Bank of America Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 16, 2024

There are 11 speakers on the call.

Operator

Good day, everyone, and welcome to the Bank of America Earnings Announcement. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Call. Please note this call may be recorded.

Operator

I'll be standing by if you should need any assistance. Is now my pleasure to turn the conference over to Lee McIntyre of Bank of America.

Speaker 1

Good morning. Welcome. Thank you for joining the call to review our Q2 results. Our earnings release documents are available on the Investor Relations section of the bankofamerica dotcom website and they include the earnings presentation that we will make reference to during the call. I hope everyone has had a chance to review those documents.

Speaker 1

Our CEO, Brian Moynihan, will make some opening comments before Alistair Borthwick, our CFO, discusses the details of the quarter. Let me just remind you that we may make forward looking statements and refer to non GAAP measures during the call. Forward looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website. Information about non GAAP financial measures, including reconciliations

Speaker 2

to U.

Speaker 1

S. GAAP can also be found in our earnings materials that are available on our website. So with that, let me turn the call over to Brian. Thank you. Thank you, Lee, and good morning and thank all of you for joining us today.

Speaker 1

Before I begin today, I just want to reflect a second on the horrible events this weekend. We at Bank of America are clear that there's no place for political violence in our great country and we continue to wish the former President Trump a speedy recovery and our thoughts, of course, go out to the victims and their families and others impacted by this terrible event. With that, let's turn our results let's turn our attention to the results for the Q2 of 2024 of Bank of America Corporation. This quarter, we achieved success in a number of areas underscoring the benefits of our diversity and the dedication of our team to deliver responsible growth. Our organic growth engine continues to add customers and activity to all our businesses even as we see the drop in net interest income this quarter.

Speaker 1

I'm starting on Slide 2. Our net income for the quarter was $6,900,000,000 after tax or $0.83 in diluted EPS. Attesting to the balance in our franchise, the earnings were split evenly, half in our consumer and G Women Businesses, which serve people and the other half in our institutional focused business, Global Banking and Markets. We grew revenue from the Q2 of 2023 as improvement in non interest income overcame the decline in net interest Fees grew 6% year over year and represented 46% of total revenue in the quarter. Our strong fee performance was led by a 14% improvement in asset management fees in our Wealth Management businesses.

Speaker 1

We grew investment banking fees 29% year over year and saw sales and trading revenue increase 7%. Global Markets had its 9th consecutive quarter of year over year growth in sales and trading revenue, a good job by Jimmy Demar and the team. Card and service charge revenue also grew by 6% year over year in our consumer business. Much of this fee growth is a result of our intensity around organic growth and is a testimony to the diversity of our operating model. Now on to Slide 3.

Speaker 1

Organic growth has been driven by several key factors. First, we focus on our customers. We continue to place them at the center of everything we do. Consumer led the way in delivering solid organic growth with high quality accounts and engaged clients. For the 22nd consecutive quarter, we had significant net new consumer checking accounts.

Speaker 1

We expanded our customer base and our market share. Specifically, we added 278,000 net new checking accounts this quarter, which brings our 1st 6 months of 2024 to more than 500,000. In Wealth Management, we had another 6,100 new relationships this quarter. In our commercial businesses, we added thousands of small businesses and hundreds of commercial banking relationships. This has led to now managing $5,700,000,000,000 balances, loans, deposits and investments across the consumer and wealth management client segments.

Speaker 1

In those areas, we saw flows of $58,000,000,000 in the past 4 quarters. Our emphasis on personalized financial solutions and superior customer service has strengthened customer loyalty, attracted new clients across all our businesses. Our focus on providing liquidity and risk management solutions to our institutional clients positions us to continue to gain more share of the walls as well. 2nd, we continue to deliver innovative digital solutions. 1 of the primary contributors of both attracting and retaining customers to our platforms is our digital banking capabilities for our clients across all the businesses.

Speaker 1

Our fully integrated consumer banking investment app drives the utility for our customers across their investment and consumer accounts. Our use of stats are strong proof points. Our second language capabilities in our consumer businesses further enhance our customers' capabilities. You can see the continued digital growth in the slides on Pages 26, 2830 in the appendix. A couple of highlights.

Speaker 1

Our consumer mobile banking app now serves more than 47,000,000 active users. They logged in 3,500,000,000 times this quarter. We also committed continue to see more sales through use of our digital properties. Digital sales represented 53% of our total sales in the past quarter in our consumer business. 23,000,000 consumers are now using Zelle.

Speaker 1

They send money on Zelle at nearly 2.5 times the rate they write checks. And in fact, more Zelle transactions send transactions take place than a combination of customer ATM transaction and cash withdrawals at Teller. Simply put, Zelle is becoming their dominant way to move money. In our wealth management business, we are seeing more banking accounts being opened to complement the investment business those clients do with us. Importantly, these clients are also recognizing the ease of our digital banking capability.

Speaker 1

75% of our new accounts in our Merrill teammates were opened digitally. 87% of our global banking clients also are digitally active. We have innovated and significantly streamlined service requests by enabling clients to directly initiate and track transaction inquiries within our award cash flow platform using AI to accomplish that. 3rd, we continue to make core strategic investments in our businesses. We are not complacent with the success you see on this page.

Speaker 1

We continue to strategically invest in our core businesses. A few examples. While we have the leading retail deposit share in America, we continue to invest and have opened 11 new financial centers this quarter in this first half of the year and renovated another 243. This is an investment in both our expansion markets and our growth markets. In Wealth Management, we continue to invest in our advisor development program.

Speaker 1

It's grown to 2,300 teammates, allowing us to continuously add more than teammates to our 18,000 strong best in class financial advisory force across our wealth management businesses. We're also adding teams of experienced advisors strategically in areas across the country. In our banking teams, we continue to add our regional investment to our regional investment banking team. We now have more than 200 regional bankers across the country to better serve our commercial clients and they complement our industry coverage to our corporate clients. In our Global Markets business, we continue to extend balance sheet to our clients and adding expertise and talent to continue to lead our market share improvements seen over the last several years.

Speaker 1

We also have increased our technology initiatives and expect to spend nearly $4,000,000,000 on technology initiatives this year. We have focused projects around our artificial intelligence enhancements of both clients and our teammates. A recent example of our use of AI is our advisor and client insights tool. We've delivered more than 6,000,000 insights year to date to our financial advisors providing them proactive reason to engage with clients. AI has moved from cost savings ideas to enhancing the quality of our customer interactions.

Speaker 1

4th, organic growth is driving integrated flows across our business. We invest heavily in each line of business that compete in the markets based on their particular customer segment. But importantly, we also invest across our lines of business to knit them together and gain market share in the local markets. It's a differentiated advantage for us. Our banking leadership position across our businesses and our nationwide franchise.

Speaker 1

For example, we leverage our franchise by connecting business customers with wealth management teams. Our teams across all our businesses have made 4,000,000 referrals to other businesses in the 1st 6 months of this year. Next, we drive efficiency and effectiveness and that's through our operational excellence platform. We continue to invest heavily in the future of our franchise and growth, while we also have to manage expenses day to day. Our focus on operational excellence has enabled us to hold our expense growth up to 2% year over year, well below the inflation rates.

Speaker 1

We continue to work to achieve operating leverages as NII stabilizes and begins to grow again. As you look at it and I'll also explain later, a fair portion of year over year increase in expense is due to formulae consensus of Wealth Management due to the fee growth in that business. And last, our capital strength allows us to deliver for all our stakeholders. Our capital remains strong as we held our CET1 ratio at 11.9% this quarter. We grew loans, increased our share repurchase to $3,500,000,000 and paid $1,900,000,000 in dividends.

Speaker 1

Average diluted shares dropped below 8,000,000,000 shares outstanding. In addition, we also announced our intent to increase our quarterly dividend 8% upon Board approval. Note that 11.9% CET1 ratio remain in a solid excess capital position above both of other current regulatory requirements and the increased requirement to 10.7% beginning in October as a result of the recent CCAR exam. Let's turn to Slide 4. A couple of things to note here.

Speaker 1

First, we've noted for several quarters that the 2nd quarter NII would be the trough for this rate cycle. We expect NII to grow in the Q3 and Q4 this year. Alistair is going to provide you some points in detail about the path forward. One important contributor to that change is the deposit behaviors of our customers. On Slide 4, you'll note that average deposits grew 2% year over year and increased modestly linked quarter.

Speaker 1

The second quarter in reality is typically a heavy outflow quarter. We have a lot of customers who pay a lot of taxes in that quarter. Quarter over quarter increases in rates paid continue to slow again this quarter across all businesses except for Wealth Management. And we show you that on this page Slide 4 by line of business. While Wealth Business Depository rates have moved higher with continued rotation, we expect those rates to begin to stabilize and the rate of quarterly change decrease going forward.

Speaker 1

Turning to Slide 5. In previous calls, many of you asked questions or comment upon the question about consumer net charge offs and when would they stabilize in the second half of twenty twenty four. That expectation we have remains unchanged as well. This quarter's net charge offs were 59 basis points. And for context, this is stabilization of the rate.

Speaker 1

I would just remind you prior to this quarter, I have to go all the way back to 2014 to see a charge off rate of that high and that's near when we're still emerging from the financial crisis. On Slide 4, we highlight the 30 to 90 day plus credit card delinquency trends, which show delinquencies have plateaued for the 2nd consecutive quarter. This should lead to stabilized net credit losses in credit card in the second half of the year. At the bottom of the page, note a couple of facts. First, on the payment rates.

Speaker 1

This is the rate of pay down on balances a given month, remained 20% above index to the pre pandemic levels, even while our card customers have plenty of capacity to borrow. And importantly, because of our relationship based businesses, look at the right hand slide at the bottom of Page 5. There you can see our deposit investment balances of our customers who also have a card with us remain 25% above their pre pandemic levels illustrating continued healthiest customers. So as you think about consumer credit, the card charge offs drive it and they flattened out in terms of delinquencies and we expect it to improve the second half. With regard to commercial real estate, our usual CRA credit exposure slide is included in our appendix.

Speaker 1

We continue to aggressively work through our loans in our modest CRE office portfolio. We saw a decrease in all the categories, a decrease in reservable criticized loans, a decrease in NPLs and a decrease in net charge offs. This supports our previous expectation that net charge offs in the second half of twenty twenty four will be lower than the first half of twenty twenty four. Our second quarter performance highlights Bank of America's ability to generate strong, sustainable growth through a combination customer centric strategies, innovation, strategic investments and a commitment to a strong balance of risk and reward. We call that responsible growth.

Speaker 1

We are confident that focused approach will continue to drive long term success and create value for you, our shareholders. Now I will turn it to Alistair for additional results.

Speaker 3

Thank you, Brian. And I'm going to start on Slide 6 of the earnings presentation. I will touch on more highlights noted on Slide 6 as we work through the material. I just want to say upfront that we delivered strong returns with return on average assets of 85 basis points and a return on tangible common equity of nearly 14%. So let's move to the balance sheet on Slide 7 where you can see we ended the quarter at $3,260,000,000,000 of total assets relatively unchanged from the Q1.

Speaker 3

And not much to note here apart from a mix shift of lower securities balances, mostly offset by an increase in reverse repo and modest loan growth as well as global markets client activity. On the funding side, deposits declined $36,000,000,000 on an ending basis reflecting typical seasonal customer payments of income taxes. And as Brian noted, average deposits were still modestly higher. Liquidity remained strong with $909,000,000,000 of global liquidity sources that was flat compared to the Q1. Shareholders' equity was also flat compared to Q1 as earnings were offset by $5,400,000,000 in capital distributed to shareholders and a $1,900,000,000 redemption of preferred stock in the quarter.

Speaker 3

The $5,400,000,000 of capital contributions included $1,900,000,000 in common dividends and the repurchase of $3,500,000,000 in shares. AOCI improved modestly in the quarter and tangible book value per share of 25 $0.37 rose 9% from the Q2 of last year. In terms of regulatory capital, our CET1 level improved to $198,000,000,000 and the CET1 ratio was stable at 11.9%. This 11.9% ratio remained well above our current 10% requirement as well as our new 10.7% requirement as of October 1, 2024. Risk weighted assets increased modestly and that was driven by lending activity.

Speaker 3

Our supplemental leverage ratio was 6% versus our minimum requirement of 5% and that leaves plenty of capacity balance sheet growth. And our $468,000,000,000 of TLAC means our total loss absorbing capital ratio remains comfortably above our requirements. Brian already covered deposit trends. So let's turn the balance sheet focus to loans and we will look at average balances on Slide 8. You can see average loans in Q2 of $1,051,000,000,000 They improved 1% year over year driven by 5% credit card growth and modest commercial growth.

Speaker 3

The modest improvement in overall commercial loans included a 2% increase in our domestic commercial loans and leases, partially offset by a 4% decline in commercial real estate. Middle market lending saw an uptick in the quarter and we saw good demand in our wealth businesses from custom lending. These areas of growth were largely offset by continued pay downs from our larger corporate clients on interest rate sentiment. Consumer growth was driven by credit card borrowing and while home lending balances were flattish, originations picked up a bit this quarter. Lastly and on a positive note, loan spreads continued to widen.

Speaker 3

As we turn our focus then to NII performance and Slide 9, note that we moved the slide we typically use to talk about excess deposits to the appendix on Slide 22, so you can see that there. Our excess deposit levels above loans remained high at $850,000,000,000 and continue to be a good source of value for shareholders. 52% of our excess liquidity is now in short dated cash and available for sale securities. The longer dated lower yielding hold to maturity book continues to roll off and we reinvested again this quarter in higher yielding assets. The blended yield of cash and securities continued to improve in the quarter and is now 160 basis points above our deposit rate paid.

Speaker 3

Regarding NII, on a

Operator

Please remain online. You'll hear music for just a moment.

Speaker 3

Will materialize and this now includes 3 interest rate cuts starting in September, another in November and one more in December. And the waterfall shows an estimated impact of those rate cuts to our quarterly NII. The next couple of categories are a result of natural management interest rate risk in a balance sheet mix with fixed rate assets and variable rate assets and our balance sheet is split roughly half and half. So we take in liquidity from customers that we use to fund our assets and then we store excess liquidity in cash and securities. We have fixed assets that mature and pay down and those supply cash that then gets put back to work on the balance sheet and re prices over time.

Speaker 3

And we have 2 basic categories of fixed assets that mature and pay off and those are securities and loans. On securities, you can see we've got about $10,000,000,000 a quarter of cash coming off of our securities portfolio and we gained roughly 300 basis points of improvement on those assets when we put that money back on the balance sheet. On loans between resi mortgage and auto, we've got another roughly 10,000,000,000 which re prices with a little less yield improvement than the securities. And between the securities and loans, we expect the fixed rate asset repricing adds about $300,000,000 to our quarterly rate of NII as we get to the 4th quarter. On the variable rate asset side and to protect from down moves in rates, we hedge some of that with cash flow swaps and those typically roll off in any given quarter and get replaced over time.

Speaker 3

So included in the cash flow hedges is an impact of cessation of Bisbee as an alternative rate. If you recall, we took a charge in the Q4 of 'twenty three. It was 1,600,000,000 dollars and we said that would come back to us through time. And beginning in November, we start to see the benefit coming back into NII and in Q4 that's about $200,000,000 That Q4 partial quarter benefit will grow by a slightly smaller sequential NII benefit in Q1 'twenty five and then it begins to taper off heading into 2026. In addition, we've got about $150,000,000,000 of received fixed cash flow hedges protecting us from short rate moves moving lower.

Speaker 3

Most are hedging floating rate commercial loans and the cost of those hedges is reported as contra revenue in commercial loan interest income. These hedges have a weighted average life of just over 2 years and they've got an average fixed rate of approximately 2 50 basis points. So starting in the second half of twenty twenty five, we begin to get some additional NII tailwind because the cash flow hedges with lower fixed rate legs where we receive, those will begin to roll off and will likely replace those at higher current market rates at the time. The actual size of the tailwind we'll get from the expiration of those swaps will obviously be highly dependent on the level and the shape of the yield curve at the time of those maturities and that stretches out over the course of the next 4 years. Okay, a couple other points to make.

Speaker 3

You'll note we don't expect much movement around our modestly liability sensitive global markets NII activity. And lastly, our forward view has an expectation of low single digit growth in loans, low single digit growth in deposits with continued slowing of rate paid movement through the back half of twenty twenty four. And you can see our expectation the combined impact here as well. This last element is the one that has the most potential variability and obviously it will depend upon actual deposit and loan growth and pricing and rotation. Okay, let's turn to expense and we'll use Slide 11 for the discussion.

Speaker 3

We reported $16,300,000,000 of expense this quarter and that's more than $900,000,000 lower than Q1, which included $700,000,000 for the FDIC assessment, expenses were lower than Q1 by 229,000,000 dollars driven by seasonally lower payroll tax expense. Compared to Q2, 2023, we're up less than 2% and that increase is equal to the incentives paid for improved fee revenue. Incentives for our G WIM business alone are up $200,000,000 year over year. That's obviously an expense we're happy to pay when we have a 14% improvement in fees for assets under management. Our Q2 headcount number included welcoming a diverse class of nearly 2,000 summer interns, we hope will join us over the course of the next year or 2 upon their graduation and absent those interns our headcount fell by nearly 2,000.

Speaker 3

In the Q3, we expect to add approximately 2,500 college graduates for full time more than and that's from more than 120,000 applications received showing that we remain an employer of choice for talented young people. Expense levels for the rest of 2024 are expected to bounce around the 2nd quarter level given the higher fee revenue and investments made for growth. So let's now move to credit and we'll turn to Slide 12. There was little change in our asset quality metrics this quarter. Provision expense was 1,500,000,000 was $189,000,000 higher than Q1 driven by a smaller reserve release in Q2.

Speaker 3

Net charge offs of $1,500,000,000 were little changed with a small increase in credit card mostly offset by lower commercial real estate office charge offs. On a weighted basis, we remain reserved for an employment rate of nearly 5% by the end of 2025 compared to the most recent 4.1% rate reported. The net charge off ratio was 59 basis points, largely unchanged from Q1. On Slide 13, we highlight more credit quality metrics for both our consumer and commercial portfolios. Consumer net charge offs increased by a modest $31,000,000 versus the Q1 from the flow through of higher late stage credit card delinquencies from Q1.

Speaker 3

Highlighting the change in direction of delinquencies, consumer day plus delinquencies declined in 2Q by $57,000,000 Commercial net charge offs were relatively flat as lower commercial real estate losses were mostly offset by a small increase in other commercial loans. Our office losses went from $304,000,000 in Q1 to $226,000,000 in Q2. Other commercial real estate loan losses were simply 1 hotel. Okay. Let's move to the various lines of business and some brief comments on their results and I'll start on Slide 14 with Consumer Banking.

Speaker 3

For the quarter, Consumer earned $2,600,000,000 on continued strong organic growth and reported earnings declined 9% year over year as revenue declined from lower deposit balances compared to the Q2 of last year. Customer activity showed another strong quarter. Net new checking growth, another strong period of card openings and investment balances for consumer clients which climbed 23% year over year to a new record $476,000,000,000 That included 12 months of strong flows at 38,000,000,000 dollars in addition to market appreciation over the time. As noted earlier, loans grew nicely year over year from credit card as well as small business where we remain the industry leader. The team held expense flat year over year reflecting good work with continued business investments for growth offset by the operational excellence work to improve processes and move more of our transactions to digital.

Speaker 3

And as you can see in the appendix Page 26, digital adoption and engagement continue to improve and customer satisfaction scores remain near record levels illustrating customer appreciation of our enhanced capabilities due to our continuous investment. Moving to Wealth Management on Slide 15, we produced good results and those included good organic client activity, market favorability and strong AUM flows and this quarter also saw good lending results. Our comprehensive suite of investment and advisory services coupled with our commitment to personalized wealth management planning and solutions has enabled us to meet the diverse needs and aspirations of our clients. Net income rose 5% from the Q2 of last year to a little more than 1,000,000,000 dollars In Q2, we reported revenue of $5,600,000,000 growing 6% over the prior year. As Brian noted, strong 14% growth in fee revenue from investment and brokerage services overcame the NII headwind.

Speaker 3

Expense growth reflects the fee growth and other investments for future. The business had a 25% margin and it generates a strong return on capital of more than 22%. Average loans were up 2% year over year driven by strong growth we're seeing in custom lending and a pickup in mortgage lending. Both Merrill and the private bank continue to see good organic growth and they produced strong assets under management flows of $58,000,000,000 since last year's Q2, which reflects a mix of new client money as well as existing clients putting more of their money to work. I also want to highlight the continued digital momentum in this business and you can find that on Slide 28.

Speaker 3

On Slide 16, we turn to Global Banking results and here the business produced earnings of $2,100,000,000 down 20 percent year over year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision of funds. Revenue declined 6% driven by the impact of interest rates and deposit rotation. The diversified revenue across products and regions reflects the strength of our global banking franchise. In our GTS business, fees for managing the cash of clients offsets a lot of the NII pressure from higher rates. And clients are accessing the capital markets for their capital needs instead of borrowing.

Speaker 3

Investment Banking had a strong quarter growing fees 29 percent year over year to nearly $1,600,000,000 led by debt capital markets fees, mostly in leverage finance and investment grade. And we finished the quarter strong maintaining our number 3 investment banking fee position globally. A solid start to 2024 has left us in a good position with top 3 rankings now in North America, Latin America and EMEA and number 6 in APAC and we're seeing strong performance in important industry groups as well. An increase in provision expense from last year was driven by the commercial real estate net charge offs I discussed earlier and expense increased 3% year over year including continued investment in the business. Switching to Global Markets on Slide 17, I'll focus my comments on results excluding DVA as I normally do.

Speaker 3

The team had another terrific quarter as we generated good revenue growth and achieved operating leverage and continued to deliver a solid return on capital. Earnings of $1,400,000,000 grew 19% year over year and return on average allocated capital was 13%. Revenue, and again this is ex DVA, improved 10% from the Q2 of 2023. Focusing on sales and trading ex DVA, revenue improved 7% year over year to $4,700,000,000 and that's the highest second quarter in over a decade. FIC was down 1% while equities increased 20% compared to Q2 2023.

Speaker 3

Big revenues remained strong and versus Q2 2023 they were modestly lower driven by a weaker macro trading quarter in FX and rates and that was largely offset by better commodities and mortgage trading. Equities was driven by strong trading results in derivatives and cash equities. Year over year expenses were up 4% on revenue improvement and continued investment in the business. Finally, on Slide 18, all other shows a loss of $300,000,000 and that was little changed year over year as lower expense was offset by lower provision costs as a result of reserve changes. Our effective tax rate for the quarter was 9% and excluding discrete items and the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been 25%.

Speaker 3

And with that, I think we'll stop there and we'll jump into questions.

Speaker 1

Hi, Alistair Brian, I just wanted to I did hear some feedback that maybe the audio from the call got interrupted for a moment. So at the point at which it got interrupted, I just want to reiterate a couple of points that Alastair was making. If you go back to Slide 9, where I think we lost the audio was where we started beginning a discussion about the performance from Q1 to Q2 of net interest income. That was driven by higher funding cost and the rotation of deposits seeking higher yield alternatives. And while higher again in Q2, both the rotation and the rate paid increases did continue to slow down.

Speaker 1

On the Slide 10, I think the only points that I would make that Alistair began to discuss there was we are just reiterating our expectation that quarter 2 would be the bottom for the NII in the rate cycle that we have been in. And our trajectory remains the same. The belief that our NII will begin to rise in Q3 compared to Q2 and then rise again in Q4. We provided the range of expectations that Alastair covered, and we expect Q4 NII be around the $14,500,000,000 level plus or minus. That would be approximately 4% to 5% higher than this quarter's NII.

Speaker 1

And he began that discussion by making sure that you know that we pick up an extra day of net interest income in the Q3, providing about $125,000,000 of additional NII that also carries through into Q4. You see that on the slide. It also assumes that the current forward curve will materialize. Those that said that interest rate cuts will start in September. We will expect another one in November December in the curve and the waterfall includes an estimated impact of those rates to quarterly net interest income.

Speaker 1

And so then we started the discussion. He began the discussion on the fixed asset re pricing, which then I think is where the audio picked back up again. And so we're happy to answer some questions on that. I know you'll have questions, but just wanted to recover that point those points for you.

Operator

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

Speaker 4

Hi, thanks very much. Hello there. And definitely appreciate Slide 10 a lot. I know you would have given us a 2025 NII guide if you wanted to give us one. So feel free to give that if you want, but that's not my question.

Speaker 4

My question is, given all the pieces of the puzzle that you gave us, expectations for modest loan and deposit growth and slowing deposit seeking behavior, If you get that 4% pickup from 2Q to 4Q this year that you're expecting, Right now or at least recently, consensus had NII looking flattish with that 4th quarter number. And that doesn't make a lot of sense given all the pieces. So maybe if you can just comment directionally, if you don't want to give the number of does it make sense to you that we'd collectively be expecting flat NII with your higher 4th quarter number?

Speaker 3

So Glenn, you're right. We're probably not going to give guidance around 2025 for all the reasons that you would expect. What we're trying to do here is reinforce for everyone what we've been saying from the beginning of the year. And that is we think Q2 is the trough and we believe from this point we're in a good position to grow. Now when you look at some of the elements of this bridge, you'll draw your own conclusions with respect to fixed rate asset pricing is going to persist for some period of time.

Speaker 3

And you'll be able to draw your own conclusions. But I just want to point out, we've been pretty clear on our guidance for Q1 and Q2. We've always felt like this would be the trough. We feel like Q3 and Q4 are likely to be better. You can see our work here.

Speaker 3

We've laid it all out. Nothing's really changed in terms of that. And the most important thing I think for everybody here is we feel like 2024 is a really foundational year. It's this twist period where we just got to get through the last of the deposit rotation and we're establishing a foundation for growth from here. So that's what we're trying to convey.

Speaker 5

Maybe I could just ask a follow-up

Speaker 4

on deposits within business. You have $4,000,000,000,000 of client assets. I'm curious if you break out the split between brokerage and advisory accounts. Do you hear me okay? I'm hearing tons of feedback, sorry.

Speaker 4

Okay, sorry. Okay. So 4,000,000,000,000 in client assets great. 4,000,000,000,000 in client assets in wealth. I'm curious if you give us the split between brokerage and advisory.

Speaker 4

And the reason I'm asking is, I'm curious how you've been handling rate paid on cash and advisory accounts and whether we should expect any behavioral changes following the recent Wells news? Thanks a lot. Sorry for the feedback.

Speaker 1

Look, Glenn, I'm not sure that distinction would be the distinction I'd look to. We price we've gone through a massive change in cash infused in the economy and withdrawn now under monetary policy. And so as we stabilize our instructions to our team are to grow our deposit base a little bit faster economy. That means you have to price across the board to achieve that. And what if you look at the slide 4 or 5 where I showed you sort of the change, what you see is the wealth management business takes a little bit longer because those clients have more investment cash with us, not what you're thinking investment cash puts in their money how they think about cash that they don't need for daily cash flow and they move that around.

Speaker 1

That largely is over. And if you look in the last 4, 6 weeks, we're seeing those deposits in that business bounce around the $280,000,000,000 level. Not a lot of movement. And it will keep moving in and out depending on customers paying down paying their income taxes, taking more risk in the market and all those things. But the deposit pricing changes that we made to ensure that they were at a platform they could grow having been as high as $350,000,000,000 of 2.80 dollars were made in the quarter and all through the P and L.

Speaker 2

Okay.

Operator

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

Speaker 6

Maybe just a quick follow-up and I don't need to beat a dead horse on NII, but can we just can you just help us think through the puts and takes on you have rate cuts at the end of the year, forward curve implies more next year as that cumulative impact starts to hit next year. I guess what gives you confidence that this is sort of a trough? What are all the puts and takes that we should think about and how we model the NNI for next year when we think about the forward curve and that impact?

Speaker 3

Jim, I think this bridge probably is all the right inputs for any given year. I mean we've chosen to do it for 2024. We've always resisted going out too far for the very simple reason that there's so many variables and they start to multiply with one another. You think about even the rate cut one here, we're using the 3 cuts September, November, December. I did this as of Wednesday of last week there would have been 2.

Speaker 3

Earlier in the year there were 6. So since we don't know what that path looks like, it's very challenging then to provide guidance for 25 at this stage. But what we're laying out here is these are the component parts. We're going to get some benefit from fixed rate asset pricing over time. We're going to get some benefit in the immediate term from the Bisbee cessation and that's leading back into the P and L.

Speaker 3

As that rolls off, we'll get benefit from cash flow hedges, repricing. And then we use the forward curve same as you do for the rate cuts. We benefit a little bit from gold markets, liability sensitivity. And then that final piece is the piece that we're trying to drive in terms of organic growth. We're trying to drive this loan growth, We're trying to drive the deposit growth.

Speaker 3

And as Brian pointed out, it's been a pretty unusual period in history where we've had an enormous change in the rate structure and in the fiscal stimulus and the facts now fading away to something more normal. But that last box will come down to your assumptions versus our assumptions and we will update you as we go through the next couple of quarters and we'll give you a better sense towards the end of the year.

Speaker 6

Okay. That's all fair. And maybe just on the growth piece, maybe deposits seem to have bottomed for you guys in the Q2 of last year. You've had good growth. I think Brian pointed out even with the tax headwind this quarter, you grew sequentially.

Speaker 6

So good performance, but still pretty modest. How are you thinking about the growth trajectory from here, I guess, as we think about, is it what does it accelerate with rate cuts in your view? What are the dynamics are you thinking about as we're returning to that historical kind of mid single digit deposit growth within BofA and the industry?

Speaker 3

Well, I think Brian covered Slide 4, that top left chart gives a sense for what's going on with the growth that's average growth over time there. We've had 4 quarters in a row, so we feel good about that part. Q2 does tend to be a slower quarter just with all the tax payments. So we think deposits will do better over time, particularly as we get past peak Fed funds. We feel like the pricing and rotation are you can sort of see it in our numbers, they're slowing.

Speaker 3

So we're getting towards the end there. We're getting towards the end of QT. So we're not quite finished on all of those things yet. I'd be careful about getting too excited about deposit growth, but we feel like we're doing okay so far and we just got to keep driving that.

Speaker 6

Okay. Thanks for taking my questions.

Operator

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

Speaker 2

Hi. I'll start with a simple question. You mentioned loan spreads have improved. Why is that? Where is that?

Speaker 2

Do you expect that to continue?

Speaker 3

Loan spreads have improved for us, Mike, over the course of the past. I think it's now 8 or 9 quarters. It's primarily in the commercial businesses and it's largely because we have to price the balance sheet for the returns that our shareholders expect. And that's true I think for the industry and we've been quite purposeful in that regard. So we've tried to balance price spread and growth over the course of time, but it's primarily a commercial phenomenon at this point.

Speaker 3

And I would expect that to continue for the foreseeable future, but it's a competitive environment we got to see.

Speaker 5

Okay.

Speaker 2

You gave us Slide 10, a lot of details there. You talked about September rate cuts, the fixed asset repricing, securities repricing, loans repricing, mortgage and auto swaps maturing, November received fixed cash swaps and a whole litany of stuff. But I think when you put it all together, what it's led to is a net interest margin of only 1.93%. In fact, I think your yield on your assets is below Fed funds right now. So would you agree that you're under earning with that NIM of 1.93 percent?

Speaker 2

And I know I've asked this question before, but you always have to mark to market. What is a normal NIM? I mean, you were 2.5% in 2017, you were 3% in 2,004. Now I know the composition has changed and everything, but what's the normal NIM? And what do you think is a normal return on tangible common equity through the cycle?

Speaker 2

Thanks.

Speaker 3

So I'd say right now in terms of the $193,000,000 we feel like we are under earning. We feel like that number is going to go up over time. It will go up as net interest income goes up, but additionally I think the balance sheet is likely to stay kind of flattish here. So the numerator is going to grow, the denominator is going to stay pretty tight here. So we think we're under earning there.

Speaker 3

We think through a cycle, we've got to get back to a more normal number like 2.30 ish over time. That takes a while. It's a grind Mike quarter after quarter. So that's where we're headed. And in terms of return on allocated capital, right now we're right around that 14%.

Speaker 3

We want to be 15% and higher for our shareholder. A lot of it is because we've accrued an awful lot of capital over the time over the course of time in advance of any potential capital changes. And the other final thing I'd just remind you is we're a little different than some of the regional banks and that we've got an enormous global markets business and that obviously makes an impact on the headline NIM number.

Speaker 2

Okay. And then just I wasn't clear you said net charge offs in the second half should be less than the first half and I wasn't sure if that related to cards or

Speaker 6

I wasn't sure what Yes, Mike.

Speaker 1

Mike, that was me. And basically what I'm saying is you plateaued in terms of the delinquencies, which means the second half is pretty well determined as you know, because it's just a March from $36.90 to $180 and it will be the charge off rate will be flattish. We kind of back to normal $380 or so. That's we underwrite to actually have a higher charge off rate quite frankly in that and tolerance, but that 3.80% is kind of where we see it since 3.80%.

Speaker 4

Okay.

Speaker 2

So credit card charge offs should flatten or decline in the second half relative to the first half?

Speaker 1

Exactly. Remember if you think about all the charge offs that's not that's the dominant part of it on the consumer side by a lot. And then to commercial we spoke to the question of CRE office which has been dropped quarter to quarter and we expect the second half to be better also.

Speaker 2

All right. Thank you.

Operator

We'll take our next question from Steven Chubak of Wolfe Research.

Speaker 6

Hi, good morning.

Speaker 5

Good morning, Steve. Good morning, guys.

Speaker 6

So I wanted to ask just on just building on some of the NIM questions from earlier. A lot of it's been focused on asset repricing, both loans and securities. I was hoping you could speak to the opportunity to potentially optimize some of your higher cost funding. And just given multiple sources of NIM improvement, looking beyond 24, how should we think about the pace of NIM build as we I know it's a longer timeline to get to the 230 to 240, but just how to think about the expectations around the NIM trajectory beyond 2024?

Speaker 3

Well, your first point is a question of can we pay down some of the higher cost securities? The answer to that is yes. And that would be an expectation of ours as part of this. We've got some shorter dated CDs that can roll off. We can replace those or not.

Speaker 3

We have shorter dated debt. We've taken our long term debt footprint down as we've continued to build the strength of the company. So there's a lot of different ways. It doesn't have to be securities reinvestment. It can be paying down higher cost liabilities as well.

Speaker 3

So we've got a lot of different ways that we can use quote the reinvestment if you like around the fixed rate. And then what was the second question was over what time period

Speaker 6

you expect the projected beyond 24?

Speaker 3

Yes. So look, we're obviously on it right now. We feel like this is the trough. We're going to build it from here. We'll make meaningful strides on that through 2025.

Speaker 3

That's where we're going.

Speaker 6

Great. Thanks for taking my questions.

Operator

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

Speaker 7

Hi, good morning.

Speaker 5

Good morning, Betsy.

Speaker 1

So,

Speaker 7

yes, another question on NII. Alistair, I did I think hear you correctly when you said that as you go into the second half of twenty twenty five, there's going to be incremental benefits coming from swap roll offs. Did I hear that right?

Speaker 3

Yes, that's correct. Second half twenty twenty five. So as we get closer, we'll be able to give you some kind of bridge like this that allows you to see what that looks like. But it's just it's a year out right now.

Speaker 7

Yes, for sure. But I'm just wondering, is there anything that's I guess what I just would like to understand a little better is how the swap book is impacting Slide 10? And then is it gradual into the second half of twenty twenty five or is it a switch on in 3Q? Just understanding how the block up is playing into those things.

Speaker 3

Yes. So the part that's important for Slide 10 around the second half of this year is just the Bisbee piece. It's not from cash flow swaps. Any cash flow swaps we have that roll off in the course of the next 12 months really, they're all kind of current coupon ish because anything that we did there was to do with LIBOR cessation or whatever and so they all got recoupon. So I wouldn't worry about that.

Speaker 3

In the second half and onwards, some of the older longer dated things, they've got the lower coupons. So that's when the Bisbee number over time will disappear. But in the second half of twenty twenty five, the cash flow number begin to appear. So and we'll give you a sense for what that looks like over time, Betsy.

Speaker 7

Okay, got it. And then on the far right hand side of Slide 10, you've got the yellow box, $50,000,000 to $200,000,000 Could you just give us a sense as to what's the inputs to the $50,000,000 versus the $200,000,000 just so we can be able to

Speaker 2

track it as we go through

Speaker 7

the rest of the next two quarters?

Speaker 3

Yes. We're essentially using 4 variables. We're thinking what will the loan growth be? What will the deposit growth look like? What will be the rotation between non interest bearing and interest bearing?

Speaker 3

And what will be any pricing changes we need to make, right? Then the rotation pricing are pretty closely interlinked. You could even call them the same thing. If you use more conservative numbers, you get towards the lower end. If you use slightly more constructive numbers you get towards the higher.

Speaker 3

I think the point we're trying to convey is that this last part, this yellow box is always the unknowable at the beginning of the quarter where we're projecting. The pieces in the green, we kind of feel like we know what those look like. That's pretty predictable at this point. We've got a little more certainty around that. So the teams, we've got 213,000 people who are working really hard to try and make that dotted yellow box the higher end, but obviously it depends on our assumptions and it depends on our actuals.

Speaker 7

Super. Thank you so much for the color.

Operator

We'll take our next question from Erika Najarian of UBS.

Speaker 8

Hi, good morning. Just my first question is trying to square what you're telling us on the net interest income trajectory in the setup versus your disclosure. So Alastair, you told us about, as a response to Glenn's question, the benefit from fixed asset repricing, cash flow hedges repricing in the second half of twenty twenty five. And when I look at Table 40 from your Q, in both a parallel shift and a steepener scenario down 100 is negative to net interest income. Is it because this is a 12 month look?

Speaker 8

And like you pointed out in the second half of twenty twenty five, you have underwater cash flow hedges that are rolling off. In other words, as we go through 2025, do you get less asset sensitive? And additionally, what is the notional on those cash flow hedges that you're talking about?

Speaker 3

Yes. So the asset sensitivity that we disclose is meant to give a sense for what happens if nothing changes, it's totally static. So that's one difference. Number 2, it's off of the future curve. So it's 100 above whatever or below whatever the future curve is.

Speaker 3

So I think it's a really helpful thing for sort of short term moves and rates like take for example that orange box on Page 10. It's helpful for something like that, but it's less helpful in terms of a predictor of where 2025 NII would be because there's so many other inputs, Erica, over time.

Speaker 8

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

Speaker 3

Over time,

Speaker 5

I'd say about $150,000,000,000

Speaker 8

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

Speaker 3

Well, I think about it like this. You can almost think about it like it's like $10,000,000,000 or so every quarter. It's just that the ones that roll off for the 1st next 12 months, they're all kind of current coupons, so they won't really have any impact. Once you get into the second half 2025, they're a little bit lower rated, so that's when you begin to get some benefit there. And then I think probably Lee can give you more of the details following.

Speaker 8

Got it. And if I could just slide in one more question on the normalized NIM, 2.3 and 2.4 clearly is much higher than where you are now. Alistair, you mentioned we should assume a flattish balance sheet. But I think I had conversations with the company before in that half of that path between 1.9 ish to 2.3 to 2.4 has to do with balance sheet efficiency. And I'm wondering if you could carry out the balance sheet efficiency with and keep your balance sheet flattish.

Speaker 8

In other words, obviously, what the market is going to do is take your earning assets today and apply 2, 3, 5 and say, okay, over time, whether it's 26 or 27, this is what BOA can earn under a normalized curve. I'm wondering if that's the right math to do or should we expect some shrinkage of the balance sheet if you can that's part of the path

Speaker 3

Yes. I think what will happen is the underlying growth of the company will still be there, but we have some things that we know just like Steve asked that question, is there any higher rate shorter dated stuff you'd like to pay off? Yes, there will be over time. So I think we've got some ability to almost like self fund the first $100,000,000,000 $150,000,000,000 of growth in terms of earning assets. So that's why we're saying that will keep the denominator down while we're growing the numerator.

Speaker 8

Okay. Thank you.

Operator

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

Speaker 9

Hey, thanks. Good morning. Hey, Alistair, I just wanted to ask you a little bit more on the securities portfolio side because you also have a $180,000,000,000 or so of pay fixed swaps on the AFS book. And so we know about the HFS HTM maturity schedule, but how do you look at that AFS book and how much are those pay fixed swaps currently in the money and kind of like how you're just thinking about that side of the portfolio as well? Thanks.

Speaker 3

Yes. Just remember those are received fixed.

Speaker 6

So remember

Speaker 3

that there, remember that is when we put the AFS in our portfolio, it's so that we've got a group of securities that are sitting there. They're typically treasuries. We swap them to floating so that they look like they're cash as far as we're concerned. We don't have to worry about impact then to regulatory capital flowing through. And they just view to us they just look like cash equivalents.

Speaker 3

So that's how we think about it Ken.

Speaker 9

Okay. And then how do you manage that going forward with regards to like the rate forecast? Do those come off as the securities book matures or?

Speaker 3

Well, I mean, it's less of an interest rate call for us. It's more of going back to this concept of we've got $1,900,000,000,000 of deposits and we've got $1,050,000,000,000 of loans. So we've got $850,000,000,000 of excess. So when the excess comes in, we can do a variety of different things. We'd love to put it in loans, but that's always our first that's our first love.

Speaker 3

But in the absence of that, we're going to put it in cash or we're going to put it in available for sale, probably swap to floating for the most part. And we can choose to put things in hold to maturity if we choose to. But obviously right now we feel like one hold to maturity just continuing to pay down. That's what's been happening over the course of the past 11 quarters. We're just going to keep going with that.

Speaker 3

So no particular changes to our philosophy around available for at around the 16.3% that was reported. And

Speaker 9

so, at around the 16.3% that was reported. And so just kind of any color on puts and takes here? Just is that better kind of revenue related comp against your ongoing efficiencies? And just how do you think about longer term expense growth again? Thank you.

Speaker 1

Sure, Ken. I think honestly the Q2 is sort of emblematic. If you think about last year's Q2 and this year's Q2, we went up by $300,000,000 $300,000,000 excuse me, as Alistair said, dollars 200,000,000 was just wealth management incentive comp and the other growth was really other incentive comp. So the idea, the pressures we face now are really more due to fee growth in the businesses which typically have a tighter correlation between fees and expenses and incentive comp related to those fees. So that's not a that's a good expense growth.

Speaker 1

It's what you want. It does grow and it grows at a good rate. Headcount is basically been bounced around relatively flat or 212 this quarter even adding a bunch of summer teammates. We were 215 last year this quarter, the same summer teammates included. So managing headcount redeploying people.

Speaker 1

We have the use of cleanup stuff going on. We have the new initiatives going on or freeing up work and moving it over. So we feel good about managing the company. And that's against inflation rate and wages that are 3%, 5% going on inflation in all the services we buy in the 3rd party markets obviously that the world experiences. So we feel good about how we're managing expenses.

Speaker 1

The key is pretty simple. As you all the revenue side equation that Alistair has been talking about with your colleagues on NII stuff is that lifts and expenses stay relatively flat, you start moving towards positive operating We're minus a percent or something like that this quarter kind of hanging in there and we'll expect that to go back to the 5 year track we had all the way up until the pandemic hit and and things got thrown us on.

Speaker 9

Thanks, Brian.

Operator

We'll take our next question from Gerard Cassidy of RBC.

Speaker 10

Brian, you talked and also both of you talked about the excess deposits, I think it was Slide 22 you pointed to. Can you share with us as you go forward and assuming the Federal Reserve does cut interest rates, I know you put I think 3 Fed fund rate cuts in your Slide 10. But as we go out into the end of 'twenty five, the forward curve is calling for obviously more rate cuts. Could you tell us how you expect to price your deposits as rates continue to fall? With this excess deposit level, can you be more aggressive in lowering your deposit costs?

Speaker 1

Yes. I think that's very business and more importantly customer specific views, Gerard. So we think our deposit strategies in the context of how our customers utilize our services. And so if you think about the parts that priced up in Global Banking or the investment related cash in the consumer business and wealth management that will come back down as rates come because the short term equivalents come down. Some of it's absolutely mechanical because it's actually priced to meet money market fund equivalent that will happen.

Speaker 1

And so yes, I think if you think about us being all in, if you look on that slide at 203 basis points, there'll be some pickup as rates come down in those higher things. The zero interest balance accounts are low interest checking. They don't really move because there's 0 interest or low interest. So they'll be kind of static, but they're still extremely valuable in the current context. So when you think of all the consumer, I think 60 odd basis points or something that's driven by the fact that we have 40 odd 1000000 transactional primary checking accounts that is growing at $1,000,000 a year multiple years in a row $900,000 to $1,000,000 a year that are maturing from $3,000 up to $7,000 or $8,000 in balances as people mature the relationship with us.

Speaker 1

That's where the tremendous value in the deposit base of this company goes. And so if you think about $1,910,000,000,000 having grown $100,000,000,000 almost from the trough. You think about it growing linked quarter, multiple quarters in a row. You think about even as we look now to buy positive balances above that amount. That's those are good dynamics.

Speaker 1

So we think about it, but it will move. But remember part of our deposit pricing is never going to move because it's 0.

Speaker 10

Right, right. No doubt those are the golden deposits. And one other question on Slide 10 and also I think if I recall your Q1 Q, you guys indicated you were asset sensitive. I would assume that this Slide 10 also shows that with the 3 rate cuts. Alistair, what would it take to move to a more neutral position on the balance sheet or even a liability sensitive position, should the Fed really get into a rate cutting environment?

Speaker 3

Yes. So this shows that we're asset sensitive. That's why the red box obviously is bigger than the green box. It's the market space that's liability sensitive. So we're still asset sensitive, Gerard.

Speaker 3

What it would take for us is either we can have a lot more rotation into interest bearing or we could buy some short dated duration fixed rate. So those are the 2 alternatives and if you look at the course of time, if you were to go back to our queues over time, you'd see that we've become less and less rate sensitive over time. We've really narrowed the corridor of whether rates go up by 100 or down by 100. What could that outcome look like? Narrowed that pretty substantially over time as we're trying to lock in rates here recognizing the NII is up $4,000,000,000 or $5,000,000,000 over the course of the past several years per quarter.

Speaker 1

Yes. The last thing I'd say Gerard for a person who's been around this business as many years as you have. This has been a very abnormal rate environment for the last 15 years or so. And if you get to where you have a more Fed funds rate 3.5 percent which is what our experts predict it sort of stops out at. The ability to bring the asset sensitivity tighter and tighter is there because you actually have room to move down without hitting 0 floors and stuff.

Speaker 1

So there's and so stability during time periods of which the rate environment doesn't whip around. And then secondly, a higher nominal rate environment allow you manage to that outcome because part of the other outcome for us is just as rate the rate structure is nominally very low is the 0 4s kick in and that creates amount of sensitivity that over time will go away if rate structure is higher. That makes sense, Steve.

Speaker 10

Yes. No, it does. Thank you. And just Brian or Alistair one last quick question. I noticed on Slide 25, your home equity loan balances actually increased.

Speaker 10

I think that's the first time in maybe over 2 or 3 years. Was there a new program or what are you seeing that drives that? And should that or can that continue as we go forward into 2025? Thank you.

Speaker 1

Yes. I think it just reflects that the people have locked in low rate loans and now they want to borrow it's an expensive view because they've got a fixed rate mortgage loan and they've got a home equity sitting on top of why wouldn't they use it. I'd like it for it was only 2 years. It's been 4 or 5 years since that balance of $30,000,000 started declining. So it's good to see.

Speaker 1

I'll note at the bottom of that page, if you look at year over year mortgage production $5,700,000,000 $5,900,000 If you look at home equity line production, which is new originations in the boxes, solid. But it is nice to finally see that the actual balances have stabilized and we'll see they're kind of flattish. They're not really growing, but it's nice to see them not just keep coming down and hopefully they'll start to be utilized. Our expectation would be they will be as consumers over time want to take out part of the equity in their home at a rate that is reasonable, but doesn't require to refinance the whole first.

Speaker 10

Great. Thank you again, Brian.

Operator

We'll take our next question from Vivek Janja of JPMorgan.

Speaker 5

Hi, thanks for the question. Just a little color on non interest bearing deposits. When you look at on average basis, the decline has clearly slowed sharply. Period end was down at a faster rate. Is that just the noise around end of 1Q?

Speaker 5

Or what are you seeing as you look sort of month by month, is that truly slowing or yes and talk to it a little bit by customer segment if you can please?

Speaker 3

Yes, I think the fact you're catching 2 things. First one is it is slowing, that rotation is slowing and we would expect that because at the end of the day this is is because of the seasonality of tax payments. For anyone who has a big tax payment due, they frequently just allow it to they may pull it out of their brokerage account, put it into their non interest bearing and then they're wiring it out from there. So that's again an example of money in motion, but that's what's going on this quarter.

Speaker 5

A quick one, vis a vis derivative gains did you have anything in your equity derivatives trading revenues this quarter?

Speaker 3

Nothing to highlight, nothing to note. That's a position we sold years ago and anything that's happened with Visa we just unwind on the balance sheet. We've recycled it, so it shouldn't have any impact to revenue.

Speaker 5

Thank you.

Operator

We'll take a question from Matt O'Connor of Deutsche Bank.

Speaker 1

Good morning, Matt. Good morning.

Speaker 2

How are you guys thinking about kind of targeted capital levels going forward? Obviously, we're still waiting for final rules. Maybe there's a little more volatility in your SEB than you would have thought, but you still got a nice buffer. And then I guess one last piece I was thinking is the remixing of the balance sheet that's been commented kind of throughout this call over time probably causes a little creep in RWAs, right, like loans higher than say securities. So lots of excess capital, but some puts and takes and how are you thinking about it between now and when we get final guidelines?

Speaker 1

First off, I think we always want to use the capital to grow the business. So we need to use it to support RWA growth for loans or something that's a good outcome and that's what we wanted to do for a second. We maintained 11.9% quarter to quarter with a little bit RWA increase. I think that would be sort of emblematic. In the year, we bought $3,500,000,000 paid out $1,900,000,000 in dividends.

Speaker 1

So you'd expect that kind of to continue on in terms of that basic idea of we don't need a lot of capital to grow because the RWA demands are met with a fairly straightforward amount. We're earning a nice amount of dollars and we'll deploy it back in the dividend and the buybacks. Well, our job is to our view is we'll maintain a 50 basis point type of management buffer to whatever the requirements are. The volatility there's a whole different discussion on that in terms of the wisdom of that. But the reality is the volatility is absorbable because you have time to plan into it and get done within a race we've seen.

Speaker 1

So whether we agree with the volatility or not, we've easily absorbed it. And the new rules coming out, we'll see what happens and we'll adjust. But just because it's basically a requirement 10.7% under the new SEB plus 50% is 11.2%. Maybe you get a little tighter if you feel you got great insight to what happens next year. But and then I think the finalization of the Oslo 3 will come through and we'll see what that is and see how that all correlates to the various aspects.

Speaker 1

But we feel good about where we are. It expected all current earnings are basically available to support the growth we're talking about in the current economic environment that's relatively modest need. But really the rest of it just goes plowing back to you.

Speaker 2

Okay. And then just to summarize that, I mean, do you think about bringing down the 11.9% to 11.2% kind of in the near term or just make the obvious like wait, but that's little bit more theoretical and wait for the capital world to play out?

Speaker 1

I think we just we need to see how the next 60, 90, 120 days play out. You hear lot of discussion about the timing of a re proposal or not etcetera. So we have a lot of flexibility and but we continue to focus on shareholder value creation and all of that. But I think we're in a critical spot for the industry in terms of learning the outcome of a lot of things over the next short period of time here.

Speaker 2

Okay. Thank you.

Operator

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

Speaker 1

Thank you, operator. Thank all of you for joining us today. Obviously, a lot of focus in NI and we gave you the slide 10 to give you the bridge. Alistair answered a lot of the questions. Lee is here to answer it.

Speaker 1

The key is to understand what's driving that, which is deposit performance, which is stabilized and starting to grow for like 6 quarters in a row now. Loan growth is very low and very low, but just staying positive. Those are going to drive the value of this franchise and that's going to be growth by our customers. That's coupled with strong fee performance this quarter in terms of wealth management fees, investment banking fees, consumer fees even growing, global payment services fees and of course the great work done by our markets team. So that level of flattish expenses gives us a chance to start driving operating leverage again in the company.

Speaker 1

And that generates a lot of earnings, a lot of excess capital and we put that back in your hands. So thank you for your time and attention. We look forward to talking next quarter.

Operator

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

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Earnings Conference Call
Bank of America Q2 2024
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