Bank of America Corporation

213,000 people. Lastly, we incurred additional costs to accelerate work on compliance and controls. As you likely saw in late December, the OCC issued a compliance consent order to Bank of America, and that's a result of exams done more than a year ago. This order is about correcting or enhancing certain deficiencies in some aspects of our processes that existed at the time. The order doesn't limit any of our growth plans. and the order acknowledges we began taking corrective actions before the order was announced. And as a result of the work in process, we increased our resources substantially in the second half of 2024, and those costs are already embedded in our quarterly run rate. Okay, let's go back to expense and how to think about a forward view. First, most importantly, we remain focused on growing the company and driving operating leverage. We expect the first quarter to include some normal seasonal elevation and we believe this amount will be roughly $600 to $700 million, primarily for payroll tax expense. So we think $17.6 billion is a good number to expect for Q1 before seasonally declining in Q2. And that's all part of our expectation that expense should be roughly 2% to 3% higher in 2025 compared to 2024. Let's now move to credit and turn to slide 11, where you can see net charge-offs of a little less than 1.5 billion, improving modestly compared to Q3. That's the fourth quarter now that net charge-offs are around $1.5 billion. We've seen consumer losses in a pretty stable range of 1 to 1.1 billion over those past few quarters. And on the commercial side, we saw losses of $359 million, which is down from the third quarter, driven by the continued decline in commercial real estate office losses. The net charge-off ratio this quarter was 54 basis points, down four basis points from the third quarter. We don't see overall net charge-offs or the related ratio changing much in 2025, without much change in current GDP or the employment environment. we expect the net charge-off ratio to be in the range of 50 to 60 basis points of loans for 2025. Q4 provision expense was $90 million lower than Q3 at $1.5 billion, as reserve levels remain constant. And as it relates to reserve levels, on a weighted basis, we're reserved for an unemployment rate a little below 5% by the end of 2025. and that compares to the most recent 4.1% rate reported. On slide 12, we highlight the credit quality metrics for both consumer and commercial portfolios, and there's nothing really noteworthy here that I want to highlight on this page. So let's move to the various lines of business, starting on slide 13 with consumer banking. A business made nearly $11 billion, or 40% of the company's earnings in 2024. In the fourth quarter, consumer banking generated $10.6 billion in revenue and $2.8 billion in net income. Both grew modestly from the fourth quarter of 23, as fee improvement for card and service charges is now being complemented by the growth in NII. Consumer banking continued to deliver strong organic growth with high-quality accounts and engaged clients, and they achieved a new record of client experience scores in December. The organic growth activity noted on slide three includes more than 200,000 net new checking accounts, which now takes us to six years' worth of quarter-after-quarter growth. And we show another strong period of card openings and investment account growth. Investment balances grew 22% to $518 billion with full year flows of $25 billion and market improvement throughout the year. Expense rose 8% as we continued investments in our business. The biggest story in consumer this quarter is deposits because these are the most valuable deposits in the franchise. And in the last six months, we believe we've seen the floor begin to form after several periods of slowing decline. Consumer banking deposits appear to have bottomed in mid-August at around $928 billion and ended the year at $952 billion on an ending basis. Looking at averages, you can see then the deposits grew $4 billion from the third quarter to $942 billion, all while our rate paid declined to 64 basis points. Finally, as you can see on the appendix, page 26, Digital adoption and engagement continued to improve, and customer satisfaction scores rose to record levels, illustrating our clients' appreciation of enhanced capabilities from these investments. On slide 14, we move to wealth management, where the business had a very profitable year, generating $4.2 billion in earnings from nearly $23 billion in revenue. In 2024, our Merrill Lynch and private bank advisors added another 24,000 net new relationships. And the professionalism of these teams earned them numerous best-in-class industry rankings, as you can see on slide 27 in the appendix. With a continued increase in banking product usage from our investing clients, the diversity of revenue in the wealth business continues to improve. The number of GWIM clients that now have banking products with us continues to grow, and at this point it represents more than 60% of our clients. Importantly, about 30% of our revenue remains in net interest income, which complements the fees earned in our advice model, and those have also grown. Net income rose 15% from the fourth quarter of 23 to nearly $1.2 billion. In the fourth quarter, We reported revenue of $6 billion, growing 15% over the prior year and led by 23% growth in asset management fees. While expenses were up year over year, they grew slower than revenue, creating the operating leverage in the business. The business had a 26% pre-tax margin and generated a strong return on capital of 25%. Average loans were up 4%, driven by growth in custom lending securities-based lending, and a pickup in mortgage lending. Deposits grew 2% from the third quarter, and the teams were quite disciplined on pricing of those deposits. Both Merrill and the private bank continued to see strong organic growth, and that helped to produce excellent asset under management flows of $79 billion this year, reflecting a good mix of new client money as well as existing clients putting money to work. We also want to draw your attention to the continued digital momentum that you'll find on slide 28 because, for example, three-quarters of Merrill bank and brokerage accounts were opened digitally this quarter. Slide 15 shows the global banking results, and this business generated $8.1 billion, or 30% of the company's earnings in 2024. And it continues to be the most efficient business in the company at less than 50% efficiency ratio. The business saw a nice rebound in investment banking fees in 2024, which we expect to continue in 2025. In Q4, global banking produced earnings of $2.1 billion. Pre-tax, pre-provision results were flat year over year, as improved investment banking fees offset lower NII and higher expense. The total earnings were down 13% year over year, driven by higher provision expense that came as a result of prior period reserve release. Investment banking fees were $1.7 billion in Q4, growing 44% year over year. This was led by mergers and acquisitions. We also saw strength across debt capital markets fees, mostly in leveraged finance, and in equity capital markets fees. and we finished the year strong, maintaining our number three investment banking fee position. The fourth quarter saw strong momentum as the election results provided a lift to sentiment for a more pro-business climate and expectations for more deals to be completed. Expense in this business increased 6% year over year, driven by the 13% growth in non-interest income and continued investments in people and technology. The balance sheet saw good client activity, and it was muted somewhat by the strength of the U.S. dollar. Year-over-year flatness in global banking loans includes this foreign exchange impact and the $6 billion decline in commercial real estate from paydowns. Otherwise, loans in global banking were up 2%. Deposits have been growing for many quarters now with our commercial and corporate clients. And total global banking deposits are now up 10% year over year, reaching a new record. So we're seeing strong growth across all the categories from our corporate and commercial clients all the way from the larger end to business banking on the lower end. And we also saw 10% growth in our international deposits. Turning to global markets on slide 16, I want to focus my comments on results, excluding DVA as we normally do. Our team continued their impressive streak of strong revenue and earnings performance. They achieved operating leverage, and they continued to deliver a good return on capital. For the year, record sales and trading results of nearly $19 billion grew 7% from 2023, and they've been growing consistently now on a year-over-year basis for almost three years. This led to $5.7 billion in full-year profits and represents more than 20% of the company's full-year results. In the fourth quarter, earnings of $955 million grew 30% year-over-year. Revenue, and again this is ex-DVA, improved 15% from the fourth quarter of 23 as both sales and trading and investment banking fees improved nicely year-over-year. Focusing on sales and trading ex-DVA, revenue improved 10% year-over-year to $4.1 billion. This is the first time we've recorded more than $4 billion in our Q4 results, and it included Q4 records for both FIC and equities. FIC grew 13%, while equities improved 6% compared to the fourth quarter of 23. FIC benefited from tighter credit spreads, as well as increased volatility in interest rates, while equities benefited from increased activity around the U.S. election. Year-over-year expenses were up 7% on revenue improvement and our continued investment in the business. And then on slide 17, you can see all other with a loss of $407 million in the fourth quarter. We spoke earlier about the fourth quarter 23 charges for BISB and the FDIC special assessment charge. Their reversal impacts the comparisons on revenue, expense, and net income in this segment. Otherwise, there really isn't anything significant to report here. Our effective tax rate for the quarter was 6%, and excluding discrete items in the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been approximately 26%. Looking forward, we expect the tax rate for 2025 to be in a range of 11 to 13 percent and this just includes our expectation for higher expected earnings in 2025 and relatively stable tax credits. Finally this quarter on page 18 we thought it was important to summarize some of the guidance points we talked through this morning and we hope you find this page helpful. So in summary we're looking for strong growth in NII and we'll look to both continue important investments in the franchise and drive operating leverage as we grow throughout the year. We aren't expecting much movement around credit based on a pretty solid economic outlook, and we remain with a very strong balance sheet with excess capital that we can deploy to grow the business and deliver back to shareholders as appropriate. So with that, I'll stop there. I'll thank everybody, and we'll open it up for Q&A.

At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2. And we'll take our first question from Steven Chubach with Wolf Research. Your line is open. Hi.

Good morning, Brian. Good morning, Alistair. Morning. So I wanted to start off, Alistair, with maybe unpacking some of the drivers of the NII growth in 25. Now, how much of the build that you're guiding to is attributable to loan growth versus some rate or repricing tailwinds, runoff of legacy swaps, what have you? And does that acceleration NII you cited for the second half continue into 26, given some of those tailwinds should remain in place beyond 25?