Alastair Borthwick
Chief Financial Officer at Bank of America
Thank you, Brian. And I'm starting on slide 5 of the earnings presentation. We'll touch on more highlights noted here as we work through the material. And I'd just add that we delivered solid returns with a return on average assets of 83 basis points and return on tangible common equity of 12.8%.
So let's move to the balance sheet on Slide 6, where you can see that the balance sheet ended the quarter at $3.3 trillion of total assets, up $66 billion from the second quarter as global markets, client demands expanded, and commercial loans grew $16 billion in the quarter. Otherwise, in the quarter, the investments of our excess liquidity saw a $10 billion reduction in hold-to-maturity securities. And the combination of shorter-term liquidity investments of cash and available-for-sale securities were relatively flat to the second quarter.
On the funding side, Global Markets grew to support balance sheet needs of our clients, and total deposits grew $20 billion on an ending basis. It's noteworthy that our average deposits are now up for the fifth consecutive quarter. Liquidity remained strong with $947 billion of global liquidity sources, and that was up $38 billion compared to the second quarter.
Shareholders' equity was up $2.6 billion, with common equity up $4.6 billion, and a preferred redemption driving a $2 billion decline in preferred equity. The increase in common equity compared to Q2 included $5.6 billion in capital returned to shareholders, partially offsetting our earnings. And it included an improvement in AOCI, driven by an improvement from cash flow hedges, given the drop in long-term rates in the quarter. $5.6 billion in capital distributions includes $2 billion in common dividends and the repurchase of $3.5 billion in shares. Tangible book value per share of $26.25 rose 10% from the third quarter of '23.
And turning to regulatory capital, our CET1 level improved to $200 billion, and the CET1 ratio was 11.8%. And that remains well above our new 10.7% requirement as of October 1. Risk-weighted assets increased modestly, driven by both lending activity and Global Markets' needs to support clients. And our supplemental leverage ratio was 5.9%, compared to the minimum requirement of 5%, which leaves plenty of capacity for balance sheet growth. Our $463 billion of total loss-absorbing capital means our TLAC ratio remains comfortably above our requirements.
So let's dig a little deeper on deposits and the growth from the second quarter using Slide 7. Here we show you deposits and rates by line of business. Average deposits grew $45 billion, or 2% year-over-year, and they increased modestly linked quarter. Notably, quarter-over-quarter increases in rates paid continued to slow again this quarter, rising 7 basis points to 210. Consumer Banking increased modestly, driven by product mix and higher-rate product offerings. And Global Banking rate paid increased modestly, driven by growth in interest-bearing balances. It's worth noting that Wealth Management declined 1 basis point.
We acted quickly following the September 50 basis point rate cut in our wealth business and our Global Banking business, and since late in the quarter, only a small portion of those cuts are reflected. Total rate paid for all deposits from these actions is expected to fall below 2% later in October, as the fuller effect of the pass-throughs occur.
Let's turn to loans by looking at average balances on Slide 8. Loans in Q3 of $1.06 trillion improved 1% year-over-year, driven by solid commercial loan growth, as well as credit card and vehicle loans. Overall, commercial loans grew 2% year-over-year. And importantly, this included a drop in commercial real estate loans of 6%. Commercial loans, excluding commercial real estate, grew 3% year-over-year and were up 6% annualized from the second quarter. Consumer Banking loan growth was driven by credit card, small business, and vehicle borrowing. And the overall consumer growth was muted by a decline in mortgage balances as paydowns exceeded originations in a higher rate environment.
Let's turn our focus to NII performance and Slide 9. So note that our trended investment of excess deposit slide is in our appendix on Page 21. Deposit levels were $855 billion in excess of loans at the end of Q3 and continue to be a good source of value for shareholders. Nearly $625 billion, or 52% of our excess liquidity, is in short-dated cash and AFS securities. The longer-dated, lower-yielding hold-to-maturity book continues to roll off, and we reinvest that in higher-yielding assets. The blended yield of cash and securities on Page 21 remains well above our deposit rate paid.
So going back to Slide 9, regarding NII, on a GAAP non-FTE basis, NII in Q3 was $14 billion. And on a fully tax-equivalent basis, NII was $14.1 billion. On our third quarter earnings call last year, we first provided our expectation that the second quarter would be the trough, and then we would begin to grow in the third quarter of '24, marking an inflection point for NII. And that's what you see this quarter.
NII increased by $252 million from the second quarter, driven by a number of factors. Global markets activity and pricing, fixed asset repricing, and one extra day all benefited NII, while higher funding costs partially offset those benefits. The 50-basis point rate cut in September also negatively impacted NII. With regard to a forward view of NII, there are obviously several variables at play in the fourth quarter, and we still expect fourth-quarter NII to grow. And we expect it to be $14.3 billion or more on a fully tax-equivalent basis.
Now, we note the following assumptions first. We assume that the forward curve on October 10th is the one that materializes, so that includes a 25-basis point cut in November and another 25 basis points in December. We also assume very modest balance increases in both loans and deposits in Q4, building off the activity seen in Q3.
Last quarter, we told you we expect about $20 billion in the aggregate of fixed-rate loans and securities to reprice on a quarterly basis, and those are expected to reprice into higher-yielding assets and provide a benefit to NII for many periods ahead. And as I described previously, we expect to see roughly $200 million benefit in Q4 from the BSBY alternative rate transition. So we think this sets us up well for 2025.
With regard to interest rate sensitivity, on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift above or below the forward curve. On that basis, a 100-basis point increase would benefit NII by $1.8 billion, while a decrease of 100 basis points would decrease NII over the next 12 months by $2.7 billion.
Okay. Let's now turn to expense, and we'll use Slide 10 for the discussion. We reported $16.5 billion in expense this quarter, up 1% from the second quarter, driven by the revenue improvement in three primary areas that Brian noted earlier. Investment banking, investment and brokerage fees, and sales and trading revenue all have more activity and incentive variability than other revenues, and they were up 3% in aggregate versus the second quarter and up 13% year-over-year.
In Q3, our headcount of 213,000 was up a little more than 1,000, and this quarter we saw the departure of roughly 2,000 summer interns, and we welcomed roughly 2,500 college graduates from the nearly 120,000 applications received.
Regarding a forward view, in Q4, we don't expect much change in our headcount. And with continued investments, we expect expense to be in line with Q3 at $16.5 billion. As we look into 2025, with an expected return of NII growth and through our expense discipline, we expect a return to operating leverage and improvement in our efficiency ratio.
Let's turn to credit on Slide 11. And the good news is, there's not a lot to report here compared to the second quarter. Net charge-offs of $1.5 billion were flat compared to Q2. We've seen consumer losses in a pretty tight range for a few quarters now. Outside of that, we saw lower losses from office exposure. And otherwise, we had two somewhat unrelated commercial losses. The net charge-off ratio was 58 basis points, down 1 basis point from Q2. Provision expense was unchanged from Q2 at $1.5 billion as reserve levels remain constant. And with regard to reserve levels on a weighted basis, we remain reserved for an unemployment rate of 5% by the end of 2025 compared to the most recent 4.1% rate reported.
On Slide 12, we highlight the credit quality metrics for both our consumer and commercial portfolios. And there's nothing really noteworthy to highlight on this page.
So let's move to the various lines of business and some brief comments on their results starting on Slide 13 with Consumer Banking. Consumer Banking continues to lead the company in organic growth and this included another strong quarter of net new checking growth, another strong period of card openings and investment balances for consumer clients, which climbed 28% year-over-year to a record $497 billion.
It also included 12 months of strong flows at $29 billion, in addition to market appreciation. As noted earlier, loans grew nicely year-over-year from credit card and vehicle as well as small business where we remain the industry leader. One highlight to note, our Practice Solutions lending group for doctors and dentists and related professionals saw loans grow 11% year-over-year. All of this organic growth helped to drive $2.7 billion in net income in Q3. So reported earnings remained strong, declining 6% year-over-year as revenue declined from lower NII, partially offset by higher card income. With the trajectory shifting in NII, we should see earnings in this business begin to shift as well.
Expense rose 5% as we continued our business investments. And those investments included those in our people, including the announcement of moving our minimum wage to $24 per hour, and that raises the minimum annualized salary for our associates to nearly $50,000. As you can see in the appendix, Page 25, digital adoption and engagement continue to improve and customer satisfaction scores remain near record levels, illustrating the appreciation of enhanced capabilities from our continuous investments.
Bank of America's 23 million Zelle users are up 10% in the past 12 months, and their volume usage is now up more than 20%. Customers are now using Zelle at nearly 3 times the rate the writing checks, and Zelle usage has meaningfully surpassed the combination of checks written and ATM withdrawals.
Moving to Wealth Management on Slide 14. We produced good results, reflecting healthy organic growth and client activity with increased banking activities of our clients and the impacts of increased market levels, together with strong assets under management flows. With a continued increase in banking product usage from our investing clients, the diversity of our revenue base continues to improve.
More than 60% of our wealth clients now have banking products with us, and 30% of our revenue is now in net interest income to complement the fees earned in our advice model. Net income rose from the third quarter '23 to $1.1 billion this year. In Q3, we reported revenue of nearly $5.8 billion, growing 8% over the prior year, led by 14% growth in asset management fees that Brian highlighted earlier.
Expense growth reflects the fee growth and other investments for our future growth as we continue to grow our adviser force through hiring of both experienced advisers and graduates from our training program. We welcomed 5,500 Merrill and Private Bank net new households this quarter, and more than a third of those Merrill openings were driven by graduates from our training program. The business had a 25% margin and generated a strong return on capital of 23%. Average loans were up 3% year-over-year, driven by growth in custom lending and a pickup in mortgage lending.
Both Merrill and the Private Bank continued to see healthy organic growth, producing strong assets under management flows of $65 billion year-over-year, which reflects a good mix of new client money as well as existing clients putting money to work. We should also highlight the continued digital momentum that you'll find on Slide 27. As an example, three quarters of Merrill bank and investment accounts were opened digitally this quarter.
On Slide 15, you see Global Banking results. This business produced earnings of $1.9 billion, down 26% year-over-year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 6%, driven by the impact of interest rates and deposit rotation. In our Global Treasury Services business, fees for managing the cash of clients continue to offset some of the NII pressure from higher rates.
Investment banking had a strong quarter, growing fees 18% year-over-year to $1.4 billion, led by debt capital markets fees, mostly in leveraged finance and investment grade. We finished the quarter strong, maintaining our number three investment banking fee position. What began as a slow quarter this summer gained some momentum through September, and the pipeline looking forward looks solid. An increase in provision expense from last year was driven by the previously noted commercial and CRE losses. Expense increased 7% year-over-year, including continued investments in the business, particularly around technology.
Switching to Global Markets on Slide 16, I'll focus comments on results excluding DVA as we normally do. And the team continued their impressive streak of strong revenue and earnings performance. They achieved operating leverage and continued to deliver good return on capital. Earnings of $1.6 billion grew 23% year-over-year and return on average allocated capital was 14%. Revenue, again, ex DVA, improved 14% from the third quarter of last year as both sales and trading, and investment banking fees for institutional clients improved nicely year-over-year.
Focusing on sales and trading, ex DVA revenue improved 12% year-over-year to $4.9 billion. FICC increased 8% and, while equities increased 18% compared to the third quarter of '23. FICC revenues remained strong growing over both the prior year and the second quarter, driven by momentum in currencies trading. Equities had a record third quarter, driven by strong trading performance in derivatives and cash. Year-over-year expenses were up 6% on revenue improvement and our continued investment in the business.
Finally, on Slide 17. All Other shows a loss of $295 million. Revenue was lower and included a charge to other income of roughly $200 million related to Visa's increase in its litigation escrow account. The decline in expense was driven by reduced cost of a liquidating business and lower legal expense. 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 24%.
So that's where I'll stop. And with that, we will open it up for Q&A.
