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?

Well, first of all, I admire you asking about 26. I'm always reluctant to talk about the back half of 25, so I'll leave 26 for another time. But we don't have a whole lot new, Stephen, relative to what we've talked about in the prior quarters. We're obviously pointing right now to deposit growth in particular because it's beginning to get back to something more normal. There was a period there where deposit balances were declining as people got back to something more normal in their accounts. But we're highlighting here consumer found its floor in August, wealth found its floor in July, and that's giving some support then as we grow deposits. That's helping us with the NIA growth. So that hasn't changed. It's just that now we've got successive quarters of growth that we can actually point to. The loan growth that you asked about is interesting in that there were several quarters there where we were bouncing around flattish on loans. In Q2, we added $9 billion of loans. In Q3, we added $19 billion. In Q4, we added $20 billion. So the loan growth has picked up a little bit. We can sort of see a little more optimism with clients, a little more activity, a little more demand from clients for loan growth. So those two things, a little more confidence around deposit growth, a little more confidence around loan growth, those obviously compound through the course of the year. So that will help us in the back half of 2025. And then as you pointed out, we're still a beneficiary of the fixed asset repricing. That comes from some of the old loans that are on our books that come off in 2025 when we reprice. And then we've got some cash flow swaps that also will mature through the course of the year. So that's what leads us to this idea of we think the NII growth will accelerate to 6% to 7% for the full year. A little bit of it, a little bit faster in the back half of the year, we kind of just see that. But that's what gives us the confidence on NII.

That's great, Alistair. And maybe a follow-up for Brian. Just at a recent conference, you spoke about the expectation of delivering 200 bps of sustainable operating leverage, laying out an algorithm where revenues grow 4% to 5%, expenses grow 2% to 3%. What gives you confidence in that ability to deliver that level of top-line growth on a sustainable basis? Just want to unpack that a little bit further.

I think what gives us confidence, we have periods with stable rate environments, stable economy, growing at a slow rate than it is now, and having produced that for five years in a row, I think it was, by quarters or something like that. And so it's not something we haven't done. But if you think about it, The current environment, what's driving is different. Our revenue growth is going at twice that rate plus, and the expense growth is growing close to that number. But when you get to higher growth rates, especially where it's coming from, wealth management business, markets-based businesses, investment banking, it attaches a higher sort of instantaneous expense, and yet it still produces – even a little bit of operating leverage at a higher growth rate, a good after-tax, a good EPS result, a good net operating income result. So, you know, there's different times and different models. This is a model where the revenue is growing faster than it might grow all the time in more normalized environments. But the businesses coming from are those businesses which have the quickest move relative to expense. I'll give you an example of that. If you normalize last year's expense in this – last year's expense and think about our expectations from 23 to 24, and you look at the growth rate, a big part of the growth rate and expense, about 45 to 50 percent of it, is the incentives to the wealth management teammates, which is a good thing. And so that means revenue is growing, and we're taking about half of that in. And if you look at the other pieces added to that. Steve, simply put, we did it before. We know we can do it. You can see the underlying setup, and you see NII kick in, the consumer business, which is more incrementally profitable because of NII. You see that kick in, and you see the expense base there flattening out. And you see the revenue base of the company broaden out. You'll see that we'll get back to the operating leverage that we expected, albeit it may be at a little slower year-over-year growth rate, unless you're going to tell me the market's going to go up 25%, 30% every year. and drive the wealth management. When that slows down to a more normal growth rate, that'll slow down its expense growth rate also. Therefore, you'll see the opening up at that level. So it's not something we make up. It's something we put in our operating principles, and it's something we have done a lot of quarters, but we have to sort of get the stability in the relative business position.

That's great, Collar. Thanks so much for taking my questions.

And Steve, the easiest thing to think about is headcount. The other day, our costs are all people, and You know, that's been relatively stable, and that'll start to flow through because during the course of last year, we basically kept the headcount relatively stable. We had some offbeat expenses that we had to deal with, but now we're sort of settling into that 213,000-level people with a takeout on stuff through operating excellence and a putting in on stuff into client coverage, expanding our pipes to draw more marketing, more client coverage, more technology investment. So we always are shifting expenses, and that's how we make that operating leverage happen.

No, it's a really good point. Thanks for the additional headcount nugget, Brian. Much appreciated.

We'll move next to John McDonald with Truist Securities. Your line is open.

Hi, good morning. I wanted to ask as a first question, just a follow-up to Steve's NII questioning, Alistair, Is the deposit growth in the model that you've laid out the year being used to pay down more expensive funding? You've talked about the ability to kind of self-fund balance sheet growth. And then also, is there any sense of the yield pickup you get on the swap, roll-off, and replacement that you could give us, you know, kind of ballpark on?

John, before Alistair starts, I welcome back from the cold to be able to be back in coverage in the covering our company, and it's always good to know that you're going to consistently ask about NII, but I'll turn it to Alistair to give you the answer. Thanks, Brian. You've got to be typecast.

There you go. So I think your first question was, if we get the deposit growth we anticipate, do we think we'll use some of that to pay off some of the higher-cost liabilities on the balance sheet? The answer is yes. That's consistent with what we said in prior calls. We've done that. If you look at the other – institutional CDs. You'll see they came down by another $7 billion this quarter. So as we grow the really high quality parts of the deposit franchise, it allows us to take those down. And that's one of the things that's going to help grow net interest yield on an ongoing basis. It's not NII accretive necessarily, but it helps us with net interest yield. So that remains a part of the strategy, John. You'll see that continue. As it relates to the cash flow swaps and how those reprice No, we typically don't lay out the table of what we've got on and how it reprices over time, but it is embedded in our guidance. So each quarter when I give you guidance for the next quarter, that will incorporate what we know is coming off on the cash flow swaps and how that does. The other fixed rate assets you can kind of see in our supplemental information just based on the originations of resi mortgage, the originations of auto loans, and every time obviously we're booking new residential mortgage loans and old residential mortgages coming off, we're picking up 250 basis points every time there. So you can see that happening each time you pick up the supplemental. We just don't tend to disclose the cash flow swaps. So I will do that for you each quarter as we go through the year.

Okay. And then just to switch topics so Brian doesn't make fun of me. That's all right, John. Just kidding. Now, in terms of capital... How are you thinking about the CET1 target and the buffer that feels appropriate in this environment, and how does that play into your thinking on buybacks? So I think we bought $3.5 billion this quarter.

We'd expect to continue to step back to the highest levels. We're in the money. We pay the dividend. We invest in the growth of the business, and then we use the rest of buyback stock. That was $3.5 billion in the past couple quarters, so at this earnings rate, that seems – level that makes sense. We're 11-9. We think that at a 10-7 requirement, a buffer of 50, that's 11-2. Obviously, there's going to be some sort of changes in the capital rules, and we'll have to settle it after we see that. And we hope some relief in the volatility of the CCAR outcomes, because remember that last year we jumped quite a bit without a lot of correlation to the actual risk of the company and stuff, so hopefully we'll see that settle back in.

Does that leave you towards a mid-teens ROTC target, Brian, as NIM normalizes and capital normalizes?

Yeah, I think the capital normalization will be more sort of holding that capital growth through it, not have to retain more capital for growth, frankly, if there's math that helps us favor it. But the NIM is probably more critical to move. you know, the yield from, you know, sub two this quarter, 2% this quarter to 210 plus at the end of the fourth quarter. And then moving from there, you know, that, as you know, is all that flows the bottom lines will continue to drive the ROTC back up as if you look back in the areas where there was any fronting, Fed funds was, you know, 2%. You know, we were running, you A couple hundred basis points more. It's the huge zero-interest deposit base, especially in consumer and low-interest deposit base, that provides a lot of leverage. So that will be a driver. The capital return would help some, but I think that will be more complex based on all the different rules and what happens. Got it. Thank you.

We'll take our next question from Glenn Score with Evercore. Your line is open.

Hi. Thanks very much. I have a relative question on trading. I know how impossible it is to predict really the environments, but you took share in investment banking, and you've invested and gotten benefits from that. You have invested in trading, so maybe it's a weird question because you just put up record revenues in SIC and equities, as you mentioned, but when we see good environments like this, some companies tend to really blow out numbers. You guys have zero loss days, you don't tend to blow, blow out numbers. Is that a comment about gaps in the business mix that you'd like to invest more and fill in? Is that a comment about risk tolerance? I'm just curious how to think about it on a relative basis.

You know, I think you have to back up. If Jim DeMar and the team are driving the business, 11 straight quarters of year-over-year growth, frankly, I'm not sure any other company comes close to matching that. So other people have more volatile up and down in their prospecting. But over the course of time, we just want this to keep walking up the ladder. And they've done a great job of doing that, continuing to drive the business. In fact, if you look at year-over-year comparisons, because your point was obviously something we asked ourselves when we looked at the last 48 hours here, 24 hours, basically a lot of people in the same range as opposed to fourth quarter where some people's last year's fourth quarter was down a lot from the prior years. Ours was more stable. And I think last year's fourth quarter was one of the highest fourth quarters we ever had. And then we put another 10% plus growth on top of it. So think of us as being that business that just is imperturbable. It just keeps calmly growing forward and driving itself up without having maybe some of that more traditional trading house up and down. not because we're not good at it, they're very good at it, not because they aren't getting shared, because frankly, if you look at the last three or four years, they continue to get shared. It's just we have a little less volatility and principal activity on a given day.

Okay, I appreciate that. This might be a simple follow-up, but on your comments when talking about credit and reserves, your reserve for unemployment a little below 5%, we're at 4.1% now. I think that's the way this cycle has played out, I think that's typical B of A conservatism. I think that's the accounting. But I guess my question is, your reserves will be fine, your P&L will be fine, but if that plays out, does that completely change how we're thinking about the pickup in consumer spending, overall loan growth, things like that? Because that is, we're talking about just the next four quarters.

Yeah. This is where you got, Glenn, you got to kind of get away from reserve setting methodologies versus what we really believe is from our research team and your research team, your economics research team would tell you. Our core assumption is the GDP grows in the low twos this year. The unemployment stays between 4.1 and I think maybe gets up to 4.3 or something like that. So this is literally a weighting of a base case which would match that in an adverse case and some other cases just in the way we build methodologies for the reserves because you're reserving for uncertain future and that's how it has it. So don't take it as a is a thought that we really believe we're going to see 4.8% unemployment in the next four quarters. And so, hopefully that answers it.

That's all I wanted to get at. I appreciate that. Yeah, thanks. I'm good.

We'll move next to Erica Najarian with UBS. Your line is open. Yes, hi.

Good afternoon. About to be good afternoon. My first question, just as a follow-up, Brian, I think I heard you say in response to John's question that you think the exit rate net interest margin will be 2.1%. I think in 4Q25, I just wanted to confirm that I heard that correctly. And underneath that, Alistair, could you talk about the repricing or down deposit beta dynamics that you would assume to get to that net interest margin?

Yes. So the simple answer is you stated what I stated to John, but I'll let Alistair answer the second part of the question.

So generally, Erica, we're obviously following the Fed rate cuts, just repricing things accordingly. There are, I think, two things going on right now that are interesting. The first one is, generally speaking, in the commercial businesses with the higher-end deposits, we're typically following the rate cuts and just going down 25 basis points. Obviously, at the other extreme, on the non-interest-bearing, there's nothing we can do with that. It's already non-interest-bearing. But we're following the Fed cuts. We're moving the rates with discipline accordingly. And then the second thing that's going on is there was some rotation going on over the course of the past two years where there have been a lot of things going from non-interest bearing into interest bearing across the different parts of our businesses. That has slowed significantly. So you look at, for example, consumer non-interest bearing. That seems to have bottomed out in February of last year. And the non-interest-bearing balances are growing now again. So that rotation is slowing also. Both of those things are factoring into our guidance.

So, Eric, if you look at the interesting part that's gone on in the last couple quarters, just from a deposit behavior, if you look at our accounts that were here prior to the pandemic to now, you saw a run-up, and then you saw a little depletion, and it's basically stabilized at a level – But if you look at it in the aggregate, all the depletion is actually driven by the highest balance accounts, like 250, 500 average balances, a million. And the others are still multiples of where they were before. That's been going on, and they've been growing, and they're growing 9% year over year in the lower balance accounts as people make more money and store more cash and have cash flow. So if you think about what happened is our average balance accounts, That was around 7,000, went up to 11,000, and now it's basically stable at 9,000 checking accounts. And that's kind of – and you can grow out from there. That is very valuable because, you know, checking is either zero or very low interest. And so it's where the growth we see coming as deposits grow in consumer that helps produce, irrespective of the market dynamics of the higher at the market price deposits, where you see the impact of the deposit franchise coming through. So – Consumer being down a basis point, quarter to quarter, doesn't sound like a lot, but you've got to remember a lot of their stuff doesn't really price. But are they growing that stuff? And $10 billion of growth in that area is very, very important to us.

Got it. That's very helpful. And just as a follow-up, both you and Alistair have, over the course of 2024, started introducing the concept of a normalized net interest margin of 2.3%. You know, with a neutral rate, you know, maybe around 4%, can B of A get there more quickly, particularly given the deposit dynamics that you mentioned, Brian? I guess I'm trying to, we're just trying to figure out, you know, you guys did introduce the concept of normalized NIM. So, you know, I'm not trying to seek out guidance in terms of 26 or 27 or whatever. But, you know, you had had to have told us that for a reason, right? And I'm just wondering if the forward curve or what the dynamics are, you know, that would lay out the path to achieve that, you know, over the medium term.

If the Fed funds rate, you know, stays higher, we'll get there faster. That's obvious because they share volume of low interest. So if we were sitting here in October, I think when we were talking about that, you know, the amount of rate cuts was still I don't know how many more. It's three or four more than we've had so far. Now we're down to one. So as it stays at a higher nominal rate, you'll see this adjustment come through. There are two caveats to that. One is we're carrying a larger markets balance sheet, which by definition is a little less robust in that area. And then secondly, we're carrying a lot of low – a lot of excess liquidity just because we're running that down, as Alistair said, during – during the pandemic, we built up a lot of term financing and running off. So all that will help us, but it will go faster than we'd otherwise say mid-last year to now just because the nominal rate environment stays higher.

Thank you. We'll take our next question from Mike Mayo with Wells Fargo Securities. Your line is open. Hi.

So you mentioned kind of upped your NII side the next several quarters. And, you know, this was the first question asked, you know, how much is short rates? How much is long rates? But most importantly, how much of this is a little bit more steepness in the yield curve? And what part of the yield curve is most important for that? And what's the sensitivity, you know, for every 10 basis points of additional steepness that adds how much to NII or something along those lines? Thanks.

So, Mike, it's still the short-term that drives probably 90% of the sensitivity around NII. Because if you think about it, we just don't have enough fixed-rate assets repricing to really drive NII. In any given quarter, you've got a few billion of resi mortgage, a few billion of CVL repricing. Let's call that 10 to 12. You've got, you know, 8 to 10 billion of ultimate maturity securities repricing. But that's in the context of a $3.3 trillion balance sheet. So it's still the short end that drives most of the NII. So when Brian says, obviously, we're helped by the fact that there might be two or three rate cuts less than there were previously, that's obviously helpful. But the big thing is always for us in terms of year-over-year growth, it's always about deposit growth and loan growth. The fixed rate asset repricing is, it turbocharges a little bit at the margin, but it's about deposit and loan growth and Those are the important ones. And getting back to growth now in each of our businesses gives us a stronger foundation leading into 2025 than we had this year when we still had, at the beginning of the year, consumer coming down, wealth coming down. Now that they've found a floor, it's slightly different.

Got it. And then a big picture question, Brian, with the new incoming administration and a different tone as it relates to bank regulation. In fact, the incoming Treasury Secretary said he would like to reinvigorate banks. So if you were to talk to them, and maybe they're listening, what would you like to see changed as it relates to bank regulation? And then a specific question, I know it's going to be tough. If you give me any sense, it'd be great. But your CET1 ratio, if you didn't have gold plating, if you had a level playing field, if you took out some of the the extraneous operating risk penalty, how much would your CET1 ratio increase in that sort of world? Thanks.

So, Mike, I think your second question brings up the places that our industry, our company, have been advocating heavily is that we've had a little bit of a situation from pre-pandemic to post-pandemic where you've seen capital requirement, required capital go up nominally, you know, 10, 15, 20 percent, and not a big change in the risk of the companies. And that's just all this mathematics behind all the counting, right? And so we're saying, whoa, whoa, wait, we aren't indexing the GSIB, so therefore, you know, our relative size economy isn't growing as fast as, you know, it was intended to be indexed on that basis isn't there. You've had, as you said, sort of an accretion of sort of methodologies that keep pulling more in, including the stress test volatility that we've all pointed out to them. And then the last point you make is if you look at this concept of Basel III making an equivalent around the world is completely off in a different world because we're using advanced excuse me, the rest of the world's using advanced. We're using standardized, gold-plated, whatever you want to talk about. It's just apples and oranges. And so, you know, I would never think that we'd go – if we ever got to Europe, our numbers would be probably, you know, a lot, lot higher, but that's not going to happen because just we're going to have – we as a society will have a more conservatively capitalized industry. So I think, you know, I think it's simply put, if they were to take into account our clear – statements, our clear advocacy about, as an industry, about index of G-SIB, you know, take the volatility out of C-CAR, how can it change so much in the relatively same scenario? And also, you know, behind the scenes, all the changes in accounting, not accounting, but accounting, you know, for risk, you're increasing capital requirements without an explicit decision to do so. And we think that that would be worth, you know, probably 100 basis points or so if you really sat back and thought about it. How do you get there? Mike, think about our volatility in CCAR outcomes. You know, I think we went, you know, from we went up by, I don't know, 50, 70 basis points last year, whatever it was. The risk in the company didn't change. As a matter of fact, it probably went down, honestly. And so, you know, that's what we're working on. So we want to see that. And then in the day-to-day supervision, you know, we just want to see people focused on safety and soundness and good management and making sure there's The regular agencies cooperate on things like BSA and AML and things that, you know, everybody's all over the place, and the industry's trying to sort it out in the middle. And we've given them precise points to look at, and we'll see what happens.

All right, great. Thank you.

We'll move next to Jim Mitchell with Seaport Global Securities. Your line is open.

Hey, good afternoon. Maybe just... Dialing in on the deposit growth, you clearly have been outperforming the peer group, but maybe just want to focus on consumer for a second. You generated 1.1 million of net new checking accounts, which seems best among peers. I think that's showing up in better consumer deposit growth in 4Q. So what do you think you're doing differently that's generating that kind of consistent success in adding new accounts?

Look, at the end of the day, Our brand is best received in terms of our scores. Our customer service capabilities are scoring at the highest they've ever come. The fairness of our account structures, the transparency, the digital capabilities, it's just winning in the market. In a billion net new checking accounts, and not 92%, whatever they are, are primary. They start with an average balance of $2,000 to $3,000. They move to $6,000, $7,000 over the course of six months. This is just... a great job done by Dean Athanasia and Aaron Levine and Holly O'Neill that run this business for us, just continue to drive it. Then on top of that, we've layered in ways with various business lines to help generate accounts. So our work we do with companies to offer our best products and services as a benefit to their employees helps us generate some extra growth. Our ability to do business around the college campuses, which is not huge for the For this quarter's growth, but because we're generating the amount of openings at twice the rate of young people exist in society for our customers, five years ago, five years later, the people are out working and they're great customers. So it's a whole bunch of things. But it's relentless and sustainable. And yet we still have lots of ways to grow. We just entered a lot of markets over the last five years, Denver, Cleveland, Columbus, Cincinnati, Indianapolis. Minneapolis, Milwaukee now, Lexington, et cetera. That's one way. And then if you think about in wealth management teammates and Katie Knox and Lindsay and Eric do a great job there, but we have a lot of room to go where we continue to outfit those clients for the full range of services of Bank of America. And even Merrill Edge has a lot going on there. So there's a fair amount of deposits that come from our Merrill Edge originations, which are 300,000 accounts year over year. And those are all $100,000 starting accounts, not 3,000.

Right. That all makes sense. And then maybe pivoting on the expense side, the guidance of 2% to 3% growth, it's kind of a pretty decent step down for what we saw in the back half of the year. So what areas do you see sort of slowing on the expense side, given Your optimism on organic growth, how do you kind of decelerate the expense growth in 25?

I think three key things. One is if we get the year-over-year growth in the markets-related businesses in the high double digits or 20% growth, that expense guidance might be a little tight. But again, you would cheer for that. So this is assuming a 5% to 6% growth in the S&P type of numbers. So that takes some of the growth pressure off. The aggregate numbers are locked in at a high level and growing from there. And then the second thing is, frankly, just getting a lot of this work behind us and some remediation and lookbacks and things are all completed and behind us. And then third is just keeping the head count and continuing to focus on OPEX and generating capabilities. As we stepped into some of these national brand campaigns around some of the major properties we've affiliated with, most recently yesterday, U.S. soccer, including men's and women's teams, FIFA, the Masters, these are all things we're paying by just driving other efficiencies. So from a company that for years has gone down in expenses, the idea of growing two, three is not that hard a concept, albeit the growth – in the back half of this year was a bit driven by the incentive explosion that happened because of the explosion of markets. You know, when they took off, our teammates did a great job of capturing revenue and incentives.

Okay. Yeah, no, that's fair. Thank you very much.

We'll move next to Vivek Juneja with J.P. Morgan. Your line is open.

Hi, I have two separate questions. First one with expenses. Just want to clarify to the last question, Brian, what you said. So what are you assuming for incentive comp in 25 in your guidance? Is it flat year on year? Are you assuming some increase? Any color on that?

It would grow with the markets and stuff, but we have other efficiencies that offset some of that growth.

Okay. Second one, I guess, you know, I can't leave you disappointed. Given you and Alistair love NII, so let me ask a little nitty question on that. Bisbee hedges, since those started to accrete this quarter, how much was the benefit this quarter? And what is the cadence of that as we look out over 25?

So we think about the Bisbee accreting back into the P&L kind of like the same way we do with the other cash flow swaps, Vivek. So I'd say a couple hundred this quarter. And then when we give you the guidance with all the cash flow swaps, it's all included in there. So when I say that we think this year Q1 should be up modestly, that is after the $250 million of day count adjustment. And it's including deposit growth, loan growth, and all the cash flow swap activities.

Okay, so that 200, a couple hundred million, that probably, given that it's a billion six to be recovered over a couple of years, that should continue at this pace all through 25 then, right? At least that particular item.

Yeah, it'll continue. Most of it will take place in 2025. It sort of burns back into the P&L. And then there'll be a little bit in 2026 and a tiny bit in 27.

And then, sorry if I may, another one. Brian, to your comment on capital, You said you want to keep a 50 basis point buffer. You're at CET 104.11.9, 50 basis point 11.2. Is there a plan to go down to the 11.2 at some point and therefore step up your buybacks, or what's the thinking there?

I wouldn't assume that we're going to take it down through buybacks in your modeling. It's going to be there to support growth. But Vivek, the simple answer is we've got to get a set of rules that quit moving around on us. And once we get them, then we can give you better guidance on that. Because it's just hard to estimate when you could have more access if they did what we as industry expect them to do. And then we'd have a different conversation. Right now, we'll probably grow part of that away through the good work of our team in terms of loan growth. And in the markets business, we continue to invest in that business. So don't expect us to deplete that ratio down quickly. But I'm holding my right to change that if we get the capital level straight out of the new rules.

Makes sense. Thanks.

Our next question comes from Matt O'Connor with Deutsche Bank. Your line is open.

Hi, thanks for taking my question here towards the end. Just if there was some relief on capital, are there areas that you would incrementally lean into? Obviously, without knowing all the rules, it's hard to know for sure, but just are there areas that you're like, you know, if we had that extra 100 basis clients or 50 or 150, you would do a little bit more in some areas than you have been?

None of our businesses are constrained because of capital. So if the consumer team had more credit card loan growth that was based on what they think the right risk balance is and getting paid for it, et cetera, that's gone on. He saw us just grow balances last quarter out of loans or whatever. And so I think I don't see that. Wealth management, obviously not much of a RWA user in a lot of ways. And then the real question is, is in a global banking business, again, they're getting strong loan growth. There's nothing that we're slowing them down. In the markets business, we continue to drive the capital up. Being the lowest return on equity business we have, we have to be a little careful that we don't do it. But Jim and the team have done a great job. And we've basically, their balance sheet's $300 billion larger than it was four or five years ago. And they've grown their, you know, we've grown through the GSIBs, as you know, from two and a half to three. And, you know, it will keep, probably growing through those, and now we use some. But it's not like we'd say you can't have it because of capital. It's really just running the company and keeping a balance in the overall management of the risk and where we want to take risk and how we do it. And then, frankly, they come up with business plans, and we've never had to say we don't have enough capital to do that. That's not the issue.

And I guess so – Depending on how the capital rules are tweaked, it could make some businesses just more profitable. Even though you have enough capital to put to those businesses, if the returns aren't making your hurdles, maybe it could with some tweaks. I've heard some of your peers talk about equity prime brokerage as one area that could have higher returns if capital requirements are reduced. Again, we don't know exactly how it's going to play out, but do you envision any kind of changes to how you evaluate businesses. Thank you.

Yeah, I think it won't change how we evaluate businesses because regulatory capital is only one of the ways we look at it. We look at the risk and sort of market-based capital and other things. But it could take the sort of, for lack of a better term, a little bit of the penalty to some of these businesses down some. But, you know, the But you also have to remember the ROA and the mix of businesses, and there's another side to this because we have 6% tangible common equity, and we've got to produce returns on that, and low ROA businesses affect that. So there are things that will favor it under regulatory capital but not favor it under sort of market-based disciplines. So we work through all that. I don't expect to see change in how we do it, but also don't think that any of our businesses are constrained because we're not. having capital, so if Jim and the team have a chance to go prime brokerage and make it work, in our company, we could have other businesses which have very high ROAs to make up for it, and some other companies, it'd be more important for them because they don't have those other businesses in relative size to the markets business.

Okay, thank you, Paul. Thank you, that was helpful.

We'll move next to Gerard Cassidy with RBC. Your line is open.

Hi, Brian. Hi, Alistair.

Hi, Jared.

Brian, hey, we've talked about this in the past and also with you, Alistair. Obviously, credit quality for you and your peers is very strong. And in view of the rate cycle we just came through where we went from zero to plus 5% at the short end of the curve and really never saw a surge in charge-offs due to rates going up that much, When you guys look at credit quality, is it due to better underwriting standards or sticking to your underwriting standards, or is it your customers themselves, because we all went through the pandemic, are just much stronger balance sheets, more resilient? What would you account for so far that this credit cycle has been fairly benign for you and your peers?

Yeah. Look, it's definitely been benign. I think... One thing that hasn't changed, our underwriting strategy, our standards, our risk appetite, our client selection, those really haven't changed, Gerard. But I think you're right. Look, things are obviously different than 2019. 2019, we didn't have this rate structure. So that's a little bit harder at the margin for the consumer. At the same time, the consumer is stronger. I mean, we can see that in the deposit balances. We can see it right now in the The consumer spending in the 3% to 4% range, we can see it in the balances being elevated over five years ago. We can see it in the unemployment level, the income level, home prices, wealth effects. So look, 2019 was freakishly low in terms of like a historical norm. But things have settled in here. We sort of said a year ago we thought they would plateau right around where we are. We're glad to see three or four quarters now of some stability. It feels pretty good on the consumer side. It feels very good still on the commercial side. So that's why we're sort of laying out our expectation is unless there's a big change in the economy, we think we're going to be around in this 50 to 60 basis points over the course of the next year or so.

Very good. And then as a follow-up, you know, I share your optimism on the outlook for the economy and many of your peers in the capital markets business. I think many investors do. What are the risks? I mean, when you guys sit down at night and everything's going well, what do you talk about as what curveballs do we have to watch out for? Is it a rate environment that changes quickly without anybody really expecting it? Is it complacency? What are some of the risks that you guys think about?

Well, you have wars and hopefully a resolution of one that's just happening as we speak, but We have wars, you have trade wars, et cetera, that bothers. You have the availability of resource around the world, whether it's physical resource or human resource to do work. There's shortages of that because unemployment rates in a lot of countries are pretty low, and so can you get the productivity to keep growing the economy? You know, all the usual things. But if you think about it, Gerard, just to be clear, we've seen a 15-year run you know, from after the pandemic, excuse me, after the financial crisis, you know, global financial crisis or more, your run where you've seen constantly improving, you know, credit statistics that then interrupted in the pandemic a little bit and then because of the stimulus dropped down again and now it's back to normal, but that's a long-term trend. So it's not complacency, it's just that, you know, how much leverage is building up in the system that there'll be difficulties with either at the household level, at the corporate, at the company level, And then, you know, a lot of it's outside the banking system. So we worry about that and how it reverberates into the banking system because just leverage that exists out there that higher levels than we traditionally have given in the banking system still will affect us because that means if people can't carry it, there will be restructurings of companies and bankruptcies and things like that, which are going on today, but they're going on a level which is very manageable. So we worry about all those things and, you know, the federal debt levels and the pinch that will come out of state and federal spending if they need to slow down the growth. All those things are factors which we think about. And the way we manage the company is to run it so that given those events, we can continue to operate. And that's why the stress testing, quite frankly, is a good thing, because it makes you think about the parade of horribles happening, even though they don't happen, and make sure that you are positioned to survive them. And if you said to the question Alistair answered, one of the big impacts across time here in the banking industry is because the top 30 institutions are doing stress testing, which assumes that you're wrong in your underwriting, and the economy goes from 4% unemployment to 10% unemployment overnight. Think about the impact of that on bringing the underwriting narrower so that you can afford the capital that you have to hold for that outcome, even though that outcome hasn't occurred. That's going across a big portion of the banking industry. So I just think it's more fundamentally structured, but leverage is going to be the issue. It always is. And you're always trying to find the P. Where's the excess leverage and how do you make sure you're avoiding it?

No, that's very helpful. Thank you. And, Alistair, I liked your comment about when you were talking about the 17 financial centers that you're a growth company. Hopefully that will be reflected in the PE shortly.

Well, there's plenty of room on the PE multiple, but I'll let you work on that, Gerard. We'll work on the E part.

Okay, fair enough. Thank you, gentlemen. Thank you.

And we'll take our final question from Betsy Gracek with Morgan Stanley. Your line is open.

Hi, good afternoon. Thanks so much for taking my question. So, Brian, here's the question. You know, small business optimism is up, and you've got a flat curve at the front end, and so I'm kind of wondering how that feeds into C&I demand. And I'm wondering what your conversations with not only small business, mid-business, corporates, it'd be really interesting to hear how you think they're preparing for this change. Thank you.

Sure, Betsy. So small business, small, medium-sized businesses, so in our business banking category, we have small business, business bank, and we have global commercial bank, you think middle market. Across that environment, The draw rates and lines of credit stuff are still much lower than they were in a pre-pandemic and things like that. And to your point, the higher interest rate environment affects them most quickly and importantly because they use lines of credit to do things, buy a piece of equipment, hire some more people, win the payroll dynamics of that, whatever it is. And they might permanently finance that, but immediately they use lines. And the draw rates, you have 400 basis points over where it normally runs, so to speak, which means that they're drawing at less rate, and that probably means they're doing a little less. And so we haven't seen that move a lot. That's a to-come in terms of loan growth, as Alistair mentioned earlier. But their optimism has changed, and you saw that. And that's really around the other things. When you talk to our small business customers, and we made these points to – people in Washington is the regulation, the impact, it's hard to do business, hard to get things done, the rules coming out. They don't have the big staffs that we do and other companies do that can deal with all that, and so it all confuses, slows them down, and makes them hesitate. Their belief is that that's changed, and that's why you see the optimism come up, and then we've got to translate that optimism into activity, and then you'll see the long growth come. But I think... It's a quick change, and it's based on their view of how easy it will be for them to get things done, both at a state and federal level.

Yeah, I'm just looking at you. Bank of America is one of the few that actually has small business loan growth year on year, and I know a lot of that came a couple quarters ago. But with this very sharp increase in small business optimism, I would think that could potentially be something you could benefit from.

No question. But the real dollar volume of benefit is going to be – the small business loans, I think, have been growing quarter after quarter, year over year for a good chunk of time now. And we feel good about that. But the dollar volume change in the middle market business from a little more drawing on the lines consistent with what people have done before – is a lot of loan balances. There's $200 billion of balances in that business, so it doesn't take a lot to kick it up.

Right, I got that, yeah.

So I think, look, we're the largest lender to small business, and those customers tell us they're optimistic and they see forward. And the issues were I couldn't get enough people, and that's something we've got to be careful of. The regulations were hurting me, and then the interest rates. And the interest rates coming down a little bit helps them, and the other two, the strong belief is that'll be more readily available.

Thanks so much. Appreciate it.

And it does appear that there are no further questions at this time. I would now like to turn it back to Brian for any additional or closing remarks.

Sure. Well, thanks, everyone, for joining us today. We finished 2024 with good momentum as we enter 2025. The economy is resilient and healthy. The consumers continue to spend at a solid and healthy rate. The employment levels are strong. The asset quality we can see is very good. Our loans have now grown for several quarters in a row here. The pods have grown for six straight quarters. The rate environment continues to be constructive. And then the added value in the last couple quarters of the fee businesses have come on strong given the extra market activity. All that sets us up well for 2025. Thank you for your support. We look forward to talking to you next time.

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful afternoon.