's up 50 bps from March 31. So if it goes like 3.3 [Phonetic], we get the same kind of hit as this past quarter? Can you just give us a sense as to how you're dealing with that rate back ups? Is there anything you would do differently? Would you move any AFS to HTM or would you, would you engage with new accounting rules of spin finalized in March 28 that enables you to do last layer hedging on HTM book. I mean, does any of that matter to you? And just give us a sense as to how much longer this rate back up is, or would you change how you are dealing with it? Thanks.

Alastair Borthwick
Chief Financial Officer at Bank of America

Yeah, so the piece that will matter the most will be the AFS securities, and we've talked before about the fact that we have about $200 billion in treasuries there and they are all swapped. They're all swapped to floating precisely to insulate us. So I think that's one of the reasons you see our AOCI hit is much smaller than many others. So then it's just a question of managing around the 50 billion or so of securities that we have there around swap to floating, and I'd just note that that number has come down a little bit month after month after month. I think, it will keep coming down. We have some ability obviously to hedge that if we choose to. And so we'll manage our interest rate exposure as the environment develops from here.

Betsy Graseck
Analyst at Morgan Stanley

Okay, thanks.

Operator

We'll go now to Matt O'Connor with Deutsche Bank. Your line is open.

Matt O'Connor
Analyst at Deutsche Bank Aktiengesellschaft

Hi, I was hoping to get a little more detail on the net interest income trajectory in the back half of the year, if we follow the forward curve and I appreciate, you don't want to give explicit guidance because maybe you want to come out the rate environment or rate change, but it's also the key driver for Bank of America's earnings from here. And obviously a very positive story, so just wanted again and maybe I'll start out with next quarters up more than $600 million if you follow the forward curve, it seems like that quarter-on-quarter increase could actually accelerate in the back half of the year. So maybe I'll leave it out for you to run those.

Alastair Borthwick
Chief Financial Officer at Bank of America

Yeah so look, I think, we broadly speaking agree with you. We obviously don't control rates. So that's why we're always reluctant to give guidance over the course of the next 270 days. But we're very levered to rates going up from here. And we said in our remarks that we believe the second quarter will be up at least $650 million in NII and I think if you look at the forward curve, yes you would expect to accelerate over the course of the year. And then we tried to give you the broad outlines around $5.4 billion versus forward $6.8 billion versus but it's obviously very meaningful but we're only prepared to look out over the course of the next 90 days, because we feel like we've got pretty good confidence around that.

And I think the other thing just to bear in mind is our next meeting is May. So you'll see like the Fed meetings and the hikes in the forward curve really do accelerate things in the back half of the year.

Matt O'Connor
Analyst at Deutsche Bank Aktiengesellschaft

And how do you think, if we do get kind of the second 100 basis point rate increase if the market anticipating, what does that look like in terms of rate sensitivity, and then just kind of squeezing similar -- at some point your rate hikes not help non-interest income? Or it helps but just to a lesser extent? Thank you.

Alastair Borthwick
Chief Financial Officer at Bank of America

Well, I think just the fact that you've got $5.4 billion compared to $6.8 billion, tells you a little bit about successive rate hikes become less valuable, but we're probably a long way from where they stop having value. So what we'd expect -- as Brian talked about, we are kind of at a rate floor when rates are zero and obviously we will get significant benefit over the course of the next 100 basis points. I like you would anticipate less from the falling 100. But again, we're going to capture a lot of value because our strategy is based around operating accounts in commercial and private accounts in consumer.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Yes, the question always is if the Fed is hiking rates because of inflation that they can't get back under control and you got to look at the stuff out and very focus on NII that you got to look at what's going on the economy generally. So that's why we have significant reserves in case it's harder lending and people at further like to engineer and that's why we run the Company with such balance, but generally higher sustained rate environment will help us earn a lot more money and you saw that pick up as we picked up through '16, '17, '18 and you'll see it happen again.

You've already seen happened and just think last year, first quarter, this year first quarter, we have $1.4 billion for NII per quarter. So that's -- it's already helped and as loan and deposit growth are matching, some modest rate increases.

Matt O'Connor
Analyst at Deutsche Bank Aktiengesellschaft

Thank you very much.

Operator

Our next question comes from Erika Najarian with UBS. Your line is open.

Erika Najarian
Analyst at UBS Group

Hi, good morning. My first question is a follow-up to what Matt was asking about. Alastair, could you give us a sense of what the deposit rate pricing assumption is and the plus $6.8 billion in sensitivity for the first 100 and given your focus on primary and operating accounts contrast that with chunkier rate hikes. How should we expect deposit repricing to behave in the second 100 basis points?

Alastair Borthwick
Chief Financial Officer at Bank of America

So we normally take a look at our deposit basis over the course of history. And if you go back to the last rate hikes I'd call '15 through '19 on average, you can-- it's obviously very different by account and line of business and client but on average it is somewhere between 20% and 25% for Bank of America. We'd hope to perform a little better in this cycle just based on the value we deliver to clients particularly in things like digital etc. but for now, I think that's a reasonable assumption.

It's difficult to project now first 100 versus second 100. I mean, I'd imagine for the first couple of hundred, it's going to be pretty, I hope pretty stable but at some point, one would think deposit betas would drift higher, we will obviously be able to give you guidance on that in the future based on what we're actually seeing.

Erika Najarian
Analyst at UBS Group

Got it. And I just wanted to clarify something Brian that you spoke to Betsy, did you say that you expect 2023 expenses to be between $59 billion and $60 billion. And then for modest growth to return in 2024?

Alastair Borthwick
Chief Financial Officer at Bank of America

We said '22 is flat to '21 and then -- we grow modestly then.

Erika Najarian
Analyst at UBS Group

Got it. Okay, got it. And then the follow-up question there is, you mentioned your trajectory, your target for getting back to 60% on the efficiency ratio, what kind of timeframe are you thinking in terms of when you can accomplish at relative to the forward curve?

Alastair Borthwick
Chief Financial Officer at Bank of America

Well I think that if -- we made progress each quarter, Basically, we're around the 66% [Phonetic], we're down year-over-year. I think if I gave you the specific quarter across deals I basically give you an earnings projection for the rest of the quarters, so Erika, I think if you look at the businesses you're starting to see them got more in line.

Obviously, we always have such a huge wealth management business which 27% pre-tax margin which is industry leading moves up to 30% last quarter will impact that gets a bigger part of our business than others that you'll see relentless progress but I can't give the exact quarter.

Erika Najarian
Analyst at UBS Group

Got it. And just one last question on capital so, today your current CET1 minimum is 9.5% and the higher G-SIFI surcharge, when is that, is that effective by January 1, 2023, so therefore your minimum goes up by 50 basis points. And Brian, what -- how are you thinking of buffers relative to your new minimums? I think one of your counterpart said that he was no longer thinking of buffers upon buffers as he thinks of capital management going forward?

Alastair Borthwick
Chief Financial Officer at Bank of America

So Erika, our G-SIFI minimum would increase effective January 1, 2024. So we've got seven quarters to build towards that. Brian talked about operating and managing the Company 75 basis points to 100 basis points above our regulatory minimum that's obviously exactly where we are right now. And so over the course of the next seven quarters, we just expect to build about 50 basis points of capital.

Erika Najarian
Analyst at UBS Group

Got it. Thank you.

Operator

We will go now to Ken Usdin with Jefferies. Your line is open.

Ken Usdin
Analyst at Jefferies Financial Group

Hi, thanks, good morning. Just wanted to look at the commercial side of loans, at fourth quarter loan growth ex PPP was great at 10 and this quarter, a little slower. I just wanted to ask you about just that end demand question, any supply chain, any interchanges in line utilization and just what are you seeing out there on the commercial demand side? Thanks.

Alastair Borthwick
Chief Financial Officer at Bank of America

Well. Our clients are definitely seeing supply chain challenges. They are working through admirably, they are also seeing inflation, anything labor and wage pressure. So that I think, we all know. At the same time, the economy is returning more towards normal and our line utilization is returning more towards normal too. That's part of what's driving our loans growth. So revolver utilization and commercial now in banking is 31.7%, pre-pandemic our normal was around 35%.

So that's around 3.3% figure that's like $15 billion to $20 billion of loans potential as the economy continues to heal and as clients begin to take utilization back. So it's one of the reasons we're still comfortable with loans growth and we see the same momentum that we have over the course of the past 12 months. Important in the small business area, originations are -- yes, strong and back past pre-pandemic levels of quarterly originations and you're seeing home equity come back up even more due to fall off pre-pandemic we did $3 billion. So we have room on a consumer side and on the commercial side for further loan growth as the -- as people sort of normalize their behaviors and activities. And the worse, you all read about the car industry, the line uses of car, Company car auto dealers is real low and it just as an example. They can't keep enough inventory on the line.

Ken Usdin
Analyst at Jefferies Financial Group

Yeah and one follow-up on the fee side, I know, investment banking trading and be hard to forecast, but just any thoughts on some of the consumer-related and brokers weighted fee areas. There has been some underlying moving parts there, just can you talk about just the growth trajectory of some of those fee areas and I guess, we're just going to leave the ID trading. We'll see what happens in the markets.

Alastair Borthwick
Chief Financial Officer at Bank of America

Well, I think we are wise to do that. When it comes to the card side, I'd say flattish. We're managing to the total client relationship there. That remains something that we're focused on total value. So we'll see some growth there. We'd the balances. We'd the NII mostly and will see deepening elsewhere.

On the asset management side, mostly, it will be around market levels. So we will follow that closely and a little bit of net new household growth and flows growth, again this year. So that's how we're thinking about it. But I would say, across all kind of flattish slightly -- maybe slightly up.

The only one thing to bear in mind is just as a reminder on insufficient funds and overdraft, just remember that those started to kick-in in February and the remainder will pass in March, so that's probably right here, sorry, May and that's probably $750 million hit for the year, if you like, on total fees.

Ken Usdin
Analyst at Jefferies Financial Group

Yes. Thanks, Alastair.

Operator

Go now to Steven Chubak with Wolfe Research. Your line is open.

Steven Chubak
Analyst at Wolfe Research

Hi, good morning. Wanted to ask a follow-up on the earlier discussion on the 60% efficiency ratio. If we look at what you achieve last cycle, your terminal efficiency trajectory closer to the upper 50s. Once that the Fed funds rate eclipse 200 basis points and want to get a sense whether there is a credible case were delivering a better than 60% efficiency ratio the cycle, are there structural factors supporting a higher terminal efficiency in this coming cycle?

Alastair Borthwick
Chief Financial Officer at Bank of America

The dynamic is going to be how big the wealth management business sits as a percentage of the total and just the dynamics of that business and that's always what constrained to see in the rest of the businesses for both peak cycle, both global banking went well below 50, consumer went well below 50 and then Markets and Wealth Management -- Wealth Management has done a great job of growing as loans and deposits that will help it. But that's always going to be debated and you should be cheering for strong wealth management revenues even if it means a lot less efficiency ratio.

Steven Chubak
Analyst at Wolfe Research

And I also maybe cheering for that by. And maybe just for my follow-up on capital. I know we've spent a lot of time talking about AOCI volatility and the like, where I was hoping to get a better sense, given the RWA growth is actually been the biggest source of capital consumption over the last couple of quarters. It's up about 9% year-on-year.

Just given the pace of continued strong loan growth that's anticipated, what level of organic RWA growth should we be underwriting, as we think about the capital algorithm going forward?

Alastair Borthwick
Chief Financial Officer at Bank of America

Well, I think what you're looking to is some of the RWA growth has been coming from a pretty significant loans rebound, particularly in commercial. And I think you're looking at some of the investments we've made in our global markets business. Some of that's a little seasonal. so it pops up in Q1 and some of it is year-over-year.

So going forward, I think our growth - we have plenty of capital to support the growth that we expect in terms of RWAs. We manage that pretty closely. Again, the economy is beginning to return to something more normal after bouncing around a bunch. So this quarter when you think about those risk-weighted assets, 14 basis points, Brian has talked about a third, a third, a third for share repurchase dividend and growth, and that's probably a fair starting point.

Steven Chubak
Analyst at Wolfe Research

That's great color. Thanks for taking my questions.

Operator

Our next question comes from Vivek Juneja with J.P. Morgan. Your line is open.

Vivek Juneja
Analyst at J.P. Morgan

Thanks for taking my questions. A couple. What do you -- I heard the commentary about deposit balances, Brian, from you that it is still very high-end and lower-end customers. However, if we start to get a little more granular more -- very recently, are you starting to see any drawdown with higher spending because of inflation? Any color on that. I know quarter over quarter, they are, but as we start to look forward to see how things are progressing. are we seeing that yet?

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

It's actually the opposite to that. They grew faster from February to March, and that's probably because of tax returns that they have. But basically the broad way to think about it is beginning round May of last year. They grew sort of 1% -- 1% not annualized but 1% per month, pretty consistently 1% to 2%, the higher at the lower end balances.

Only in the month of November, I think we saw a slight down draft in the lower-end balances and that picked back up in December, grew January, February, March, each month. It grew this quarter and the March month was the strongest. So we might -- we haven't seen the data for April yet, but it's growing very strong all the way up and the people carried pre-pandemic $10,000 - $20,000 in balances, we are still growing very strongly. So we're not seeing that deteriorated all yet.

Vivek Juneja
Analyst at J.P. Morgan

Completely different question for you, folks. Securities growth, did you see that this quarter even if you ex out the mark-to-market stuff? What's your plan for that? Are you planning to grow securities balances, should we be or what are you thinking at this point?

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

It all comes down to deposits. We keep growing deposits. We got to put in the work. So, Alastair can give you more detail but you remember what drives the size of the balance sheets are right hand side not a left. And so -- we grew $200 billion -- $180 billion - $190billion of deposits last year first quarter, this year first quarter. So we grow deposits, which you should be cheering for and the core basis we do, we will invest those deposits in a careful way.

Alastair Borthwick
Chief Financial Officer at Bank of America

And Vivek, if you look at this quarter, we added $8 billion deposits. We added $14 billion in loans, that how it's going to be our first choice in terms of investment. Securities balances came down a little bit, $13 billion.

And remember, if you go back over the course of the past couple of years. in the pandemic, we didn't see the loans growth. So in many ways, that's why we purchased some securities to replace loans that were coming off. That's not what we're seeing, lower single loans growth. So our first use will always be for loans and if we keep seeing the same kind of loans growth we are seeing right now, the securities may decline over time and they stay flat, will see, depends on deposits.

Vivek Juneja
Analyst at J.P. Morgan

How about in terms of liquid assets, what level should we think? Should be expect you would bring that down too, because those have come down a little bit, when you look at them quarter-over-quarter and they're also down some year-over-year. Is there room for that to come down further? What sort of run rate for that assuming -- let's assume deposits were flat and didn't go down, didn't grow much modestly, where does -- where can that be drawn down to?

Alastair Borthwick
Chief Financial Officer at Bank of America

Yes so, liquidity is down in the quarter, that's largely based on funding the global markets business with seasonal. If you look year-over-year as our liquidity numbers, you'll see our global liquidity sources at $1.1 billion. They're up like -- from Q1 of last year. HQLA surplus is up. That's largely based on things like, again, Brian talks of our deposits at $2 trillion.

We have -- we're probably more liquid now than we've ever been, and we've got plenty, I think, as we continue to grow deposits in the future, I hope our liquidity just continues to stay where it is or go higher.

Vivek Juneja
Analyst at J.P. Morgan

Thank you.

Operator

And we'll take a follow-up from Mike Mayo with Wells Fargo. Your line is open.

Mike Mayo
Analyst at Wells Fargo Securities

Hi, I was a little disappointed about the question related to terminal efficiency. I get, if you wait to adjust Wealth Management, but with all the technology investments, shouldn't your incremental pretax margins be greater on your new revenues and if so, shouldn't your terminal efficiency, business mix adjusted be better than it was before? For example, specifically, the pretax margin in 2021 was 38%, where shared your pretax margin to be on new revenues that are generated ahead?

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

The new revenues are generated -- will generate more larger profit, Mike. And the efficiency ratio, what's always see where we get to but, it will keep coming down and we are improving every all the way through until the pandemic and -- with operating leverage every quarter and I think it's going back and checking on a quarter-by-quarter, it could improve every quarter, leave aside some seasonality, but we will keep driving it down.

Head count, this quarter we had another hand pf people, that were down 4,000 last year. We are adding salespeople. We're opening new branches. We're investing in franchise. We've opened 7, 8, 10 markets and we have $30 billion of new deposits in those branches to give you a sense and there's only 140 branches. You know, our strategy, Mark.

So it's always going to come down to balancing all of that. But, at the end of day we're saying expenses are flat this year. And NII improvements going to flow the bottom line. That's a pretty strong impact efficiency, especially because it's going to the businesses, even Wealth Management business.

Mike Mayo
Analyst at Wells Fargo Securities

And then, one other follow-up, I mean, I don't think there's a recession this year. But I've been wrong before and the stock market is telling us there might be a pretty good chance of a recession. So, Brian and Alastair, what do you think the chance of recession that is in 2022? You have a lot more people, data businesses, insight, end of the US economy and you need to have a percentage with that for your provision for loan losses. So is this 50% chance, 20% chance, what do you think Brian, kind of gut feel and Alastair, by the numbers?

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

I think, to give good credit as an observer bank, Mike. But the reality is, we have economists predict recessions and we all that added about them, but the -- and the reality they always have a prediction for recession that runs around 10% to 20% according to economist activity. But let me flip to what you really said, which is, we waited the adverse scenario factor, at a 40% factor in our baseline reserve setting, that is the formulaic reserve, which is around 40% of our total reserves and so we have reserves on top of that, the basis for tough times.

So I'm not going to shatter box, you know, soft landing, hard landing, and all that stuff. But the reality they've got it inflation out system. They know that the raising rates to do that. But there's tensions against how easy or hard that's going to be, obviously, pandemic, war, but also this issue that the massive amount of stimulus is still out there being spent. So we're braced for every scenario. We model every scenario, but we don't -- I don't put a specific percentage.

I just -- that's somebody else's job to do that, but our economists do not have a recession predicted in terms of this year. around 3% growth. Next year a little above 2% and even though there may be some quarters, we show modest growth and I think they are all positive. I got it right.

Mike Mayo
Analyst at Wells Fargo Securities

I Understood. Thank you.

Operator

Our next question comes from Gerard Cassidy with RBC. Your line is open.

Gerard Cassidy
Analyst at RBC Capital Markets

Hi, Brian, hi, Alastair.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

Gerard, how are you?

Gerard Cassidy
Analyst at RBC Capital Markets

Good, thanks. Alastair, as you guys are well-positioned as pointed out for your balance sheet for rising interest rates, which seems very, very likely this year obviously, and obviously, you guys are not a PT, but the battle crude, battleship to turn the balance sheet into a position and when the Fed finally succeeds, let's say in hitting inflation, knocking it down, they stop raising rates, maybe you can have the coverage, get the economy going, when do you guys start thinking about, after the Fed succeeds the reducing inflation, and you may have to reposition the balance sheet and not be as asset sensitive.

Alastair Borthwick
Chief Financial Officer at Bank of America

We don't -- Gerard, just to start, we -- you know this as well as anybody having been around this industry for number of years. Yeah, at the end of day, the reason why we have Securities investments is because we have $2 trillion of deposits and a $1 trillion of loan. And so we got to do some of the money and the deposit is stable, your core checking accounts, your core operating accounts from commercial customers. So we put it to work to extract the value for the shareholders.

And so it's not that we lean the balance sheet. It's as we do all the work we do in the core franchise to grow the number of customers. 10% or 15% since pre-pandemic and core consumer checking customers, to grow the commercial customer base, small business base, etc. That results in us having a balance sheet that is positioned to the benefit of rising rates because we have some of zero cost deposits.

And so we don't sit there and say, let's move the balance sheet, but we do, if you try to protect in a cautiously other risk. So we hedge the couple year so, year and a half ago. There were a lot of questions about, oh my gosh, you're investing and rates are low and we told people we hedged it. Now you're seeing the benefits of those hedges. That gave up NII from then till now to protect the capital and that's what we did.

So we're always trying to manage, extracting value deposits and then look the other side and see the capital constraint question and the impact of capital, see other constraints on us, but it's really, we only invest in treasuries and mortgage-backed securities. We don't take a more credit risk in the treasury book for lack of better term because we take enough -- and Company. So I just don't -- we don't sit there and say, let's move around and it's just how do we invest and we may move a little shorter or longer what we invest and the frank, we've swapped a lot of it that short just to protect ourselves sort of, we'd be able to redeploy to higher rates in the future.

Gerard Cassidy
Analyst at RBC Capital Markets

Very good. And then as a follow-up on the G-SIB buffer that you guys pointed out that will take effect, I think you said in 2024. This is the basis point increase. Is there any strategies you can employ that could actually reduce that buffer, before we get there or is it really just retaining more earnings from your balance -- from your day-to-day operations.

Alastair Borthwick
Chief Financial Officer at Bank of America

I think we're growing through it, because it has method calculated that are not sensitive to our size relative to the economy. It's not quite -- always kinds of things, and if that move around a little bit. But the reality is, I wouldn't -- when we look at the core customer base, we wouldn't constrain core customer growth. We can always make efficiencies and move stuff around. And we saw believe it or not, and as you can see in the other category have loans, which are not quarter of franchise, still left over frankly from 15 to 17 years ago where we have to look, tat we could let run off and stuff like that or sell out and stuff.

But the reality is that, the G-SIB buffers are growing because our customer franchise is getting bigger in a method of calculation, does not adjust for business success, size of economy, stock -- market cap increase, all those things, which I think, pretty good favor of, Gerard, so we have to retain 30 basis points more capital, so divide that 50 basis points by seven quarters. And if you think about us pulling that through. The question of buffers to that number, you should expect us to operate, close to that 10.75% just because frankly the numbers getting so big that you -- we've never had an issue of the size of capital implied by that buffer to the minimum -- regulatory minimum.

And that capital [Indecipherable] the earning style of the franchise generated 15.5% return on tangible common equity this quarter and will continue to go up, continue to be strong, based on NII improvement.

Gerard Cassidy
Analyst at RBC Capital Markets

Thank you. Appreciate it.

Operator

We'll take our final question from Chris Kotowski with Oppenheimer. Your line is open.

Chris Kotowski
Analyst at Oppenheimer

Yeah, good morning. Thank you. Recognizing that held to maturity portfolio doesn't get mark-to-market. I would think though on kind of underlying core economic basis. It's never fun to have a large one portfolio that's under water. And just looking at your year end disclosures, it looks like the vast majority of that held to maturity portfolio is agencies with more than 10-years maturity. And I guess, how do you look at the extension risk on the portfolio? Again, recognizing it's not marked, but economically, is there any way to protect yourself in kind of a tale environment where rates go up a couple of hundred basis points, like they did in '81 or...

Alastair Borthwick
Chief Financial Officer at Bank of America

Let me address that one. I think Brian's earlier answer got to the first part of it, which is we're not interest rate traders group and straight managers through a cycle. We got to deliver for our shareholders in low rate environments and we have to deliver for them in high rate environments. Those mortgages protected us in a low rate environment.

And now what protects us in a rising rate environment, is precisely the asset sensitivity we still had left in the Company. And so when you look at that $1.4 billion of growth and now we are telling you, you should expect NII growth from here, successively in each quarter, that's what protects us. It's that balance between capital, earnings and liquidity.

And just the cash flow of the portfolio, even in a very low prepayment rate scenario, you got to remember, people pay you principal and interest, people pass away and then people move, irrespective of mortgage related refinancing and those numbers, cash can be re-deployed at the higher rate structure. So it turns a little faster than people think because everybody takes to zero prepaid -- zero prepayment. But the cash flow off of it is fairly significant. So we will redeploy that and loss back up the ladder.

But -- you know, also remember economically, we don't market deposits. We want to create the base we've all had proper accounting for banks. But the other day, the deposits are growing economically at a much faster rate than the degradation on the mortgage-backed cash.

Chris Kotowski
Analyst at Oppenheimer

Okay. All right. Thank you.

Brian Moynihan
Chair of the Board and Chief Executive Officer at Bank of America

All right, that's all our questions. Thank you for joining us again this quarter. It was a strong quarter by the team. And I want to thank the team for all the great work they've done. At the end of day, as we told you last quarter and few quarters before that, we're growing a growth machine as Bank of America is driving hard, growing its market share, growing its deposits, growing its loans and doing well in the market. We will accelerate the P&L from that growth with the higher rates as we told you. We'll continue to hold expenses in check driving operating leverage and that will always be a focus to get the most efficient growth we can. The strong customer activity, which we spoke about it continues even in the first part of April here. And so that will end up drive what's good for our Company and drive earnings. So, thank you. We look forward to talking to you next time.

Operator

[Operator Closing Remarks]

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