Alastair M. Borthwick
Chief Financial Officer at Bank of America
Thank you, Brian.
And I'm going to start on Slide 5 of the earnings presentation because it will provide just a little more context on the quarter. For the fourth quarter, as Brian noted, we reported $6.7 billion in net income or $0.82 per share. And before we talk about comparisons between periods, I just need to remind you that our fourth quarter 2023 GAAP net income number included two notable items. In the fourth quarter of '23, first, we recorded $2.1 billion of pretax expense for the special assessment by the FDIC to the industry to recover losses from the failures of Silicon Valley Bank and Signature Bank, and that reduced the EPS last year by $0.20. Second, we recorded a negative pretax impact to our market-making revenue of approximately $1.6 billion related to the cessation of BSBY as an alternative rate, and that reduced earnings per share last year by $0.15. So when you adjust for the large FDIC assessment and the BSBY cessation charge, fourth quarter '23 net income was $5.9 billion or $0.70 per share.
On Slide 6, we note some of the highlights of the quarter. And we reported revenue of $25.5 billion on a fully taxable equivalent basis, up 15% from the fourth quarter of '23. And if you exclude the fourth quarter '23 BSBY cessation charge our revenues grew 8% year-over-year. As Brian said, all the revenue items are showing improvement year-over-year. NII grew 3%, Investment banking grew 44%. This quarter, our $4 billion of sales and trading revenue marked a fourth quarter record, and it grew 10% from the year ago period. And investment in brokerage fees rose 21%, with both assets under management flows and market levels contributing nicely to the growth. Our card income and service charges grew 7%.
Non-interest expense was $16.8 billion and was up when adjusted for the FDIC special assessment, driven by incentives paid for the strong revenue growth, as Brian noted, and the related activity cost that comes with that. Expense also included additional investments in people, technology and brand with some major partnerships announced recently. And it included what we expect to be the peak in quarterly costs associated with enhancing our compliance costs and controls. The good news is we created operating leverage in the quarter. Provision expense for the quarter was $1.5 billion and was consistent with the previous 2 quarters. And lastly, returns in the fourth quarter were 80 basis points of ROA and 13% return on tangible common equity.
Turning to the balance sheet on Slide 7. We ended the quarter at 3.6 -- sorry, $3.26 trillion of total assets, down $63 billion from the third quarter, driven by seasonally lower levels of client activity in Global Markets, while loans across the businesses grew $20 billion in the quarter. Otherwise, in the quarter, the investments of our excess liquidity saw a $9 billion reduction in hold to maturity securities, and at the same time, the combination of shorter-term liquidity investments of cash and available-for-sale securities increased $28 billion.
On the funding side, total deposits grew $35 billion on an ending basis as both interest-bearing and non-interest-bearing grew. Long-term debt fell $14 billion, driven by net redemptions and valuations and Global Markets funding declined in line with assets. Liquidity remains strong with $953 billion of global liquidity sources. That is up modestly compared to the third quarter even as we paid down some debt and retired some preferreds. Shareholders' equity was flat at around $295 billion, and within all of that, we returned $5.5 billion of capital back to shareholders, with $2 billion in common dividends paid and the repurchase of $3.5 billion in shares this quarter. Tangible book value per share of $26.58 rose 9% from the fourth quarter last year.
Turning to regulatory capital. Our CET1 level improved to $201 billion, and the CET1 ratio rose to 11.9%, remaining well above our new 10.7% requirement. Risk-weighted assets increased modestly as increases in loans were mostly offset by lower RWA supporting our Global Markets client activity. Our supplementary leverage ratio was 5.9%, versus a minimum requirement of 5%, which leaves some capacity for balance sheet growth and our $460 billion of total loss absorbing capital, means our TLAC ratio remains comfortably above our requirements.
Let's turn to Slide 8. We can go a little deeper on loans by looking at average balances. And loans in the fourth quarter of $1.08 trillion improved 3% year-over-year driven by solid commercial loan growth. Overall, commercial loans grew 5% year-over-year. And importantly, this included an 8% drop in commercial real estate loans. Commercial loans, excluding commercial real estate grew 7% year-over-year, and the consumer loans grew modestly both linked quarter and year-over-year. As Brian said, on a linked quarter basis, every category of consumer lending grew, and you can see that at the bottom of Slide 8.
If we turn our focus to NII performance and use Slide 9. Regarding NII on a GAAP non-fully taxable equivalent basis, NII in Q4 was $14.4 billion. And on a fully taxable equivalent basis, NII was $14.5 billion. Several quarters ago, we signaled our expectation that NII would trough in the second quarter of 2024 and begin to grow from there. And this represents now our second quarter of NII growth. And we expect that growth to continue in 2025. In fact, if you look at the 2 quarters after the inflection point, NII is already growing at a 5% rate. Fourth quarter NII on a fully taxable equivalent basis increased by $399 million from the third quarter, driven by a number of factors. First, it was led by improvement in deposits across the businesses. And even as deposit balances increased linked quarter, our interest expense on those deposits declined by $600 million. Loan growth and fixed rate asset repricing also benefited us again this quarter.
With regard to a forward view, interest rate expectations continue to drive volatility and predictability, but we'll provide some thoughts for future NII. We expect to start the year in the first quarter with NII modestly higher than the fourth. Remember that the first quarter has 2 fewer days of interest and that's roughly the equivalent of about $250 million of NII equivalent. So even with that, we expect to grow modestly. Then we expect that growth to increase through the year to the point where it could be 6% to 7% higher in 2025 than 2024. We expect to exit the year at least $1 billion higher in the fourth quarter and that would put us in a range of $15.5 billion to $15.7 billion on a fully taxable equivalent basis, and that's obviously significantly higher than the Q2 '24 trough of $13.9 billion.
I have to note the following assumptions. First, we assume that the current forward curve materializes. And while the interest rate curve has changed significantly over a fairly short period of time, as of the 10th of January, the curve was expecting only one rate cut in 2025 that may come in May or June. Based on our more recent growth experienced, we're assuming loan and deposit growth in 2025 that's higher than 2024, and more consistent with growth in a 2% to 3% GDP environment. The other elements of anticipated growth in NII expected are the benefits of asset repricing as fixed rate securities and loans and swaps roll off and those get repriced at higher rates. And those themes all remain consistent with our prior conversations with you in the last several earnings calls.
With regard to interest rate sensitivity, on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift in the curve, above or below the forward curve. And on that basis, a 100 basis point increase would benefit NII by roughly $1 billion, while a decrease of 100 basis points would decrease NII over the next 12 months by $2.3 billion. Lastly, note that our slide showing the trended investment of excess deposits is in our appendix. It's on Page 21. Deposit levels grew to $870 billion over loans at the end of Q4, and that's an incredible source of value for shareholders. And $649 billion, or 54% of our excess liquidity, is now in short-dated cash and available for sale securities. The longer-dated lower-yielding hold-to-maturity book continues to roll off, and we continue to reinvest in higher-yielding assets.
Okay. Let's now turn to expense, and we'll use Slide 10 for the discussion. We reported $16.8 billion in expense this quarter. And the fourth quarter of '23 included the large FDIC special assessment charge and excluding that, expense increased. The increased expense from prior periods was driven by a number of factors and was partially offset by a roughly $300 million release of prior period accruals for the FDIC special assessment.
Let's talk about the drivers of the expense. First, in regard to revenue, our markets-related businesses of investment banking, investment in brokerage and sales & trading, those were up 20% year-over-year. Incentives for the firm were up 15% versus the fourth quarter of '23 and were in large part related to these market-related revenue streams. On investments that we made, we added bankers and advisers across most of our businesses in 2024, and we also increased investments in our brand with significant sponsorships like the Masters and FIFA, to name a few. And we increased our investments around technology as well as financial centers. This quarter alone, we added 17 financial centers with 9 of those in our new expansion markets. We're a growth company, and we continue to invest in our future. As far as head count goes, we've managed our head count carefully, and we've held it fairly flat through the 4 quarters of 2024 at around 213,000 people.
Lastly, we incurred additional costs to accelerate work on compliance and controls. As you likely saw in late December, the OCC issued a compliance consent order to Bank of America, and that's a result of exams done more than a year ago. This orders about correcting or enhancing certain deficiencies in some aspects of our processes that existed at the time. The order doesn't limit any of our growth plans and the order acknowledges we began taking corrective before the order was announced. And as a result of the work in process, we increased our resources substantially in the second half of 2024 and those costs are already embedded in our quarterly run rate.
Okay. Let's go back to expense and how to think about a forward view. First, most importantly, we remain focused on growing the company and driving operating leverage. Second, we expect the first quarter to include some normal seasonal elevation and we believe this amount will be roughly $600 million to $700 million, primarily for payroll tax expense. So we think $17.6 billion is a good number to expect for Q1 and before seasonally declining in Q2. And that's all part of our expectation that expense should be roughly 2% to 3% higher in 2025 compared to 2024.
Let's now move to credit and turn to Slide 11, where you can see net charge-offs of a little less than $1.5 billion, improving modestly compared to Q3. That's the fourth quarter now that net charge-offs are around $1.5 billion. We've seen consumer losses in a pretty stable range of $1 billion to $1.1 billion over those past few quarters. And on the commercial side, we saw losses of $359 million, which is down from the third quarter, driven by the continued decline in commercial real estate office losses. Net charge-off ratio this quarter was 54 basis points, down 4 basis points from the third quarter.
We don't see overall net charge-offs or the related ratio changing much in 2025, without much change in current GDP or the employment environment, we expect the net charge-off ratio to be in the range of 50 to 60 basis points of loans for 2025. Q4 provision expense was $90 million lower than Q3 at $1.5 billion as reserve levels remain constant. And as it relates to reserve levels on a weighted basis, where reserved for an unemployment rate a little below 5% by the end of 2025, and that compares to the most recent 4.1% rate reported.
On Slide 12, we highlight the credit quality metrics for both consumer and commercial portfolios. And there's nothing really noteworthy here that I want to highlight on this page.
So let's move to the various lines of business starting on Slide 13 with Consumer Banking. That business made nearly $11 billion or 40% of the company's earnings in 2024. In the fourth quarter, Consumer Banking generated $10.6 billion in revenue and $2.8 billion in net income. Both grew modestly from the fourth quarter of '23 as fee improvement for card and service charges is now being complemented by the growth in NII. Consumer Banking continued to deliver strong organic growth with high-quality accounts and engage clients and they achieved a new record of client experience scores in December. The organic growth activity noted on Slide 3 includes more than 200,000 net new checking accounts which now takes us to 6 years' worth of quarter-after-quarter growth.
And we show another strong period of card openings and investment account growth. Investment balances grew 22% to $518 billion with full year flows of $25 billion and market improvement throughout the year. Expense rose 8% as we continued investments in our business. The biggest story in consumer this quarter is deposits because these are the most valuable deposits in the franchise. And in the last 6 months, we believe we've seen the floor begin to form after several periods of slowing decline. Consumer Banking deposits appear to have bottomed in mid-August at around $928 billion and ended the year at $952 billion on an ending basis. Looking at averages, you can see then the deposits grew $4 billion from the third quarter to $942 billion, all while our rate paid declined to 64 basis points.
Finally, as you can see in the appendix, Page 26, digital adoption and engagement continue to improve and customer satisfaction scores rose to record levels, illustrating our clients' appreciation of enhanced capabilities from these investments.
On Slide 14, we move to Wealth Management, where the business had a very profitable year, generating $4.2 billion in earnings from nearly $23 billion in revenue. In 2024, our Merrill Lynch and Private Bank advisers added another 24,000 net new relationships. And the professionalism of these teams earned them numerous best-in-class industry rankings as you can see on Slide 27 in the appendix. With a continued increase in banking product usage from our investing clients, the diversity of revenue in the wealth business continues to improve. The number of GWIM clients that now have banking products with us continues to grow. And at this point, it represents more than 60% of our clients. Importantly, about 30% of our revenue remains in net interest income which complements the fees earned in our advice model and those have also grown. Net income rose 15% from the fourth quarter of '23 to nearly $1.2 billion.
In the fourth quarter, we reported revenue of $6 billion, growing 15% over the prior year and led by 23% growth in asset management fees. While expenses were up year-over-year, they grew slower than revenue creating the operating leverage in the business. Business had a 26% pretax margin and generated a strong return on capital of 25%. Average loans were up 4%, driven by growth in custom lending, securities-based lending and a pickup in mortgage lending. Deposits grew 2% from the third quarter, and the teams were quite disciplined on pricing of those deposits. Both Merrill and the Private Bank continued to see strong organic growth. And that helped to produce excellent asset under management flows of $79 billion this year, reflecting a good mix of new client money as well as existing clients putting money to work. We also want to draw your attention to the continued digital momentum that you'll find on Slide 28. Because, for example, 3 quarters of Merrill bank and brokerage accounts were opened digitally this quarter.
Slide 15 shows the Global Banking results and this business generated $8.1 billion or 30% of the company's earnings in 2024, and it continues to be the most efficient business in the company at less than 50% efficiency ratio. The business saw a nice rebound in investment banking fees in 2024, which we expect to continue in 2025. In Q4, Global Banking produced earnings of $2.1 billion. Pretax pre-provision results were flat year-over-year as improved investment banking fees offset lower NII and higher expense. The total earnings were down 13% year-over-year, driven by higher provision expense that came as a result of prior period reserve release. Investment banking fees were $1.7 billion in Q4, growing 44% year-over-year. This was led by mergers and acquisitions. We also saw strength across debt capital markets fees mostly in leverage finance and in equity capital markets fees.
And we finished the year strong, maintaining our number 3 investment banking fee position. The fourth quarter saw a strong momentum as the election results provided a lift to sentiment for a more pro-business climate and expectations for more deals to be completed. Expense in this business increased 6% year-over-year, driven by the 13% growth in non-interest income and continued investments in people and technology. The balance sheet saw good client activity, and it was muted somewhat by the strength of the US dollar. Year-over-year flatness in Global Banking loans includes this foreign exchange impact and a $6 billion decline in commercial real estate from paydowns. Otherwise, loans in Global Banking were up 2%. Deposits have been growing for many quarters now with our commercial and corporate clients. And total Global Banking deposits are now up 10% year-over-year, reaching a new record. So we're seeing strong growth across all the categories from our corporate and commercial clients all the way from the larger end, the business banking on the lower end. And we also saw a 10% growth in our international deposits.
Turning to Global Markets on Slide 16, I want to focus my comments on results excluding DVA as we normally do. Our team continued their impressive streak of strong revenue and earnings performance. They achieved operating leverage, and they continue to deliver a good return on capital. For the year, record sales and trading results of nearly $19 billion grew 7% from 2023 and they've been growing consistently now on a year-over-year basis for almost 3 years. This led to $5.7 billion in full year profits and represents more than 20% of the company's full year results. In the fourth quarter, earnings of $955 million grew 30% year-over-year. Revenue and again, this is ex DVA, improved 15% from the fourth quarter of '23, as both sales and trading and investment banking fees improved nicely year-over-year.
Focusing on sales and trading ex DVA, revenue improved 10% year-over-year to $4.1 billion. This is the first time we've recorded more than $4 billion in our Q4 results and it included Q4 records for both FICC and equities. FICC grew 13%, while equities improved 6% compared to the fourth quarter '23. FICC benefited from tighter credit spreads as well as increased volatility in interest rates, while equities benefited from increased activity around the US election. Year-over-year expenses were up 7% on revenue improvement and our continued investment in the business.
And then on Slide 17, you can see, all other, with a loss of $407 million in the fourth quarter. We spoke earlier about the fourth quarter '23 charges for BSBY and the FDIC special assessment charge. Their reversal impacts the comparisons on revenue, expense and net income in this segment. Otherwise, there really isn't anything significant to report here. Our effective tax rate for the quarter was 6%, and excluding discrete items and the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been approximately 26%. Looking forward, we expect the tax rate for 2025 to be in a range of 11% to 13%. And this just includes our expectation for higher expected earnings in 2025 and relatively stable tax credits.
Finally, this quarter, on Page 18, we thought it was important to summarize some of the guidance points we talked through this morning, and we hope you'll find this page helpful. So in summary, we're looking for a strong growth in NII, and we'll look to both continue important investments in the franchise and drive operating leverage as we grow throughout the year. We aren't expecting much movement around credit based on a pretty solid economic outlook. And we remain with a very strong balance sheet with excess capital that we can deploy to grow the business and deliver back to shareholders as appropriate.
So with that, I'll stop there. I thank everybody, and we'll open it up for Q&A.
