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spk02: Please stand by, your program is about to begin. Good day everyone and welcome to today's Bank of America earnings announcement. At this time all participants are in a listen only mode. Later you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone and remove yourself by pressing the pound key. Please note this call is being recorded. And it's now my pleasure to turn the conference over to Mr. Lee McIntyre. Please go ahead.
spk04: Good morning. Thanks for joining this morning's call to review our 1Q19 results. By now I trust that everyone's had a chance to review the earnings release documents which are available on the investor relations section of BankOfAmerica.com's website. Before I turn the call over to the CEO Brian Moynihan, let me remind you that we may make forward looking statements during this call. After Brian's comments our CFO Paul D'Onofrio will review the details of the 1Q results. After that we'll open it up for all of your questions. For further information on forward looking comments, please refer to either our earnings release documents, our website or our SEC filings.
spk11: With that take it away Brian. Thank you Lee. And good morning everyone. Thank you for joining us this morning to review our first quarter of 2019 results. In the first quarter we reported $7.3 billion in net income after tax, the best quarter in the company's history. So let's begin on slide two. This slide shows the building blocks in achieving another record quarter. It also shows our commitment to responsible growth and how it drives our shareholder model. We reported diluted EPS of 70 cents which grew 13% from the first quarter 2018. This reflects a nice mix of both operating improvements and capital returns. Pre-tax income of $8.8 billion grew 4%. You can see that in the upper right. And we generated operating leverage of more than 400 basis points which you can see in the lower right. As the call remained strong, as net charge loss remained around a billion, the same level they've been for several quarters. Provision expenses up year to year to match those net charge loss more closely. And we had a small reserve bill this quarter against the net reserve release last year. Through discipline capital employment after meeting all the requirements to make loans and to our customers and support their businesses, we continue to drive our share count lower. You can see that in the lower left. We are well underway with our goal to wring out the dilution in shares caused by the increased capital bill after the crisis. Through share buybacks, our diluted shares are down 7% compared to the first quarter of 2018 and down 1.5 billion shares in the past four years. Turning to slide three, part of responsive growth is to produce sustainable results. And part of that is to drive operational excellence. And we did it again this quarter. As you can see on slide three, we extended our positive operating leverage streak to 17 consecutive quarters. As you think across the last four years or so, we've had many different markets out there. Many different interest rate environments, many different changes and perceptions in the U.S. economy and the global economy. All those things affect our business in a given quarter. But what has been constant behind that is our ability to drive operating leverage. We achieved it differently in different quarters, but as shown here, we achieved it consistently. When you think of our company, there are three broad and diverse buckets of revenue, two of which have annuity-like characteristics, and one is more susceptible to prevailing market conditions. The first bucket is spread revenue from loans and deposits. And the second bucket is recurring fees like our cash management fees in our commercial business or our consumer account fees or interchange and things like that. The third bucket of revenue, which are more market-related, would be the sales and trading revenue, the investment banking fees, and asset management brokerage revenue, which are both dependent on market levels at a given moment and market activity giving rise to those levels. So if you think about this quarter versus last year, our market-related types of revenue was down 12 percent. The other two -market-related revenue sources were up 7 percent. That shows you the diversity in this company and all that ended up with flat revenue growth. However, our laser-like focus on expense management came to the table again and resulted in the over-year expense decline of 4 percent, which resulted in the 400 basis points of operating leverage. All you can see as you move to the right-hand side of slide 3. When you think about how we're driving the company, well, managing expenses, we continue to invest in the future. Our expenses have come down from 57 billion to 53 billion in change over the last four years or so. And we've been driving operating leverage in each quarter during that time. But we also continue to invest deeply in our franchise. And why do we do that? Because it is working. We're getting more business as we add relationship management capacity, increase our marketing, and drive deeper penetration of U.S. markets through the full franchise entry and more markets across the United States. We also continue to invest in our people with industry-leading benefit plans both in health and retirement, with industry-leading capabilities in universities to train and reskill our teammates, and plus the pay plan we announced recently. We're going to increase our minimum wage over the next 26 months from $15 an hour plus to $20 an hour. We need to do that because we need the best teammates to make this great client work, company work, and work for our clients. Across the company, we added 500 new sales professionals this quarter, more consumer relationship bankers, more wealth advisors, more commercial bankers, and more business bankers, more small business bankers, and more investment bankers. And as we have discussed many times, our initiative spending for technology has been running around $3 billion for many years now. But as currently, due to savings from tax reform, expect to be 10% higher in 2019. We continue to enhance both our physical network for delivering products and services to clients, as well as the facilities we operate in communities and countries around the globe. All in, Bank of America invests around $2 billion a year in capital expenditures to build out and enhance our buildings, facilities, and infrastructure. As it relates to our financial centers, our ATMs, and other physical build-out, the point is we haven't just announced what we're due. We're halfway through the broad-based build-out in our consumer business. We're executing a plan we laid out several years ago. But importantly for you, the cost to complete the work is already embedded in all our expense guidance. It's in fact embedded in our current run rate. So we drive operating leverage, and we invest, and we see returns on that investment. One of the ways that we get a return on that investment is through our digital capabilities. Each quarter we show you the charts on slide five of our digital customer statistics. Because as I discussed them with many of you, we sometimes miss the obvious. What is driving this trend? It's a change in our customer's behavior. We are continuing to serve our customers in every manner possible. The customer can have their cake and eat it too. They can have digital, physical, 24 hours a day cash, electronic payments, checks and Zelle, wires and ACH, a loan officer, and online applications to fill under their mortgage. It is their choice. 37 million digital users now with 27 million of those mobile. And we now have 27 percent of our sales transacted digitally. Seventy-seven percent of our deposit transactions are now done through digital means. This means more of our financial centers and teammates in their time can be devoted to important events in the client's financial lives. We welcome 800,000 customers a day into our financial centers, and they remain very important to our capabilities. And we continue to invest in those financial centers to upgrade them and make them more modern. And while consumer payments growth slowed from the eight to nine percent pace of a year ago to a three percent pace in the first quarter of 2019 over the strong quarter in the first quarter of 2018, that still amounted to over $700 billion in payments in the quarter. An example as part of those payments you can see in the Zelle users have grown to more than five million active users, and we process $16 billion of payments for them this quarter. So as you look at the drivers of our income, let's go to slide six. We'll spend a couple minutes on client activity on these matters. Average total deposits grew $63 billion on a -over-year basis. This is our 14th straight quarter of growth of $40 billion or more, or again, deposit growth versus the prior year. Global banking grew deposits at 8 percent pace, as did wealth management. Consumer banking deposits grew by 3 percent. Consumer core checking grew 7 percent from last year, showing more households are choosing us to be their core bank. Our pace of growth has consistently exceeded the industry's growth rates. Customers value the capabilities and rewards of their relationships and continue to see lower attrition and 90 percent plus primary bank status. In addition, wealth management also saw strong growth of deposits in new relationships. Our global banking team continues to benefit from strong customer demand as we continue to deploy bankers and treasury officers across our franchise. Within global banking, you will note that commercial customers move balances from non-interest bearing to interest bearing. As the treasury credit rate, we give them for their balances to pay for their services rises. They plainly need less non-interest bearing balances. However, this change stabilizes when the rate curve stabilizes, as it has. As we go to slide seven, let's talk about average loans. The good news is the average impact of the late fourth quarter growth we spoke to you about last call was complemented by further good growth during the first quarter. Particularly promising was a strong rebound in our middle market customer base, where we saw growth and line usage increase. This means middle market companies are increasing their own activity as they draw lines to finance raw material purchases, payrolls and other investments. Overall, from a corporate top of the house level, we grew loans 1%. However, looking across our business segments, core loans grew $33 billion or 4% on a -over-year basis. That's consistent with our responsible growth model. The lower left-hand chart shows the core business growth has been consistent across the last five years or more. Consistent growth, consistent with the responsible growth for several years. And the growth rate improved this quarter. In fact, this quarter our ending balances and commercial banking showed the highest linked quarter growth rate in the last six years. As we move to slide eight, you can see the highlights for the quarter. I've covered a lot of the core points here, but I wanted to focus a little bit on returns. Despite a modest increase in the average balance sheet, our return on assets in the company was 126 basis points and improved both on year ago and a sequential quarter basis. Our retain on tangible common equity was 16%. Our efficiency ratio continued to move down to 57% from .5% last year. With that, let me turn it over to Paul to walk you through more details of our first quarter results. Paul?
spk09: Good morning, everyone. I'm starting on slide 10 since Brian already covered the P&L. Overall, compared to the end of Q4, the balance sheet grew $23 billion driven by the equity financing business. Liquidity remained strong with average global equity sources of $546 billion and all liquidity metrics remained well above requirements. Long-term debt increased $4 billion. Common children's equity increased $1.7 billion from Q4 as the value of our AFS debt securities benefited from the decline in long-end interest rates, thereby increasing AOCI. Partially offsetting the increase was the return of more capital than we earned this quarter. We returned $7.7 billion or 112%
spk00: of
spk09: the net income available to the common through a combination of dividends and share repurchases. Turning to regulatory metrics, total loss absorbing capacity rules became effective in January and at the end of March, our TLAC ratios comfortably exceeded our minimum requirements. Our CET1 standardized ratio was flat at .6% from Q4 and remained well above our .5% regulatory requirement. The ratio was flat because the increase in AOCI mentioned earlier was offset by higher RWA primarily in global markets. Turning to slide 11, I want to spend a few moments on NAI, given the changes in the rate environment. Net interest income on a GAAP non-FTE basis was $12.4 billion, $12.5 billion on an FTE basis. Compared to Q1-18, GAAP NAI was up 606 million or 5%. The improvement was driven by the value of our deposits as interest rates rose as well as loan and deposit growth partially offset by lower loan spreads. On a link quarter basis, GAAP NAI was down 128 million. In Q1, we benefited from yields rising on our floating rate assets as short-term rates rose. We were also disciplined with respect to deposit pricing and we benefited from loan and deposit growth, particularly commercial loan growth. However, higher short-term rates also increased the cost of our long-term debt and other global market funding costs. Additionally, lower mortgage rates muted the benefits from increased short-term rates. The net of all these things was still a benefit in the quarter. However, this net benefit only partially mitigated the seasonal impact in Q1 from two less days of interest, which cost us roughly $180 million. Net interest yield of .51% improved nine basis points year but was down one basis point linked quarter. Deposit rates in our wealth management and global banking businesses increased. However, we saw minimal movement in our consumer business. Overall, the average rate paid on interest bearing deposits of 76 basis points rose nine basis points from Q4 and is up 40 basis points versus Q1 18. That compares to an average increase in Fed funds of 97 basis points year over year. Turning to the asset sensitivity of our banking book, the drop in long-end rates increased our asset sensitivity compared to year end. In addition, we are now modeling modestly lower deposit pass through rates given our experience in this rate cycle. Given the recent moves in rates, I thought I would provide some perspective on NNI for the rest of the year. On a full year basis, NNI grew 6% in 2018 in a rising rate environment and an economy that grew approximately 3%. The economy is expected to grow more moderately in 2019 and rate expectations have been lowered. Plus, we have some seasonal headwinds in Q2. But through loan and deposit growth and picking up two additional days of interest over the next couple of quarters, we would expect growth in NNI to be consistent with or slightly better than growth of the general economy. More specifically in Q2, typically sees higher funding of client activity in global markets related to the European dividend season, which aids trading revenue but reduces NNI. We also typically see less benefit from loan growth driven by pay downs on year end credit card balances in Q2. Finally, long end rates have fallen across Q1 and remain lower. This should drive higher prepayment of mortgage backed securities, which will cause bond premium write-offs. These headwinds will be partially mitigated by one additional day of interest accruals. Across the second half of the year, we expect NNI to benefit from growth in loan and deposits as well as an additional day of interest in Q3. Ultimately, we expect NNI for the year, for the full year of 2019 to be up roughly half the pace of 2018. This perspective assumes today's forward curve and loan and deposit growth consistent with the current economic environment. Turning to expenses on slide 12, we continued to improve efficiency. At $13.2 billion, we were down 618 million or 4% compared to Q1 18. This reflected efficiencies from a full year of work across the enterprise to simplify and improve our processes as well as lower FDI insurance costs. We also reduced managers and management layers over the last year, cutting bureaucracy and complexity. By the way, in terms of headcount, we are replacing many of these managers with sales professionals. We also saw an end to some intangible amortization in our Merrill business related to the merger 10 years ago. Compared to Q4 18, expenses are up 149 million due to seasonally elevated payroll tax expense, partially mitigated by timing of marketing and tech initiative plans. In addition, 4Q was elevated by the mismatch between accounting for certain deferred benefit programs and the accounting for related hedges as the overall market declined in Q4. This went the other way in Q1 with the market's rebound. Our efficiency ratio improved to 57%. I would also note that we filed an AK earlier this year in which we reclassified some expense to revenue, resulting in an approximately $200 million reduction in full year 2018 expense. With respect to expense levels for full year 2019 and 2020, as you know, we increased for 2019 our planned level of initiative spending supporting both physical and digital expansion. And we made announcements of further investments in our people like our minimum wage increase. Despite these increases, we still believe we will meet our target of reporting expense for the next two years that approximate our reclassified 2018 level. However, please note that the quarterly progression of expenses in 2019 may look a little different than the past years as it will be impacted by the timing of planned technology and marketing spend. Turning to asset quality on slide 13, asset quality continued to perform well, driven by long-term adherence to responsible growth and a solid U.S. economy. Net chargeoffs were $991 million, $80 million higher than Q1-18, and $67 million higher than Q4. Comparing to Q4, we saw typical seasonality in our credit card portfolio. Compared to the prior year, we continued to see modest seasoning in our credit card portfolio. In Q1, there was also one chargeoff related to a single utility client, which increased losses by $84 million, impacting comparisons against both periods. Then the chargeoff ratio was 43 basis points. The loss ratio has now been below 50 basis points in all but three quarters of the past five years. Provision expense was a little more than $1 billion and closely matched losses this quarter. Provision included a modest $22 million net reserve bill. Looking forward, we expect net chargeoffs to approximate this quarter's $1 billion level for each of the remaining quarters in 2019, assuming current economic conditions continue. On slide 14, we broke out credit quality metrics for both our consumer and commercial portfolios. Here you can see both the seasonal increase in consumer losses as well as the impact of the commercial chargeoff I mentioned. With respect to consumer metrics, both delinquencies and non-performing loans trended lower, which we believe is a good indicator of future asset quality. In commercial, we did have a modest increase in non-performing loans and reservable criticized exposure, but as a percent of loans, both metrics remain near historic lows. Turning to the business segments and starting with consumer banking on slide 15, earnings grew 25% year over year to $3.2 billion. Q1 reflects a continued strong momentum from 2018 as deposits grew $23 billion or 3%, revenue grew 7%, and expenses were down 4%, creating operating leverage of 11%. Despite the expanded physical footprint, the all-in cost of running the deposit franchise declined six basis points year over year to 1.64%, which includes both the cost of deposits as well as rates paid. The efficiency ratio has now declined to 45%. Credit costs remain low. The net chargeoff ratio was 128 basis points, increasing only one basis point year over year. With respect to client activity, we continued to increase the number of accounts while maintaining primary account status above 90%. More customers enrolled in preferred rewards. More customers used our digital channels for service as well as sales, and more customers used our expanded and enhanced physical delivery network. While remaining healthy, growth in consumer spending has slowed to 3%. This seems quite natural following two years of spending growth above historical averages, especially given the backdrop of an economy which has modestly slowed. And remember, growth in spending in Q1-18 was fueled by confidence following tax reform in late 2017. Consumer lending was also solid, growing 5% year over year. The recent dip in mortgage rates has improved momentum in the mortgage market on both refinance and purchases. Originations were up 22% from Q4. With respect to small business owners, we've been investing in our capabilities. For example, we've streamlined underwriting, enhanced credit card features, and added specialists. Loans to small businesses are quickly approaching the $20 billion level up 6% year over year. Solid activity with consumers is also evident in the growth of our investment assets. Investment assets in the consumer segment ended the year up 29 billion from Q1-18 on solid flows and a Q1-19 market rebound. So, customer activity remained solid across all major product categories. Okay, turning to slide 16, note the year over year improvement in consumer banking and AI, which drove our 7% growth. As we realized the value of our deposits through our focus on relationship deepening. Cardington was down 3% year over year, driven by higher rewards. Higher rewards were impacted by a number of factors. First, we saw more customers sign up for preferred rewards. Second, as some clients deepened their relationship with us, the amount of their rewards increased. Lastly, we added features that made it easier for customers to earn and view the rewards. While these types of improvements increase rewards, we believe they also deepen relationships across multiple products, improving retention and profitability. Service charges were 2% lower year over year as we continued to make policy changes to reduce certain overdraft fees for customers. Lower ATM volume also had an impact. Turning to global wealth and investment management on slide 17, G-ROM's results were impressive, particularly given the revenue impact of the market's decline at the end of December. Relative to 2018, the business continued to gain momentum, growing net new households, which not only added to solid AUM flows, but also drove another strong quarter of brokerage flows. Net income of just over a billion dollars grew 14% from Q1-18. Pre-tax margins remain strong at 29%. The business created 360 basis points of year over year operating leverage as expense declined 4% while revenue was down only modestly. Within revenue, positive impacts from the banking activities and AUM flows were not enough to overcome lower market valuations, declines in transactional revenue, and general pricing pressures. The expense decline of 4% was driven by lower FDIC insurance costs, lower revenue related to incentive costs, and merger-related intangibles, which are now fully amortized. Moving to slide 14, G-ROM results reflect continued strong client engagement at both Merrill and the private bank, strong household growth in both businesses, and continued lower tuition of experienced financial advisors contributed to the 17 billion in overall client flows. On the banking side, deposits were up 20 billion year over year, which included inflows of about 8 billion from the conversion of some money market funds to deposits near the end of 2018. We also saw deposit outflows of about 8 billion as the market recovered. Loans are higher by 3% year over year, reflecting strong mortgage growth given the decline in rates. We also saw growth in custom lending. Okay, before discussing global banking and global markets separately, I know many of you look at these segments together. So for comparison, note that on a combined basis, these two segments generated revenue of 9.3 billion and earned 3.1 billion in Q1, which is a 16% return on their combined allocated capital. Looking at them separately and beginning with global banking on slide 19, the business earned 2 billion dollars and generated a 20% return on allocated capital. Earnings were up 2% from Q1-18 driven by operating leverage. Revenue was up 3% year over year. We saw positive impacts from loan and deposit growth as well as higher interest rates. We also saw higher leasing revenue. These increases more than compensated for a decline in investment banking and loan spread compression. The business created more than 400 basis points of operating leverage as revenue growth was matched with a 1% decline in expenses. Lower deposit insurance costs more than offset continued investments in technology and bankers. Lastly, provision expense increased year over year driven by the single name charge off mentioned earlier as well as the absence of the prior year's energy reserve release. Looking at trends on slide 20 and comparing to Q1 last year, let's focus on IV fees. We in the industry felt the impact of the government shutdown as the SEC was closed for some period of time in the quarter. IV fees of 1.3 billion for the overall firm decreased 7% year over year. This was relative to a global fee pool that is estimated to have declined 14%. Year over year we saw good performance and advisory fees up 16%. This was more than offset by declines in both debt and equity underwriting fees. Within debt underwriting, leverage finance rebounded from tough conditions. In Q4, but primary issues remained slow and in investment grade we saw lower than expected offerings to finance share repurchases. Fee pools in ECM were also down year over year. Switching to global markets on slide 21, as I usually do, I will talk about results excluding DBA. Global markets produced 1.1 billion of earnings and generated a return on capital of 13%. While Q1 saw a seasonal rebound from Q4, we were down from the first quarter of last year. Q1-18 was a record for the equities business fueled by higher client activity and a spike in market volatility. And in Q1-18 the equity business included a large client-driven derivative transaction. Overall, revenue declined 10% while expenses declined 6%. Sales and trading declined 13% year over year to 3.6 billion. FIC declined 8% while equities fell 22%. The decline in equities was more modest adjusting for the one large client trade in the year ago period. Much lower market volatility this year resulted in less client activity and weaker performance in equity derivatives. FIC's lower revenue was due to lower client activity and less favorable markets across both macro and credit related products. Investors remained cautious through the quarter given geopolitical concerns and market volumes were light for both primary and secondary trading. We had no days with trading losses in the quarter. The year over year expense decline was a reflection of lower revenue related costs. On slide 22 you can see that our mix of sales and trading revenue remained weighted to domestic activity where fee pools are concentrated. Within FIC we remain more oriented towards credit products than macro. All right, finally on slide 23 we show all other which reported a net loss of 48 million which was relatively unchanged from the prior year period. Given the recent changes to our financial statements that enhanced certain allocation methodologies we believe the ongoing profitability or loss in this unit should not be much different from Q1 absent unusual items. This quarter there was the normal seasonal tax benefit associated with stock based compensation of about 200 million dollars. This moved the tax rate in the quarter from our expected full year rate of 19 percent to the reported 17 percent rate in Q1. Okay, with that let's open it up to questions.
spk02: And at this time if you'd like to ask a question please press a star and one on your touchtone phone. You can remove yourself from the queue by pressing the pound key. Once again star and one on your touchtone phone. We'll take our first question from John McDonald with Autonomous Research. Please go ahead.
spk07: Hi, good morning. Paul is hoping to just clarify the outlook for the interest income. Sounds like you expect NII to be down sequentially in the second quarter on a few of those pressure points that you mentioned and then to grow some in the back half as loan and deposit growth and day count get more favorable?
spk09: Yeah, that's right. I mean as we said in the prepared remarks we've got some near term headwinds. Some of them are seasonal, some of them because long term rates are down. But as we move to the second half of the year we expect the benefit from continued loan and deposit growth plus another day of interest in Q3. So ultimately we think the full year 2019 NII is going to be roughly 3% year over year. By the way when I gave the, in the prepared remarks when I gave the net charge off for that single credit I transposed the numbers. I said 84. It was really 48.
spk07: Okay. Just in on that outlook for 3% NII in 2019 is that assuming no rate hikes and still a pretty flattish curve?
spk09: Yeah, that assumes the curve as we sit here today which is flat.
spk07: Okay. No hikes.
spk09: Correct.
spk07: And then in terms of rate sensitivity you mentioned that that had gone up. How do you think about managing rate sensitivity at this point in the cycle and actions to potentially, you know, protect NII in a flattening curve environment from here or rate cuts scenario from here? How do you think about how sensitive you want to be?
spk09: Well look we're not a hedge fund. We're a bank and so we're customer driven and our asset sensitivity is driven by our loans and our deposits and the activity that our customers do with us. Having said that, you know, we have limits on how much asset sensitivity we want on the upside and the downside. We're within those limits. There may come a point in the future where we would, you know, do something to modify the asset sensitivity of the company but, you know, remember when you're doing that you're basically placing a blood on the future rate of, you know, future change in interest rates. What if you're wrong? So again, we're a bank. We're serving our customers. That's what creates the asset sensitivity in the company. There may come a time we'll adjust that but right now we feel comfortable.
spk02: Got
spk07: it. Okay.
spk02: Thanks. We'll take our next question from Glenn Shor with Evercore ISI. Please go ahead.
spk08: Thanks. Appreciate it. I know it's within the NII construct that you just gave but I'm curious, you made a comment on, you know, in the quarter the non-interest bearing to interest bearing shift in deposits continued but you thought it would stabilize as rates do. I'm just looking for some color on how real time is that? In other words, if we get no hikes for this quarter, next quarter, do you think you see an almost immediate stop in that shift?
spk11: I think, Glenn, what I was saying was that the, you got to look at what drives the value of the deposit franchise in a company and that's the consumer side. And what you're seeing is consumer deposits grew $26 billion and checking grew $24 billion. Okay. And so between non-interest and very low interest checking. So that's what drives our account. We have a half million more checking accounts than we did a year ago to give you a sense in a book of 34.5 million, one to three billion. And that's a good example of the non-interest bearing side. The non-interest bearing side, the reference was in the commercial side, which because of the way cash management services are priced, when rates rise, people have to hold less balances to get the fees and your credit rate goes up. When rates stop rising, which really has happened, that stabilizes and we have seen that and expected that to continue.
spk08: Okay. Maybe that ties into my follow-up. It may be small but the service charges, especially the deposit related fees are down 4 or 5% year on year. It seems like a steady trend down. Is that a customer behavior thing or has Bank of America changed anything on how it charges fees?
spk11: We continue to think about and continue to change our policies on overdrafts, which has a downward effect on it. But the real driver of that is the fact that we have primary households. So the people are above the limits of free checking for lack of a better term. And if you get $250 a month in direct deposit and then you can get a free, the accounts free. Those fees are waived if you have 1500 average balances, et cetera, et cetera. And so the profitability of consumer franchise is a combined profitability of the deposit value and the fee value. And together you saw that revenue grow 7% year over year. So it is not, you know, we price on a relationship basis. So you have to be careful to look at this thing and understand the parts.
spk08: Understood. Thank you. Appreciate it.
spk02: We'll take our next question from Stephen Chuback with Wolf Research. Please go ahead.
spk10: Hi, good morning. So I wanted to ask a question about some of the remarks in the context of an operating leverage lens. So a core tenet of the investment case has been your ability to deliver, sustain positive operating leverage. I think slide three actually showcases that quite well. Just given the current outlook for loan and deposit growth and expectations for expenses to increase year on year, at least for the remainder of 19, are you still confident given the NII guidance and your ability to continue that momentum and deliver positive operating leverage even in the absence of higher rates?
spk09: Yeah, I mean, look, the way I would think about it is that we've given you guidance on expenses. We've told you that in 19 and 20, we expect that our expenses will be, you know, approximately what they were for full year 2018 on an adjusted basis. And so we're going to create operating leverage if we grow loans and grow deposits and grow revenue.
spk01: Okay.
spk09: I mean, it's as simple as that if we're holding expenses flat.
spk10: Okay, fair enough. And just one follow up for me on TLAC. Paul, since you gave some incremental color this quarter, I think I asked it on the last call. But I was wondering if you could provide some more detail since you noted more explicitly that you're operating comfortably above the required levels. Given the much higher interest expense associated with long-term debt, I was hoping you could actually size that excess TLAC cushion and whether there's any appetite to optimize your TLAC ratios to maybe help reduce that interest expense burden, especially given the tougher operating rate backdrop that we're currently operating in.
spk09: Sure. There's obviously appetite and interest in optimizing. We'll be disclosing, you know, in the queue a lot of detail around the TLAC, the different TLAC ratios. I guess a couple of things as you see those. Remember, we received approval of, you know, 2.5 billion of additional buybacks in February. We've also been setting up, you know, a new bank entity and a new broker dealer for Brexit, plus we're creating a new broker dealer as part of resolution panning. So, you know, our funding needs are a little bit elevated right now. We need to optimize that over the long term. And, you know, we'll sort all that out.
spk10: All right. That's it for me. Thanks very much.
spk02: And our next question comes from Gerard Cassidy with RBC. Please go ahead.
spk05: Thank you. Good morning. Paul, Paul, can you give us some more color if I heard you correctly? You mentioned that the equity business included a very large derivative client-driven transaction. Can you give us some more color on what that was?
spk09: I'm not sure I would give you more color on the specifics of the relationship or the client. We don't like to comment on individual clients. But it looked impacted. I think if you backed it out, equities would have been down, how much, 13, 12 percent instead of the 22. So, it was a meaningful transaction last year.
spk05: Okay. And then second, you guys have done obviously a very good job in holding the line on expenses. Can you give us some color on where you think the efficiency ratio can eventually get to and you can operate consistently at that level?
spk11: Well, Gerard, I think it just, as we said, it continues to drift down. You know, where it stops, we don't ever try to give people a number for fear they'll stop there. And not keep pushing. And so, our job is to continue to drive it down. So, with flat expenses and a rising NII, like Paul described, you're going to see, that all just obviously falls to the bottom line. But remember, the NII component of this is really very marginal from a standpoint, half million checking counts on 35 million a consumer, 20 billion dollars more investment assets, the Merrill Edge, the wealth management business grows on a very leveraged platform. So, if you look across the efficiency ratio or the pre-tax margin wealth management, 29 percent efficiency ratios, they'll continue to get better. All in that will help. In a quarter where markets are up, you'll see that number drop down quickly. In a quarter where markets are, you know, market activity is less, which, you know, year over year the market activity was less than last year. So, I saw a little deterioration on that side, even though we made 250 basis points improvement overall. So, I, you know, I don't, if I say it to you guys on this call, my team will say, oh, we've made a goal. So, the goal is to continue to drive it.
spk05: Very good.
spk11: Thank you.
spk02: Our next question comes from Betsy Grosick with Morgan Stanley. Please go ahead.
spk12: Hi. Good morning. A couple of questions. Just on the expense question, one more for OneQ. I mean, you came in with an extremely low expense ratio this quarter. Do you see that more as one off due to the fact that, you know, the revenues were a little lighter in the capital markets for the reasons you mentioned earlier? Or is this a good number that, you know, as we look forward year on year to OneQ 20, you could improve on?
spk09: Well, again, let me just take one step back. We've given, you know, our perspective on what we think, you know, 2019 and 2020 is going to be. We've said it's, you know, we, with all the investments we're doing, the increase in technology, the merit, healthcare, everything we're doing, adding bankers, adding, you know, financial centers, we think because of digitization, because of all the efficiency, we think we can hold expenses, you know, at that 2018 level. So that's how I would think about it. If you just think about, you know, Q1 expenses, you know, they were up approximately, you know, 150 million from Q4. Q1 obviously included the normal 400 million-ish of seasonality of elevated payroll expenses. This was sort of partially offset by the timing of some tech initiative spend and marketing costs, which combined were kind of down about 200 million quarter over quarter. But we expect both of those to be up for the full year of 2018 as we continue to invest. You know, we mentioned in the prepared remarks the deferred comp issue which, you know, had a quarter over quarter effect. We mentioned the Maryland intangibles, which was about 75 million. But having said all that, you know, for the year is what I would focus on. We think we're going to be, you know, at 53 billion and change.
spk12: Yep. Okay, no, that's helpful. And then can you speak a little bit to the loan growth side, because, you know, we've got the NII overall and understand the NIM trajectory here. But can you just give us a sense as to what's in your outlook there for loan growth and if there's any, you know, variance between the different buckets, that'd be helpful too.
spk11: I think, Betsy, just to give you, well, for our company and for, you know, the U.S. economy especially, where we saw some strong, you know, strong relatively strong performance was in our middle market business this quarter in our small business. And those, that's good because that means, you know, the core tens of thousands of customers in the middle market and the millions of small businesses are using their lines and line usage went up by a percent, middle market. Small business, I think, originations were up 7, 8 percent year over year on the quarter. So I think the, if you think about the thing overall, you know, that's good news. And so as we think about it long term, you know, the runoff, if you go back to that page and look at the non-core portfolio, it's gotten to the point now where it's small enough, the impact is muted. So the 1 percent overall growth and 5 percent core growth, we'd say that 5 percent core growth is in line with our expectations. The 1 percent overall ought to frankly start to mitigate because that number of non-core loans is really just down to a much smaller number. And frankly, we sold, this quarter we sold off some of the toughest loans just to kind of get ourselves positioned in case, no matter what happens next. So expect us to, you'll see the core loan growth in that mid-single digits and expect maybe a little bit more of it to come through the bottom line as the non-core runs off. You know, that's just to follow up on your question of Paul and expenses, you know, we are driving the company hard to continue to re-engineer it on a consistent basis. So the digitization that you saw in the consumer business, which we talk a lot about, is swinging through the commercial businesses fairly consistently and, you know, the cash pro product, the cash pro mobile product and things like that are growing. And so it was a very digitized business from sending a cash, it's a little different to consumer, but the activity between us and the customer, the paper to electronic, any one form of electronic to another form of electronic frankly saves us expenses, but also puts some pressure on revenues, even though the treasury services revenues, you can see are up nicely. So expect that, we're going to do everything we can on expenses, we're going to make the investments with 3 billion in technology, we're going to continue to drive the physical plant rejuvenation and continue to add people because it's working. But don't ever think that we're trying to, we're not overspending here, we're going to spend what we need to do to drive this company for you.
spk12: Got it. Yeah, I mean at one point you mentioned something like 5 billion dollars spent annually on storing and moving cash and check. Is that, you know, still kind of
spk11: the
spk12: tagline
spk11: for
spk12: that?
spk11: Well, the tip of the weight is still high. You know, even, you know, check deposits continue to go down in a franchise year over year. In the first quarter they went from about 140 odd, 5 million in last year first quarter, 125 to 30 million, 20 to 27 I think it was this quarter. But if you look at it, the, and just that change, the mobile deposits are up 15 million dollars in a single, 15 million units in a single quarter where the financial center are down, excuse me, the mobile are up a million units in a single quarter where the financial centers are down about a million and a half units, a million and a quarter units. So each year we're driving that, you know, incremental change. So, you know, that just checks deposit. That's not even cash distributed and stuff. So just, it is a big cost. A lot of it's on the commercial side too and we continue to try to drive it down. You know, collecting all that corn and currency for the small businesses and people, you know, that collect cash as part of their operations, you know, we continue to try to digitize that too.
spk12: Okay, that's great. And just one last question for me. I know you've been planning on increasing hiring in the investment bank especially around the middle market and I'm wondering do you feel that you are fully baked there with your headcount or is there still some more room to ramp that and thinking about what the impact is going to be on the loan growth as you indicated earlier?
spk11: So if you look at it, you know, think about this time last year and into the summer we continued to look at our position. We've been adding people. We still have room to go to add people. It's all in the numbers you see. So as expenses, you know, came down we added more people in that area in both middle market bankers filling out the franchise in various areas and investment bankers dedicated to that area. The team's been building up and then frankly rounding out our general teams in investment banking. And so, you know, Matthew Coder came in and picked it up. We're seeing market share, you know, sort of improvements in even in markets which are not as robust as we like from our standpoint. Then but we expect that the, you know, the middle market one has been growing very fast and it's a matter of just getting more capacity. It's, you know, that sometimes you look at some of those numbers are up 25% in fees over the last couple of years. We just got to keep driving.
spk09: Just to give you a sense of progress, if you look at hiring year to date versus last year in investment banking and capital markets, commercial bankers, it's at three times the pace as it was last year and attrition is down. So we're definitely making progress. Okay, thank you.
spk02: Our next question comes from Saul Martinez with ABS. Please go ahead.
spk01: Hey, good morning guys. On the interest rate sensitivity, you gave the reasons for why the sensitivity moved up long end rates and deposit assumptions. But at a point in time, what is the breakout of the 3.7 billion between short and long end right now? I'm sorry if I missed that. You broke it out.
spk09: Yep, it's 75% on the short end, 25 on the long end.
spk01: 75, 25 still, okay. Also, you've been under, you've had some pressure obviously with higher short end rates on the sales and trading in I.I. I assume you're 3% growth. Does that assume some easing of pressure as rates stabilize here?
spk09: Well, as rates stabilize, we shouldn't see much change in, you know, .A.I. in that business.
spk01: Okay, so it's assuming no rebound because, you know, as assets reprice and funding costs remain stable. That's
spk11: right. That stuff moves pretty quickly through the system, but it basically, the 3% includes that.
spk09: And there just isn't a lot of asset sensitivity in gold.
spk01: Okay, okay. Fair enough. Just to change gears, on cards, income was down 2% year on year, volumes were up only 2% year on year. Can you just give a little bit of color what's going on there?
spk09: Yeah, sure. Look, the first thing I would say is, again, Brian said it, but, you know, remember we're focused not on products, but on, you know, increasing and deepening relationships. And remember, consumers' revenue was up 7% year over year, and profits were up 25%. To your question, purchase volume growth, you know, has slowed, but it was still up 3% year over year. We've got higher rewards also, you know, pressuring revenue. But again, higher rewards are also driving higher deposit balances, which help NAI, as well as client retention. We continue to add more than a million new cards each quarter, although this is down moderately as we focus on profitability and reevaluate, you know, applications that are looking to play the rewards game.
spk01: Okay, got it. And just one final thing, Cecil, can you just give us an update where you are in the process and how you're thinking about when you'll give us a day one impact?
spk09: Sure. So we've made a lot of progress, and our efforts are continuing. We did a parallel run in Q1, which we're still, you know, analyzing, but based upon the early estimates from that parallel run, you know, we do expect Cecil reserves to increase. I think it's important to point out there's still a lot more work to do, but we would currently estimate the impact to be an increase in our reserves of up to 20%. I want to emphasize that, you know, sort of any adjustment to reserves will be based upon the composition of our portfolio and the forecast of economic conditions at that time, which is going to be year end. In addition, we haven't finalized our methodologies, and, you know, look, if you're thinking about drivers, it's obviously, you know, credit card is a primary driver. Relative to others, you've got to look at commercial real estate. Those are the things that are affecting, you know, reserves.
spk01: Got it. That's really helpful. Thank you.
spk09: Just so you know, that equates to that 20%, that up to 20% equates to a reserve increase of about 2 billion.
spk01: Got it. It's not material for your capital. I get it. Okay.
spk09: Yeah, and from a capital perspective, it's going to get phased in over three years.
spk01: Yeah. Understood.
spk02: And our next question is from Matt O'Connor with Deutsche Bank. Please go ahead.
spk15: Good morning. Any thoughts on the NIM percent going forward? Obviously, there could be some quarter to quarter volatility, but just as we think about the underlying direction in NIM, can you hold it stable or might it bleed down a little bit?
spk09: Look, longer term, I think NIM is going to depend on the forward curves. I mean, that's the best answer I can give you. In Q2, I guess I would expect, you know, NIM to decline a little bit because of all the items I mentioned earlier and those prepared remarks. It's up year over year
spk00: nicely.
spk09: I think if you look at the banking book, you can really see the power. It's up to sort of 3.03%, you know, which is up 10 basis points year over year.
spk15: Okay. And if we just take the forward curve, which is what's in your interest income dollar guidance, would that imply some underlying pressure beyond 2Q as well?
spk09: No. I think, again, I think it's going to be, it would imply flat, I think, is what I would say.
spk15: Okay. And then just... Over
spk09: the whole year.
spk15: Sorry, what do you mean by that? So down a little bit in 2Q and then up a little bit back after year to get back to 1Q. Got it.
spk09: That's right.
spk15: Okay. And then just a bigger picture question. Obviously not just, you know, a concern for Bank of America, but as we think about exiting this year and we just take everything at face value, that rates stay here and all these other assumptions, it'll probably change. But let's just hold all that. You know, it does seem like revenue growth is going to flatten out as we get into 2020. And I'm just wondering, like, what you're thinking in terms of levers that can be pulled. You had a lot of discussion around expenses. Are there kind of new products or customer segments that you can go after? You know, essentially, are there revenue opportunities that you can control independent of the macro if the expenses are kind of, you know, lined up and flat and there's not too much more to do there?
spk11: I think if you think about a growth rate in economy of two percentage points or so and you think back about the last decade, we've been at that level more than we've been at any other level. And what do we do? We grew, you know, loans, mid-single digits. We grew deposits three, four, five percent faster. It's now, you know, kind of growing at that rate. That adds, you know, basically very advantage cost of funds and loans that are well priced to our core clients and both the consumer and commercial side. And that then grows the net interest margin. You know, a lot of talk about over the last few years about, you know, what was the contribution rates? Half of it came more or less from rates and half of it came from hard work and we expect the half that came from hard work to keep coming. And that's, that leverage in a platform with expenses being flat is pretty good leverage. And then the markets, you know, will be what they are. But as I said earlier, remember that the revenue from those two activities, you have a year's up seven percent. Paul gave you the N.I. view of that. The fees, you know, side of that revenue was down deeply. But even with what's happened during the quarter, think about the wealth management business from the, from the, you know, the way the prices off of December into January and things like that. Think about the recovery. You know, the fee income, even if it stays flat from here, it will be substantial wealth management business. So, you know, we feel good just grinding out more customer relationships and more loans and deposits and more wealth management business from them. And that will give us, you know, a pre-tax, ability to grow pre-tax in the, you know, mid to upper single digits and then the share count through their capital management. So that's the model of the two percent growth economy. You're telling me you're predicting a recession. We'd handle the company differently as would everybody else. But that's not what we think. And then, you know, as I think about it overall, we just, you know, this is a great franchise. And we're just grinding out the growth that's embedded in it. And that will produce, as we've said, mid-single digit, mid-upper single digit operating earnings increase. Combined with share count will get you in double digits. And that's pretty good.
spk15: Okay. All right. That was clear. Thank you.
spk02: Our next question comes from Nancy Bush with NAB Research. Please go ahead.
spk13: Good morning. Brian, this is a question about your program to lift the minimum wage from 15 to 20 dollars over the next 20 months. And I can see how this is necessary, as you said, to quote, get the best people in an economy that has the unemployment rates that we do right now. But can you just kind of generally flesh out what kind of productivity improvements you're seeing in the workforce and whether this, you know, five dollar raise will be paid for by productivity?
spk11: Yes. It's going to be, well, it has been. I think in the last, you know, several years we've gone from probably sub 10 dollars an hour to over 15 and it's been paid for every year. So I think our ability to continue to drive productivity is really driven by the change in customer behavior and the digital capabilities we have. So more the activity that would have been done a decade ago or two decades ago, a person handing a check for deposit, the branches would have, you know, gone through a person's hands and now goes through a mobile bank deposit, mobile check deposit and the cost of that is tenfold different. And yet we still have in this court alone, you know, 50 odd million deposits at the financial centers to work on. So, you know, the productivity will increase. We've been able to pay for those kinds of increases. We've been able to keep the healthcare costs for the lower compensated teammates flat since 2011 after we cut it in half. And this is all to, you know, really have great teammates working with our core customer base and that's what we focused on. And, you know, our average compensation of our company is $120,000 or something like that. So this is not, you know, this is to really help drive in the branch and the call centers and the operations groups to continue the efficiency. But overall we continue to manage head count down to make it happen.
spk13: Okay. I also have a quick question about the credit cycle. Mary Ann Lake said on Friday that I think there were sort of five loans that came on non-accrual, five material loans that came on non-accrual at JP Morgan Chase and that was the second quarter that that had happened and she characterized these credits as, quote, idiosyncratic, not belonging to any particular industry, et cetera. I guess my question is this. You know, has the nature of credit cycles really changed due to the low rate environment and how will you know, if we are entering a, quote, new credit cycle?
spk11: Well, we continue to, you know, those are great questions, Nancy, when you think about it in a broader context. But, you know, I think the major differences with our company is that the geographic distribution in the United States, you know, means that we're not susceptible to any regional issues dominating our discussion as it would have been, you know, 20, 30 years ago, or even a decade plus ago. I think that the balance in the company from consumer and commercial has come down, has changed substantially, so we're 50%, 50%. I think the secured portion of consumer is the dominant part as opposed to going in the last crisis. So all that sort of gives us a different feel for what we think the credit cycle would be like. When you go to the commercial side, you know, the underwriting capabilities of the team have been proven through cycles as being very strong. The ratings integrity is strong when we, you know, go through with all the reviews, whether it's SNCC or whether it's, you know, internal reviews. And, you know, so yes, a company like the charge off we had in the fourth quarter, you know, can have an idiosyncratic event that causes some damage, but it will be wholly different. It will really depend if the economy, you know, stays bumping along or goes into, you know, slight degradation, you're going to see it, you know, some across the board, you know, distress. But I think so far, as we've seen pieces pop up, oil and gas a few years ago, we put up reserves and we took most of them back in. You know, the retailing business, we've, we're a major lender in it. We've been able to work through the credits there because of the nature of the collateral and stuff like that. The consumer side, the charge off rate stays low. We've worked through, as you know, a lot of mortgage credit that was just, you know, still with us and we've been getting that down and that's brought our charge off some mortgage back to where we thought they'd be. So I'm not sure I would ever say you have to take any credits that happen and say there's no, you know, to say it's completely isolated, one off events because you've got to be careful not to fool yourself. But on the other hand, you know, what we see is right now, the fundamentals of the economy in the U.S. on a global basis and the fundamentals, you know, of consumers and unemployment being low, as you mentioned, means that credit's in good shape and we just don't see that changing a lot.
spk09: I just want to ask one thing. I know you're asking how will we know, but the one thing I do want to stress is how much we've transformed the company over the last 10 years by sticking to responsible growth, by changing the mix between consumer and commercial, focusing on prime and super prime and again, the best place to see that is in the Fed's stress test results where you can see that our loss rate over multiple years and we'll see what it is this year has been lower than all peers and almost 50 percent lower than the, you know, worst nine quarters we experienced, you know, during the financial crisis. So the company is just fundamentally different.
spk13: Okay.
spk09: All right. Thank you.
spk02: And our next question comes from Al Levozakos with HSBC. Please go ahead.
spk03: Oh, hi. Thank you for taking my question. You already mentioned about GWIM that it was a really impressive performance. When I'm looking at the numbers, clearly the outperformance, except for the solid revenue, is coming from the expense line and you mentioned a couple of factors during your prepared remarks, including the FDIC and the lower intangible amortization cost. I was wondering as a first question whether you would be able to quantify like what was the lower expense coming from the intangible amortization cost and then from the FDIC, especially in that division. Thank you.
spk09: So Merrill's, you know, lower intangible is about 75 million per quarter. And FDIC I think is a little over 100 per quarter.
spk11: For the whole company.
spk09: For the whole company, yeah. Yeah.
spk03: So not only for the wealth management, just for generally all the company.
spk09: Yeah. That's what Merrill's intangible is at 75. FDIC for the whole company is sort of like 150-ish. So Merrill's going to get that. They obviously don't get the whole thing.
spk03: Yeah. And as a second question, I think I missed you at the end when you were talking about the all other segment. You guided basically that the Q1 is actually a good indicator for the future, but you also mentioned that there was this tax benefit of 200 million. So what is actually the run rate? Is it the 50 million loss or the 250?
spk09: Yeah. Yeah. There was a sort of normal seasonal kind of tax variability that I expect most people add in their models. Yeah. So if you adjust for that, you know, a good, you know, for modeling purpose I would suggest you use around a loss of around, you know, 200 million per quarter. That's a good base.
spk03: Okay. Thank you very much.
spk02: Our next question is from Vivek Janajah with JP Morgan. Please go ahead.
spk14: Hi. Thanks for taking my questions. A couple of questions. I hear you on the card purchase volumes and the rewards expense. Your card outstanding growth has also slowed. Substantially it's gone from up 5% year on year last year in the first quarter, then it was in the 4-ish percent over the course of the year, and it was flat year on year in this quarter. Can you talk about, I know I heard you say that you're trying to avoid customers who are giving the rewards side. What about the card outstanding growth? Why has that slowed so much?
spk09: You're talking about card balances?
spk14: Yes. Card balances, Paul. That slowed to flat year on year, and if you look over the course of the last five quarters, that's a slow down from where you've been coming over the last year.
spk09: Yeah. Look, we're, look, I would expect low single digit year over year growth to sort of continue. Right now we are, you know, experiencing a little bit of an uptick in the portfolio payment rate that's affecting growth.
spk14: Okay. And that's just, you think, just temporary? That what's driving that, that it would only be temporary?
spk09: Look, I just think, you know, it's a good economy, and we have high quality, you know, customers in our card portfolio, and they're taking some of their excess deposits and paying off their balances.
spk14: Okay. Shifting gears. Brian, a question for you. Invest in banking. If I look at your, I hear you on the fact that you've been hiring more bankers. Paul mentioned that too. When I look at your IB fees this quarter, at least based on the results you've got to come out thus far, it seems like you've slipped now to number five. Any color on why, you know, you used to be number two a few years ago, and it's gone, it slipped further and further. Is it a risk issue? Is it an expense issue? What is the issue?
spk11: And what should we
spk14: expect as we look out, Brian?
spk11: My guess is we'll end up four on fees, you know, the four, five on fees paid. Depending on what is going on at the time, it will ebb or flow if it's more debt capital markets driven. Typically we do better if it's more equity capital markets. We do a little bit differently. And if it's advisory, we sort of, depends on sort of what the deals are. I, you know, in the end of the day, you know, if the team is continuing to work on driving it, we feel good that the progress is being made and we'll continue to make that progress in the future. But I always tell people to keep in mind, the global banking segment in our company earned $2 billion, 700 million of which was investment banking fees. So the key for serving corporate clients is to have a full, robust, broad relationship and drive the cash management and drive the lending and the investment banking and not get overly focused on, you know, 2% of our revenue. Thanks.
spk02: We'll take today's last question from Brian Kleinhanvo with KBW. Please go ahead.
spk06: Yeah, thanks. So one quick question on the commercial, I guess you said, you're still kind of constructive on commercial growth. But can you point anything specifically at the thing you're actually seeing an improvement on the commercial side? Is like line utilization up year on year? Are you seeing more cap-back spending?
spk11: Well, there's been, you know, a lot of talk, if you think about the last couple years of the economy and the last year and a half on economy and commercial loan growth. And I don't get the fan-tots all over that in that sense. It's, you know, things haven't flowed by what's going on. And so I think what you saw this quarter, really a combination of probably three things for us in the core commercial business, commercial loans across the board. One is in terms of the business banking thing, which is a smaller end, we've hit sort of an inflection point. We were managing some of the credit risk in that portfolio. That kind of hit the base and that's a smaller book. But it does impact year over year. That was down like over a billion bucks and that's now flattened out in terms of court-linked quarter impact. Second thing is a small business continues to grow. It does a good job in that and you can see that separately. But the third most important thing is we deployed more middle market bankers. They continue to deepen relationships. And as we did it, we basically, not only did we, we took down the number of accounts per person so that they could deepen a relationship and spend the time. And that's why you're seeing the treasury service and other revenue grow. But importantly also, even pushing to the harder on the loan growth side. And that's benefited us. And then frankly, for years, we were kind of running down our little bit of our commercial real estate on a relative basis. You would see other people grow faster. As the market settled in and we liked the credit risk better, we've actually seen a little bit of better growth in the commercial real estate segment. Very high end, very strong quality. That's helped us a little bit too. And then the last thing, which I think is good news to the economy overall, is the line usage went up about a point in middle market, which means that, you know, that's across a lot of lines obviously. But what that really means is that people are using the credits the right word. So the arduous task of doing, driving commercial loan growth is really down to literally thousands of people out there every day doing the job that Matthew and Alastair and Ather and Sharon Miller and the team push them to do. And we're seeing the benefits of that. And that ought to be compounding in the future.
spk06: And then just a separate question on the card income. I know it has been asked a couple of different ways, but typically there is some seasonality in the first quarter. Was the seasonality impact greater than the rewards impact in that link quarter decline in card income and consumer banking?
spk11: The impact of, if charges were up and fees were down, obviously the impact of the rewards credits and other credits, both, you know, to the merchant and everything else, exceeded the growth in the revenue. And so I think that's a given. So we were up, I think, 3% in charge volume, something like that. And then the overall decline slightly. You remember that we're running our credit card relationship manager business different than a lot of people. We run it as an integrated business. And so when you see that $26 billion in deposits, growth and consumer, remember a lot of it's coming in large deposit relationships in the context of general consumers and not wealth, affluent and wealth management people, customers is coming because they're bringing to us $10,000 or $20,000 in balance to that is helping drive our deposit balances and, you know, in a relationship size in order to get the reward system. And so when you look at that, you've got to be careful about looking at any one line item that we have and look at it in total growth. And that's a 7% consumer overall. And the risk adjusted margin on the card product, I think we show you, is over 8%. So it's very high credit quality and the fees included in that. So, you know, so I think it's one of the differences, we're going to look a little different. And so, yes, the amount we rewarded our customers to do business with us exceeded the rate of growth in their charge a little bit. But combined with their deposit balances and how they get the rewards, you saw a consumer deposit level growth of, you know, mid-single digits. You saw $26 billion, which is the size of a good bank right there, just in consumer. And it was all in checking. The total other growth other than checking was like a couple billion dollars. So it's all checking growth and all really what we do for people. And the card is part of that payments, debit card, credit card, and checking are really linked accounts now.
spk07: Okay, thanks.
spk11: All right, well thank you for joining us again. We appreciate your interest. And another quarter record earnings, strong client activity. We continue to see a good strong solid U.S. economy. We deepen those relationships. We had strong asset quality. And again, at the end of the day, we delivered a 16% return on tangible common equity, 126 basis points return on assets. And we did that by dropping operating leverage of 400 basis points. So thank you. Look forward to talking to you next quarter.
spk02: And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.
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