Bank of America Corporation

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 will have an 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 1 on your touchtone phone. Please note this call may be recorded. It is now my pleasure to turn today's program over to Lee McIntyre.

Good morning. Thank you, Katherine. Welcome. I hope everybody had a nice weekend, and thank you for joining the call to review the first quarter results. I trust everybody's had a chance to review our earnings release documents. As always, they're available, including the earnings presentation that we'll be referring to during this call on our investor relations section of the bankofamerica.com website. I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments. and then ask Alistair Borthwick, our CFO, to cover the details of the quarter. Before I turn the call over to Brian, just let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. These forward-looking statements are based on management's current expectations and the assumptions that are subject to risk and certainties. Factors that may cause actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available on the website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in the earnings materials that are available on the website. So with that, take it away, Brian. Thank you, Lee. And good morning to all of you, and thank you for joining us. As we open our earnings call this quarter, we want to acknowledge that the humanitarian crisis continues to take place in Ukraine and remain watchful to provide assistance from our company to the Ukrainian citizens and stand ready to help further where we can. Before we get into some discussion on the current outlook and activity, I want to step back and focus on the big picture about Bank of America this quarter. In a quarter that had a lot of variables show up, we delivered responsible growth again. We reported $7.1 billion in net income, already cents per diluted share. We grew revenue, we reduced costs, and we delivered our third straight quarter of operating leverage coming out of the pandemic. Net interest income grew 13% and is expected to grow significantly from here. We saw strong loan growth. We grew deposits. We saw strong investment flows. We made trading profits every day during the quarter. We grew pre-tax, pre-provision income by 8%. We had a return on financial common equity of 15.5%. All this came in that quarter that saw geopolitical conflict, rising interest rates, the pandemic, rising inflation concerns, and much, much more. I want to thank our team for delivering on a responsive growth once again. So if you look at the statistics on slide two, you can see some of those highlights. You can see the organic growth engine that our company is delivering once again. In our banking business, you can see the strong loan and deposit growth. We grew and expanded customer relationships across every business. In fact, we grew new checking accounts by more than 220,000 this quarter alone. We opened new financial centers, and we renovated many others. We added more digital capabilities and crossed 50% in digital sales. In our wealth management businesses, you can see over 160 billion of client flows over the years. and more than $4 trillion in client balances, including Merrill Edge. We saw both strong investment flow performance in addition to banking flows. Over the past year, we brought on a significant number of net new households, 24,000 in Merrill and another 2,000 in the private bank. Across the combination of our consumer-involved businesses, we saw more than $90 billion of investment flows. We now have managed client balances, including deposit loan investments of more than $5 trillion with us. In global markets, Jimmy DeMar and his team had a solid quarter of sales and trading results, which included a record quarter for equities. Despite the market turmoil, we had zero days of trading losses. While the investment banking fee line was down from the record quarters of the past year, Matthew Coder and his team produced solid results with a strong forward pipeline, and the game market share in several areas, including moving to number two in the mid-cap investment banking. From a broader enterprise perspective, part of managing cost well comes from the drive we have in the company to provide enhanced digital capabilities to our customers, which in turn drives adoption for the digital engagement and lower costs. If you look at slide 23 and beyond, you can see we are now selling more digitally than we are in person. It takes both to be successful. What makes them even more impressive is all the financial centers are now open and back to operating at their usual grade capacity. So adding the digital capacity clearly increases our total production capabilities. You can also see our digital sales are now twice the pre-pandemic level just three years ago. Even more impressive, look at Zelle and Erica volumes up more than four times to pre-pandemic levels. We're now possibly more outgoing Zelle transactions and checks. In our Cash Pro mobile app with our commercial clients, we see many $5 billion usage days. There are a lot more stats in the slides showing strong digital growth. I commend them to you to see how a high-tech, innovative company drives organic growth. This quarter, our resilience was tested. Once again, we maintained a focus on what we could control and grew responsibly and earned our way through the turmoil. So if we talk to you during the quarter, many of you express questions about the impact of macro environments and changes in our company. The lingering impact of the pandemic on supply chains and business opportunities, inflation and Fed reduction of monetary accommodation, the impacts of the Russian-Ukraine war, both on the first-order effects and second-order effects. We do remain mindful of all these. So could a slowdown in the economy happen? Perhaps. But right now, the size of the economy is bigger than pre-pandemic levels. Consumer spending remains strong. Unemployment is low, and wages are rising. Company earnings are also generally strong. Credit is widely available. And our customers' usage of their lines of credit is still low, i.e., they have capacity to borrow more. We are all focused on the ability of Fed to use their tools to reduce inflation. We know that will take interest rates, rate hikes, and a reduction in the balance sheet. We predict it will slow the economy from 3% growth in 2022 to a little below 2% in 23. That is back to TREP. So if interest rate hikes, it becomes better NII. Could the Fed have to push harder to slow inflation? Perhaps. That is why we run stress tests each quarter to look at scenarios to see what would happen in a highly inflationary environment. If rates have passed, are there implications to capital? Sure, and you saw some this quarter. But in the context of the capital bill, those impacts are manageable. The impact increases earnings also, and then over time the bonds pull back to par. All that results in a rebuild of the capital quite quickly. But for some short period of time, that capital usage along with customer usage might slow share repurchases or a bit, but it will be temporary. What if we're wrong and things do get tougher? We already know what that looks like. In 2020, as we built significant reserves, we also built 90 basis points of capital during the economic shutdown period. Rates moved against this and earnings fell. So we have already proven resilience. We continue to focus on responsive growth and the things we control. If you go to slide three, I want to show some of the strengths we see in our U.S. consumer base. Bank of America consumers spent at the highest ever quarter one level, which is a double-digit percentage increase over the 2021 level that you can see in the upper left. From our card spend data, we have seen a strong recovery in travel, entertainment, and restaurant spending in the upper right. You can see that. By the way, even with fuel costs up 40% or more from last year, fuel represents about 6% of overall debit and credit card spending. and a lot less of overall spending, as cards you can see in the lower left is 21% of all spending. Importantly, despite March of last year including a stimulus bonus, we saw the spending in the month of March 2022 on a comparable basis to 2021, 13% higher by dollar volume, and we saw a 7.4% increase in the number of transactions. So both dollar volumes and numbers of transactions rose nicely. And as you would expect, The method by which people spend continues to shift away from cash and checks to be replaced with digital alternatives, and you can see that below. Our data shows continued growth in the average deposit balance across all customer levels, which suggests capacity for strong spending continues. On an aggregated basis, average deposit balances are up 47% from pre-pandemic levels, and 15% higher than 2021. and the momentum continued through quarter one, particularly in the low-balance accounts, which grew in February to March, continuing to streak since mid-last year. Now, a couple of examples so you can see how this works. We looked at the pre-pandemic customers who had $1,000 to $2,000 of clear balance of the BAC. Today, at that time, pre-pandemic, they had an average balance of $1,400. You take that same cohort of customers, the same customers, in 2022 versus 2019, and they had an average clear balance of now of $7,400, so an increase from $1,400 to $7,400. If you go to the next cohort up, those with $2,000 to $5,000 had clear balances in the pre-pandemic. Their average was $3,250. Now, the same customers today have an average clear balance of $12,500. What does that tell us? The consumers are sitting on loss of cash. Why is this true? Well, you know, high wage growth, high savings, limited by limited enabled spending. What it means is a long tail to consumer spend growth. And in April through the first two weeks, spending is growing even faster, 18% over April 2021. Another economic signpost is a continuation of loan growth. A year ago, we highlighted the green shoots of our loan growth. We then delivered growth in quarter two and quarter three and quarter four despite PPP runoff and the changing economic conditions. To convey where we are today, we focus on ending loans to give you a progression through the quarter. If you go to slide four, you can see the highlights of that growth. In the upper left of the slide. I would remind you that in quarter four we highlighted to you that of the $55 billion of growth in that single quarter, $16 billion was global markets. We did not expect that to hold true for quarter one of 2022. So as we thought, global markets did come down $5 billion this quarter. Despite that, overall commercial loans grew $13 billion from quarter four, excluding PPP. That means commercial loans, excluding global markets, grew $17 billion. Every single customer group, global banking, large corporate, middle market, business banking grew, as well as commercial loans and wealth management. That improvement came from both new loans as well as improving utilization rates from existing clients. You can see in the top chart, loans have moved back above our pre-pandemic levels on the right-hand side of the slide, and you can see it being led by commercial. Consumer loans continue to grow late quarter as well. This is despite typical seasonality and despite the continued suppressed credit card balances you can see in the lower left. Mortgage loans grew $4 billion. Originations remained at high levels and paydowns declined. Card loans declined $2 billion from quarter four, driven by the transfer of $1.6 billion of any card loan portfolio to the help or sale category. Absent that transfer, card loans would have declined very modestly, whereas in previous quarter one quarters, they've declined several billion. On slide five, we provide data around consumer clients' leverage in asset quality as compared to pre-pandemic periods. which further supports our belief that consumers remain in good shape. On the upper left, we looked at our customers that have both a credit card and a deposit account with us. As you will note, the average card balance of our credit card customers that have deposit relationships are still 8% lower than they were pre-pandemic. They continue to pay down their balances on a monthly basis at a higher rate than pre-pandemic. And as you know, the links to rates are significantly lower. Further, as you can see to my earlier point, these borrowing customers at those significant additional savings or average deposit balances are up 39%. So a lot of strength or dry powder, as it's called. So what if we went to the more modest FICO, the more modest amount of low FICO customers we have at BSE? Looking at that small subset of our base, you can see a similar trend, even stronger on cash balances and lower debt levels. And you see in the bottom charts, we believe this is not just a phenomenon of VSE, as industry data points around debt service levels are hovering near historic lows, and household deposit and cash levels are three trillion higher than we entered the crisis. Now, a word on Russia. This is not an area of material direct exposure for Bank of America. More than a decade ago, we reduced our exposure in Russia, and it's resulted in having 90% less before the most recent crisis. Our current very limited activities in Russia focus on compliance with all sanctions and other legal and regulatory requirements. Our lending and counterparty exposure to companies based in Russia totals approximately $700 million and is limited to nine Russian-based borrowers. It is largely comprised of top-tier commodity exporters with a history of strong cash flows who continue to make payments. Prior to the Ukrainian invasion, these exposures were mostly investment-grade. We report all of them are reservable-criticized. Our quarter one allowance includes increased reserves for this direct exposure. And I just note that even with the addition of these loans, the reserve will criticize. We still decline $1.7 billion in this category during the first quarter. We continue our daily monitoring of sanctions and interest payments which might impact these loans. We also evaluate our portfolios and continue to do so, considering second-order impacts of this crisis. We currently believe this to be modest and reflect our international strategy to focus on large, multinational clients that have geographically diverse operations. Our quarter one allowance for credit losses reflects all these things as well. On Russian counterparty risk, our teams have done a tremendous job from ending down our exposures, and at the end of quarter, we have been minimized, meaning less than $20 million counted by exposures with a single Russian-based counterparty. And very limited impacts from quarter, and any of those impacts are in our trading results for this quarter. The response will go up and serve us well here. And if you might note, after the 2014 Crimea conflict, we intentionally reduced our exposure. And Russia has not been our top 20 country risk exposure table since 2015. So a few comments on NII. On NII, remember the rate increases came late in the quarter and had little first quarter 2022 NII impact. and there were two fewer days of interest in the quarter, and decreased PPP fees hurt NII growth. Yet, we still grew NII by $200 million in line with our guidance we gave you last quarter. Given the forward curve expectation for higher interest rates and our expectations of further loan growth, we expect significant NII improvement through the next several quarters. Alistair will expand on this point for you. We have more than $2 trillion of deposits. and $1.4 trillion of those are with our consumer wealth management clients with more than 40% of those in low to no interest checking. That is a franchise that isn't rivaled. We will benefit as the rates move off the 04s, allowing us to earn more money on those checking deposits. Our deposits, I know several of you are wondering if deposits continue to grow as rates begin to rise. So we went back and looked at the last rate rising cycle in the last decade. We pinpointed the peak rate paid to customers during quarter reflective of the peak Fed tightening. We then went back and looked at the 12 months preceding growth rate in deposits. And, in fact, during that 12 months preceding that peak, deposits grew 5% driven by organic growth engine, our market share gains, and overall economic growth. If you go to page slide six, you can see the common equity. We're going to talk about capital. Just to start off, our capital remains strong, with 10.4% CET1 ratio well above our 9.5% minimum requirement. As you can see, 7 billions of earnings net of preferred dividends generate 41 basis points of capital. As you look on the right-hand side of the page, you can see that 14 basis points of capital was used to support our customers' growth. That's a good thing. We also returned $4 billion to shareholders in common dividends and share repurchase. We represent about 27 basis points of use. The spike in Treasury and mortgage-backed securities rates caused a fair value of our AFS debt securities to decrease and lowered our CET1 by 21 basis points. That's the part that goes through the calculation for capping. While one wouldn't expect this impact every quarter, we were well positioned for the spike. As you recall, we invested much of our securities books and held the maturity due to our huge excess and stable deposit base. We have $2 trillion deposits and less than $1 trillion in loans. In addition, to be cautious, we hedge a large portion of securities in the AFS portfolio, protecting it from a much larger hit to AOCI. I remind you that as the securities mature, the AOCI reverses and the higher rates result in higher NI over a relatively short period of time. That should result in higher earnings that will benefit CT1 ratios on an ongoing basis and more than offset the negative upfront AOCI impacts. Last thing I would note is our balance sheet growth to support our customer and gains our G-SIP buffer will probably move higher by 50 basis points beginning in 2024, i.e., to 10% regulatory minimums. Well, this is nearly two years away. We continue to move towards it. Given this new higher minimum over the next couple of years, we'll look to gradually move to target CT1 range of 1075 towards 11%. Importantly, while we grow into this range, we'll be able to support our clients, we'll be able to continue to increase our dividends, and we'll be able to continue to buy back stock. With that, let me turn it over to Alistair. Thank you, Brian. And I'll start with the summary income statement on slide seven, where you can see our comparisons illustrating 3% year-over-year operating leverage produced by growing revenue and managing our cost flow. That was nearly enough to overcome the change in provision expense driven by the $2.7 billion reserve release in the year-ago period, compared to a $400 million release this quarter. On asset quality more broadly, we continue to see very strong metrics. Net charge-offs remained low, and in fact, they're down more than 50% in just the past year. Consumer early and late stage delinquencies are still below 2019 levels, and reservable criticized moved lower again in Q1. Looking ahead, we continue to feel good about the asset quality results of our consumer and commercial businesses near term, given our customers high liquidity, low unemployment, and rising wages. We produced good returns again this quarter with an ROTCE of nearly 16%, and we delivered $4.4 billion of capital back to shareholders, driving average shares lower by 6% year over year. Looking forward, and with continued expectations of growing NII, combined with strong expense control, we expect to drive operating leverage and see our efficiency ratio work back towards 60%. Let's turn to slide 8 and the balance sheet. And you can see during the quarter, our balance sheet grew $69 billion to a little more than $3.2 trillion. This reflected $14 billion of growth in loans and the growth of our global markets balance sheet as customers increased their activity with us. A decline in cash this quarter was associated with that growth in global markets. Our liquidity portfolio was stable compared to year end, and at 1.1 trillion, it represents roughly a third of the balance sheet. Shareholders' equity declined 3.4 billion from Q4 with a few different components I would note. Shareholders' equity benefited from net income after preferred dividends of 6.6 billion, as well as issuance of $2.4 billion in preferred stock. So that's $9 billion that flowed into equity in Q1. And we paid out $4.4 billion in common dividends and share repurchases. AOCI declined as a result of the spike in long rates that Brian referenced, and we saw the impact in two ways. First, we had a reduction from a change in the value of our AFS net securities. That was $3.4 billion. That's the piece that impacts CET1, as Brian noted. And second, rates also drove a $5.2 billion decline in AOCI from derivatives that does not impact CET1. That reflects cash flow hedges against our variable rate loans, which provides some NII growth and protected CET1 at the same time. With regard to regulatory capital, since Brian already talked about CDT-1, I'd simply note that our supplemental leverage ratio was stable at 5.4% versus the minimum requirement of five, and still leaves us plenty of capacity for balance sheet growth. And our TLAC ratio remains comfortably above our requirements. Turning to slide nine, we included the schedule on average loan balances. And in the interest of time, the only thing I would add to Brian's earlier comments, and for your perspective, is simply a reminder that PPP loans are down 19 billion year-over-year. There's just a few billion of those left. And excluding PPP, our total loans grew $89 billion, or 10% compared to last year. Moving to deposits on slide 10. First, let's look at year-over-year growth. And across the past 12 months, we saw solid growth across the client base as we deepened relationships and added net new accounts. Our year-over-year average deposits are up $240 billion or 13%. Retail deposits with our consumer and wealth management businesses grew $190 billion. And our retail deposits have now grown to more than $1.4 trillion where we lead all competitors. Looking at link quarter growth from Q4 and combining consumer and wealth management customer balances, our retail deposits grew $50 billion in just the past 90 days. With our commercial clients, they're up nicely year over year, and we simply note the Q1 decline, which is entirely consistent with previous year's seasonal trends. Turning to slide 11 on net interest income. On a GAAP non-FTE basis, NII in Q1 was $11.6 billion, and the FTE NII number was $11.7 billion. So I'll focus on FTE, where net interest income has now increased $1.4 billion from the first quarter last year. As Brian noted, that's 13% increase driven by deposits growth and our related investment of liquidity. NII was up $200 million versus the fourth quarter as the benefits of lower premium amortization and loans growth more than offset the headwinds of two last days of interest accruals and lower PPP fees. Let's pause for a moment to discuss asset sensitivity because I want to make a couple of points as we begin what the Fed has signaled to be a significant rate hike period. Asset sensitivity is our measure of NII for the next 12 months above an expected baseline of NII, given changes in interest rates and other assumptions. In an environment of sharply rising rates each quarter, the baseline of NII, actual NII increases, and therefore the future sensitivity declines. Now we typically disclose our asset sensitivity based on a 100 basis point instantaneous parallel shock in rates, above the forward curve. And on that basis, asset sensitivity at March 31st was 5.4 billion of expected NII over the next 12 months. And 90% of that sensitivity is driven by short rates. That 5.4 billion is down from 6.5 billion at year end, largely because higher rates are now factored into and running through our actual or baseline NII. Now you asked the question last quarter about the same sensitivity on a spot basis relative to our current curve. And given that the yield curve is projecting 125 basis points of rate hikes over the next three meetings, we thought it was appropriate to provide that disclosure. So in a 100 basis point shock to the current curve using spot rates, our sensitivity to that kind of move would be 6.8 billion or 1.4 billion higher than on a forward basis. So assuming rising rates as reflected in today's forward curve and if we see continued loans growth, I would just reiterate what we said last quarter that we expect to see robust NII growth in 2022 compared to 2021. We're not going to provide numerical guidance for the full year. because the changes in interest rates have proven quite volatile in just the last 90 days, let alone a year. We do provide that asset sensitivity so that you can use it as guardrails to think about changes as you modify your own assumptions. I do, however, want to provide a nearer term expectation and say that if loans grow and rates in the forward curve materialize, we would expect to see NII in Q2 increased by more than $650 million over the Q1 level and then grow again significantly on a sequential basis in each of the following two quarters. Okay, let's turn to expenses and we'll use slide 12 for that discussion. Our Q1 expenses were $15.3 billion down a couple hundred million from the year ago period. I'll focus my remarks on the more recent comparison versus Q4, where we're up $600 million. And as expected, and we conveyed to you last quarter, the Q1 increase was driven mostly by seasonality of payroll, tax, expense, or roughly $400 million. We also experienced modestly higher wage and benefit costs. As we look forward, we continue to invest heavily in technology, people, and marketing across our lines of business. and we've continued to add new financial centers in expansion and growth markets. We've noticeably increased our full year new tech initiative budget for the year to $3.6 billion. And that's on top of more than $35 billion that we put to work over the past 12 years to help us build powerful, more secure, and scalable technology platforms. This is the investment that's allowed us to maintain a leadership position in patents among our peers. We had 512 of them granted in 2021, and we're maintaining a similar pace this year. We think this is one of the things that's helping us to protect our moat around leadership positions in places that matter most to customers. In addition to modestly high marketing costs this year, our investments also include adding up to 100 new financial centers, And we also plan to renovate more than 800 more during the year. We will also continue our upward march on minimum hourly wage to more $25 by 2025. How do we pay for all that? Through continued work on operational excellence and digital engagement. And as we look to Q2, we expect our expenses to be down modestly from Q1. as much of the seasonal payroll tax expense abates, and is somewhat offset by investment timing, inflation, and the cost of opening up more fully for travel and client entertainment, because it feels like we've got a lot of pent-up demand for face-to-face meetings by our clients and our people. So let's turn to asset quality on slide 13, and as you can see, asset quality of our customers remains very healthy. Net charge-offs this quarter were better than our expectations once again, and remained below $400 million, down 52% compared to Q1 2021. Provision expense was $30 million in Q1, as reserve release of $362 million closely matched net charge-offs in the quarter. And that reserve release was primarily in our consumer portfolios. On slide 14, we highlight the credit quality metrics for both our consumer and commercial portfolios. And I'm happy to answer any questions later, but a couple of things are worth repeating. Consumer delinquencies remain well below pre-pandemic levels. And despite reporting our commercial Russian lending exposure in reservable criticized, those levels still declined 1.7 billion from Q4. NPL saw a modest increase, and that simply reflects a small amount of consumer real estate deferrals expiring with the expiration of the CARES Act. Turning to the business segments, one thing we'd ask you just to keep in mind for each of the businesses is Q1 expense includes the seasonal payroll tax expense, which has negatively impacted efficiency ratios or profit margins in Q1. Also, and as usual, Q1 of every year includes segment capital level evaluation. And you'll note we put additional capital against each of the businesses due to their growth. And as usual, we've tried to include business trends and digital stats for each segment. So let's start with consumer banking on slide 15, where you can see the consumer bank earned nearly $3 billion. That's 11% up over Q1 2021. as revenue growth more than offset the larger prior period reserve release. It's probably most easily identified by looking at pre-tax, pre-provision earnings, which grew 32% year-over-year. Revenue grew 9% on NII improvement, and expense declined 4%, creating 13% operating leverage and the fourth consecutive quarter of operating leverage for our consumer team. Notable customer activity highlights included our 228,000 net new checking accounts opened in Q1, which represents our 13th consecutive quarter of net new consumer checking account growth. Now, this occurred as we began to implement our previously announced insufficient funds and overdraft policy changes, which lowered our service charges about $80 million. So during this time, we saw accounts grow and we saw expenses decline. We also grew investment accounts 7%, and we saw those balances grow 10% from Q1 2021 to $350 billion, and that included $20 billion of client flows. And once again, we opened nearly a million credit cards in the quarter and grew average active card accounts and saw growth in combined credit and debit spend of 15%. A continued investment in digital capabilities drove activity with our customers, as we crossed 50% in digital sales this quarter, and we continued investment in our financial centers, opening another eight in the quarter. It's also worth noting that small business saw continued growth in loans, in deposits, and in spending. Small business card spend was up 28% year over year. It gives you an idea of how small businesses are reopening for business. I'd also draw your attention to slide 22 in the appendix. We've shared this with you previously, and it simply highlights the origination strength and quality of our consumer underwriting. Throughout everything, our underwriting standards have remained consistent. Moving to slide 16, wealth management produced strong results, earning $1.1 billion. and that represented 28% year-over-year growth driven by strong revenue improvement, good expense management, and low credit costs. Bank of America continues to deliver wealth management at scale across a full range of our client segments and with the best advisors in the industry, according to Barron's rankings. That, coupled with our digital leadership, is delivering a modern Merrill and a modern private bank for clients through enterprise relationships. And our clients and advisors have recognized their value in a holistic financial relationship that extends across investments, planning, and banking. And that's what helped drive the $150 billion of clients' balance flows that you see here over the past 12 months. Not only did we see strong investment flows of more than $70 billion, but deposits grew $59 billion, up 18%, and we added $22 billion in loans over the same period. marking our 48th consecutive quarter of average loans growth in the business. Just consistent and sustained performance from the team. Revenues grew 10% to a new record and were led by 25% growth in NII on the back of those solid deposit and loans increases, as well as a 9% improvement in asset management fees. Expenses increased 4% driven by higher revenue-related costs and resulted in over 600 basis points of operating leverage. And we generated nearly 7,000 net new households in Merrill and more than 800 in the private bank this quarter. Moving to global banking on slide 17, the business momentum with our commercial clients remained strong in the first quarter. The business earned 1.7 billion in Q1, down 450 million new every year, driven by the absence of a large prior period reserve release and lower investment banking revenue. Revenue improvement of 12% year-over-year reflected higher leasing-related revenue and NII growth partially offset by those lower investment banking fees. Net interest income grew on the back of strong loans and deposits growth. And the leasing revenue improvement included more ESG-related investments, particularly in solar. as well as the absence of weather-related losses recorded last year. While the company's overall investment banking fees of $1.5 billion declined 35% year-over-year, we gained market share in some important areas and recorded the number three ranking overall fees. And, importantly, our investment banking pipeline remains quite healthy. Provision expense reflected a reserve build of $177 million compared to a $1.2 billion release in the year-ago period, And this quarter's provision includes reserves taken for Russia exposure and other considerations for loans growth, offset by continued improvement in asset quality metrics. Finally, we saw expense decline by 4%, driving strong operating leverage. Switching to global markets on slide 18, and as we usually do, I will talk about the segment results excluding DVA. Q1 net income of $1.5 billion reflects a solid quarter of sales and trading revenue, and it includes a new record for equities. The business generated a 15% return in Q1, even with a 12% increase in the capital allocated to the business. Our investments in this business saw good results as our financing clients continue to increase their activities with our company. Focusing on year-over-year, sales and trading contributed $4.7 billion to revenue. Versus Q4, that was a 58% improvement, a little higher than typical seasonality. And versus Q1-21, we saw a decline of 8% as the prior year included higher commodities results due to weather-related events. FIC declined 19%, while equities improved 9%. That thick decline reflects the higher prior period commodities and a weaker credit trading environment, and it was partially offset by improved performance across our macro products, especially rates and foreign exchange. Strength in equities was driven by strong performance in derivatives. And year-over-year expense declined, reflecting the absence of costs associated with the realignment of a liquidating business activity to the all-other unit. as well as some Q1-21 accelerated costs for incentive changes. Absent those impacts, expenses were up modestly. Finally, on slide 19, we show all other, which reported a loss of $364 million, declining $620 million from the year-ago period. Revenue declined as a result of higher volume of deals, particularly solar. and therefore higher partnership losses on ESG investments. And this is partially offset by the tax impact in this reporting unit. Expense increased as a result of costs now recorded here in this segment, following the Q4 realignment of that liquidating business out of global markets. And as a reminder for the financial statement presentation in this release, the business segments are all taxed on a standard fully taxable equivalent basis. So in all other, we incorporate the impact of our ESG tax credits and any other unusual items. For the quarter for the company, our effective tax rate was 10%, benefiting from ESG investment tax credits and excluding the tax credits, the tax rate would have been roughly 24%. We expect our effective tax rate in 2022 to be between 10% to 12% absent any tax law changes or any unusual items. And with that, let's open it up, please, for Q&A.

And as a reminder, if you would like to ask a question, please press star and one on your touchtone phone. You can remove yourself from the queue by pressing the pound key. We'll go first to Glenn Shore with Evercore. Your line is open.