Earnings Call Transcript
BANK OF AMERICA CORP /DE/ (BAC)
Earnings Call Transcript - BAC Q1 2025
Operator, Operator
Good day, everyone, and welcome to today's Bank of America Q1 Earnings Results. At this time, all participants are in a listen-only mode. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Lee McIntyre.
Lee McIntyre, Executive
Good morning. Thank you. Thank you for joining the call to review our first quarter results. Our earnings release documents are available on the Investor Relations section of the bankofamerica.com website. Those documents include the earnings presentation that we will reference during the call. First, our CEO, Brian Moynihan, will make some opening comments before Alastair Borthwick, our CFO, discusses the details of the quarter. Let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials as well as our SEC filings available on the website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials on the website. With that, Brian, let's get started.
Brian Moynihan, CEO
Thank you, Lee, and thank all of you for joining us. Given the recent events, we want to do a couple of things today. First, we want to provide a clear picture of how well the fundamentals of the company performed to produce another good quarter of earnings in the first quarter of 2025. I will walk through a few highlights, and then I will turn it over to Alastair for details on the quarter and some forward guidance. Additionally, given the market volatility and concerns of potential changes in the economy and its outlook, I will provide some facts to set the context about the quality of our credit portfolios, capital, and liquidity as we may face periods of economic change, comparing it to how we fared in past periods of economic stress. So let’s get going on slide two of the discussion. This morning, Bank of America reported $7.4 billion in net income and $0.90 in EPS for the first quarter of 2025. That’s a solid start to 2025, and great work by our teams. On a year-over-year basis, we grew revenue by 6%. Grew net income by 11%, and we grew earnings per share by 18%. We delivered more capital back to shareholders and reduced shares in the aggregate by 3%. We produced an 89 basis points return on assets and a 14% return on tangible common equity in the first quarter. Let me highlight a few key drivers of that performance. Net interest income grew 3% year-over-year and is up from quarter four to the high end of our guidance range we provided three months ago. We grew deposits for the seventh straight quarter; they reached nearly $2 trillion at quarter end and have now grown 8% from their low point in mid-2023. We grew commercial loans in nearly every line of business; this is the second quarter in a row they’ve grown across the board. Holly O'Neil and our consumer team marked the twenty-fifth straight quarter of net new checking account growth. We saw annual flows to our consumer investments business of $22 billion over the last twelve months. Our wealth management businesses, led by Eric and Lindsay and Katie Knox in the private bank, added 7,200 net new households this quarter and saw net AUM flows of $24 billion. Jim Demar and the team recorded twelve consecutive quarters of year-over-year sales and trading revenue growth, achieving a 16% return on allocated capital. We generated these results from a strong balance sheet, with over $200 billion in regulatory capital and nearly $1 trillion in liquidity. This allows us to provide strong support and solutions for our clients. Turning to slide three. One of the keys to our earnings improvement has been our ability to consistently drive organic growth. Organic growth remains strong across the businesses as highlighted on Slide three. I won’t go through all the statistics on this slide, but as you can see, net new checking accounts, new households, new commercial banking clients, and growth in our institutional markets have continued. Clients see the value of our capabilities and connected businesses. Our digital engagement and sales continue to expand across all our business segments. We witnessed over 14 billion logins in 2024. Erika has surpassed 2.7 billion interactions since its inception. Our CashPro app for commercial customers experienced strong adoption and usage rates, as you can see. Transactions sent through Zelle at Bank of America not only exceeded the number of checks written by our customers, but also are 1.3 times the number of checks written, plus the number of cash transactions taking money out of ATMs. Additionally, digitally-enabled sales in our consumer product business have reached 65% of total sales. You can see these digital trends on the slides we present each quarter in the appendix and we commend those to you. As you look to slide four, we highlight some current spending data from our Bank of America consumers. There’s a lot of potential change on the horizon given uncertainty around tariffs and other policies impacting the future trajectory of the economy. We want to relay to you those facts that we think provide important context. Our research team, led by Candice Browning, does not currently believe we will see a recession in 2025. However, they have lowered their GDP growth rate forecasts for 2025 and continue to project no rate cuts during that year, although as inflation comes under control, cuts may be seen in 2026. Our customer data indicates that spending across all our consumer methods—debit, credit cards, ACH, checks written, Zelle, etc.—has seen an approximately 4.4% growth rate in the first quarter of 2025 compared to the first quarter of 2024. Looking at the data year-over-year, consumer spending consistently grew, although it did experience some modest slowdowns last year, especially in summer, before picking back up in the fall. This resulted in a 4% growth rate in the fourth quarter of 2024 compared to the fourth quarter of 2023, a rate that has continued into early April. Some retailers report slower sales while others are faring better, but in the aggregate, consumer spending remains strong. Our business clients remain profitable and liquid, reporting strong results despite the environmental uncertainties they face. We're continuing to monitor any signs of changes. In summary, for Bank of America in the first quarter of 2025, we had a strong quarter, good organic client activity, revenue and earnings growth, and continued investment in future growth while managing risk effectively. That drove healthy returns for our shareholders as we increased capital returned to them. I will now turn it over to Alastair to guide you through the quarter’s financials.
Alastair Borthwick, CFO
Thank you, Brian. I will start on Slide five of the earnings presentation to provide more context on the quarter. As Brian noted, we generated $7.4 billion in net income, or $0.90 per diluted share, this quarter, representing good growth over both last quarter and the same period last year. On slide six, we note some highlights of the quarter. Revenue of $27.5 billion on an FTE basis grew 6% from the first quarter of '24. Most revenue items showed improvement year-over-year. Net interest income grew 3%. Investment and brokerage fees rose 15%, with both assets under management flows and market levels contributing nicely to this growth. This quarter's $5.6 billion in sales and trading revenue grew 9% compared to the year-ago period. Service charges increased by 8%, particularly in our global payment solutions revenue. Card income improved 4%, mainly driven by gains associated with leveraged finance positions, resulting in an increase in other income this quarter. Non-interest expense was $17.8 billion, up from the fourth quarter, driven by seasonally elevated payroll taxes and market revenue-related costs. Litigation costs were also higher due to a recent decision in a long-running matter. Good operating leverage was achieved this quarter, with revenue growing 300 basis points faster than expenses compared to Q1 2024. Provision expense for the quarter was $1.5 billion, and asset quality remained in excellent shape. Preferred dividends amounted to $125 million less than in the first quarter of 2024, as we redeemed some preferred shares over the past year, while using excess capital to reduce our outstanding shares by 4% compared to the first quarter of last year. All these factors contributed to an 18% improvement in EPS year-over-year. Now let’s move to the balance sheet on Slide seven. You can see assets ended the quarter at $3.35 trillion, an increase of $88 billion from the fourth quarter, driven by higher levels of client activity in global markets. Additionally, loans grew by $15 billion this quarter, supported by deposit growth of $24 billion as deposits exceeded loan growth, allowing us to add to our liquidity. Long-term debt rose by $21 billion, reflecting funding needs to support the growth in client assets. Average global excess liquidity stood at $942 billion, remaining strong and up year-over-year. Shareholders’ equity was flat compared to the fourth quarter, around $296 billion. Within that, we returned $6.5 billion of capital back to shareholders, distributing $2 billion in common dividends and repurchasing $4.5 billion in shares. Year-over-year equity is up $2 billion, with a $10 billion increase in common equity partially offset by a 28% reduction in preferred stock. Tangible book value per share increased to $27.12, reflecting a 9% rise from the first quarter of 2024. Moving to regulatory capital on Slide eight, our CET1 level increased to $201 billion, corresponding to a CET1 ratio of 11.8%. This is down 11 basis points and remains well above our 10.7% requirement. Our capital deployment included increased share repurchases this quarter, more allocated to our Global Markets business, and growth in both consumer and commercial loans. Notably, we acquired an $8 billion residential loan portfolio that is of high quality, allowing us to expand relationships with customers beyond mortgage loans, with expected NII contributions exceeding $100 million annually. The supplemental leverage ratio stood at 5.7%, comfortably above the minimum requirement of 5%, ensuring capacity for balance sheet growth. Our total loss-absorbing capital of $468 billion maintains our TLAC ratio well above requirements. On Slide nine, we reported a seventh consecutive quarter of average deposit growth, nearing $2 trillion on an ending basis. Commonly, we see some downward pressure on deposits from Q4 to Q1 as commercial clients utilize their cash to pay bonuses and taxes. However, this year, we observed that commercial deposits remained stable as clients maintained high liquidity. We also maintained discipline on pricing while passing through short rate declines, resulting in a 24 basis point drop in rates paid in global banking. Consumer banking rates experienced a slight decline of three basis points. Overall, rate paid decreased to 179 basis points this quarter from 194 basis points in Q4, showing declines across all business segments. Moving to Slide ten, which focuses on loan performance, average balances for loans in Q1 were $1.09 trillion, reflecting a 4% year-over-year improvement driven by 7% growth in commercial loans. Excluding commercial real estate, year-over-year growth was 9%. We've noted a modest increase in revolver utilization as clients navigate the current environment, while consumer loans grew modestly year-over-year. The $8 billion of residential loans we purchased will begin impacting average balances moving forward. Let's turn our focus to NII performance on Slide eleven. On a GAAP non-FTE basis, NII in Q1 was $14.4 billion. On a fully taxable equivalent basis, NII was $14.6 billion, reflecting a 3% increase from the first quarter of last year. We finished at the higher end of our expected range. NII grew $75 million on a fully taxable equivalent basis over Q4, despite incurring approximately $250 million in headwinds from two fewer days of interest accrual. The improvement was driven by global markets activity alongside deposit favorability and loan growth, with fixed-rate asset repricing also benefiting NII. Regarding interest rate sensitivity, under a dynamic deposit basis, we provide a twelve-month change in NII for an instantaneous shift in the curve. If interest rates were to drop instantly by 100 basis points more than our forecasts, NII would decrease over the next twelve months by $2.2 billion; conversely, an increase of 100 basis points would benefit NII by roughly $1 billion. Looking ahead for NII, considering the announced tariffs, we've observed expectations for more cuts in interest rates, which increases variability in market expectations for economic growth. Reflecting on Q4 expectations, we previously projected an exit NII range of $15.5 billion to $15.7 billion on a fully taxable equivalent basis, including acceleration of NII growth in the latter half of the year. While the interest rate landscape has changed slightly, our expectations for the exit rate of NII in Q4 remain unchanged. Using the first quarter of 2025 as the basis, the waterfall illustration provides insight into our assumptions leading to the Q4 2025 exit rate. We are assuming an addition of two extra days of interest in the next few quarters, while fixed-rate asset repricing will enhance NII, focusing on three primary areas: securities, mortgage loans, and cash flow hedges. Securities paydowns are typically around $8 to $9 billion each quarter. Mortgage loans average $4 to $5 billion each quarter, with each gaining approximately 200 basis points upon replacement. Cash flow swap repricing benefits will materialize more gradually than their roll down, contributing to the rest of the benefit this year. We assume the early April interest rate curve reflects four cuts later in the year, which may negatively impact our NII growth expectations in the short term, but should improve as funding costs adapt. We’ve also observed modestly better deposit growth in Q1 than anticipated; meanwhile, our liability-sensitive global market will likely benefit NII as the year progresses. Overall, our fourth quarter exit rate expectation for NII remains unchanged at $15.5 billion to $15.7 billion, signaling strong full-year NII improvement of 6% to 7%. Let's now transition to expenses, using Slide thirteen to discuss. We reported expenses of nearly $17.8 billion in this quarter, accounting for roughly $500 million in seasonal elevation from payroll tax and increased revenue-related costs, as well as higher litigation expenses driven by a recent decision in a prolonged matter. Compared to Q1 2024, expenses rose approximately 3%, in line with our full-year growth expectations. The increase reflects costs associated with higher sales and trading and wealth management fees, as well as investments in augmenting sales associates, technology, and marketing costs. Moving to Slide fourteen, we see that our asset quality remains sound. Net charge-offs were $1.45 billion, slightly down compared to Q4 and making this the fifth consecutive quarter net charge-offs have hovered around this level. The net charge-off ratio in this quarter was 54 basis points, flat with Q4. Q1 provision expense mirrored net charge-offs, totaling $1.5 billion. Consumer net charge-offs amounted to $1.1 billion, consistent with previous quarters, with 90% attributed to credit cards, underscoring our prudent underwriting in that area. On the commercial side, we noted losses of $333 million, modestly down from Q4. We do not anticipate significant changes in net charge-offs near term, as early and late-stage delinquencies show improvement from the fourth quarter. Moving to Slide sixteen, we will start discussing the various lines of business. In Consumer Banking, we continue to deliver strong organic growth driven by our high-tech and high-touch capabilities as well as a focus on convenience and security. In terms of shareholder returns, this business is increasingly benefiting from its high-quality deposit book, with rates paid standing at just 61 basis points on nearly $950 billion in deposits. In Q1, Consumer Banking generated $10.5 billion in revenue and $2.5 billion in net income. Revenue grew by 3% compared to the first quarter of 2024, fueled by NII growth complemented by fee improvements within cards and service charges. Expenses increased by 6% as we continued business investments while handling elevated compliance costs. As noted by Brian, organic growth saw nearly 250,000 net new checking accounts this quarter, alongside sustained periods of card openings and robust investment account growth. Investment balances grew by 9%, reaching $498 billion, with full-year flows at $22 billion reflecting market improvement. Consumer banking deposits have continued to rise from their August lows, growing from $928 billion to $972 billion on an ending basis. On average, deposits saw a $5.2 billion increase from Q4 to $948 billion, while the rate paid decreased to 61 basis points. On Slide twenty-six, we also note that digital adoption and engagement have improved, with customer experience scores attaining record levels, illustrating appreciation for the enhanced capabilities we have invested in. Moving to wealth management on Slide seventeen, this business has had another strong quarter, with an increase in banking product usage among our investing clients, showcasing the diversification of revenue. The number of clients using banking products continues to grow and is nearing two-thirds of our client base. Notably, about 30% of our revenue remains in net interest income, which complements fees earned in our advice-driven model. In Q1, we reported revenues of $6 billion, growing by 8% compared to prior-year figures, primarily driven by a 15% rise in asset management fees. Expense growth of 9% reflects the increase in fee expenses and ongoing investments in technology and experienced advisor recruitment for Merrill and the private bank. We experienced a 6% year-over-year increase in average loans driven by growth in custom lending, securities-based lending, and increased mortgage activity. Profits remained relatively stable compared to Q4, and we maintained pricing discipline resulting in a 25 basis point reduction in rates paid. Both Merrill and the private bank continue to see organic growth, generating strong assets under management flows of $79 billion over the past twelve months, reflecting a positive mix of new client funds and existing clients reinvesting. I also want to highlight the continued digital momentum displayed on Slide twenty-eight, as the proportion of new accounts opened digitally remains high. Next, on Slide eighteen, we focus on the Global Banking results, displaying the loan and deposit growth generated by the team. In the first quarter, Global Banking delivered earnings of $1.9 billion, slightly decreased from the year-ago quarter due to lower credit costs stemming from commercial real estate loan losses, which were outweighed by increased expenses linked to business investments. Revenue stood at $6 billion, remaining flat year-over-year as lower NII was balanced by approximately $230 million in higher income related to leveraged finance positions and increased treasury services revenue. Firm-wide investment banking fees were $1.5 billion in Q1, consistent with last year's first quarter. We maintained our position as the third-largest investment banking fee earners and have a healthy pipeline. However, our clients are awaiting more clarity on trade policy and the regulatory environment before making commitments on deals. Expenses rose 6% year-over-year due to ongoing investments in technology and operational support for clients. On our balance sheet, client activity has been encouraging, with increased commercial loan growth offset by declines in commercial real estate loans. Total average Global Banking deposits saw a 9% year-over-year increase, reflecting strength across all categories from larger corporate clients to business banking for smaller enterprises. Switching to Slide nineteen, I will focus on results outside DVA as we often do. As Brian mentioned, we have maintained strong revenue and earnings performance, achieved operating leverage, and continued to generate good returns on capital. In Q1, we earned $1.9 billion, representing an 8% year-over-year increase. Revenue, excluding DVA, improved 10% from Q1 '24 due to favorable sales and trading results alongside $230 million of other income from leveraged finance—a similar trend to Global Banking. Focusing on sales and trading ex-DVA, revenue climbed by 9% year-over-year, reaching $5.6 billion. Equities drove the quarter forward with a 17% increase, while FIC grew by 5%, both benefiting from heightened client activity amidst the market volatility and our investment initiatives. Other income demonstrated improvement, with a loss of $4 million in Q1. The contributors to the year-over-year enhancements in expenses and net income were the absence of the first quarter’s FDIC special assessment from 2024. Our effective tax rate for the quarter was 9%, reflecting the discrete impact of share-based compensation awards, which is still below our typical corporate tax rate due to tax credits related to renewable energy investments and affordable housing. Looking ahead, as stated last quarter, we anticipate our overall tax rate for 2025 to land between 11% and 13%, excluding any unusual items. So, let's conclude and refer to Slide twenty-one. In recent weeks, investors have shown concerns regarding the banking industry due to potential economic changes. In light of this, we have included the next few slides to illustrate the resiliency of our risk profile and balance sheet in whatever economic scenario we may encounter—three key takeaways. First, we have significantly improved our risk profile compared to prior periods of economic distress. Secondly, we have bolstered our balance sheet by adding billions in capital and liquidity. Third, after operating under responsible growth for fifteen years, our portfolio and balance sheet are well equipped to support our clients during various economic outcomes. On the left side of Slide twenty-one, you'll notice the shift in our loan portfolio towards a more balanced mix of commercial and consumer, as well as a more geographically diverse spread. Our high-quality commercial loan portfolio is now over 90% investment grade or collateralized, paired with a wider geographic distribution. The right side of the slide showcases improvements toward a more secured and collateralized consumer loan portfolio. The bottom right illustrates our nine-quarter stress loss ratios during CCAR examinations, displaying favorable comparisons to our peers throughout the past twelve years. CCAR provides an independent annual review assessing adverse impacts under severe economic scenarios, and looking at our latest results, the assumptions include a dip of 6% to 8% in real GDP, a rise in unemployment to 10%, and substantial shifts in inflation. It also expects housing prices to decline by 35%, short rates to drop to zero, and ten-year yields to reach 1%. Commercial real estate prices are projected to decline by 40%, while equity prices may drop by 50%, alongside notable weaknesses in international economies. This assessment is based on a static portfolio size without any management actions considered during stressful economic conditions; our current position remains robust compared to prior economic crises. I will now turn it back to Brian for final thoughts.
Brian Moynihan, CEO
Thanks, Alastair. On slide twenty-two, we highlight key balance sheet and asset quality statistics the company experienced during pivotal periods of economic disruption, comparing these to our current status. The left side of the columns shows our standing in the fourth quarter of 2009, following the financial crisis and after the acquisition of Merrill. The second column illustrates our status in Q4 2019, going into the pandemic, and the current data demonstrates our current strength. We possess a multifaceted loan book spanning types of clients, geographies, and various asset classes, positioning us favorably. Our consumer loans have dropped by over $200 billion, with home equity loans down more than $125 billion, and unsecured credit card loans reduced by over $60 billion. This reflects our focus on strengthening relationships rather than merely loan production while deepening our partnerships with the highest quality prime credit clients. Alastair, would you like to add anything?
Alastair Borthwick, CFO
Our equity has reached approximately $93 billion. At Bank of America, we remain confident about our balance sheet's strength. We are well-reserved for our portfolio and risk profile. On a weighted basis, including our model reserves, imprecision reserves, and judgmental reserves, we are positioned for an environment with a 6% unemployment rate. Currently, the reserve allocation on cards stands at 7.4%. This leads to a charge-off rate of approximately 4.4%. Moving to slide twenty-three, we will review statistics concerning our portfolios, particularly regarding our residential and second lien products, where we currently possess about $260 billion. The average FICO scores of our borrowers exceed 770, with average debt-to-income ratios of 35% for the residential mortgage product and 39% for the home equity product. Loan-to-values are also favorable, remaining below 50%. To provide context, during the financial crisis in early 2007, these exposures totaled more than $400 billion—with average FICO scores considerably lower and higher LTVs. We have effectively repositioned the portfolios over the years. As we progress through other consumer loan types, you can perceive the high quality of collateral and securities-based asset lending. Regarding consumer credit card lending, we hold approximately $100 billion in outstanding balances, with a current net charge-off ratio around 4%. Notably, the average FICO score among our borrowers is 777, with about 12% exposure to borrowers scoring below 660. This portfolio represents our only unsecured consumer exposure. Comparatively, during the financial crisis in Q4, we had $150 billion in credit card balances, equivalent to about 1.5 times our current level, and average FICO scores were lower, with much higher unused lines of credit. As we wrap up, this strong position enables us to better serve clients during times of stress, which may arise according to projections. Bank of America is prepared to support its clients, whether it's assisting a commercial partner in navigating the changing economy, aiding a wealthy client needing advice during turbulent phases, or offering cash access to consumers. Essentially, our operational approach has positioned us to stand strong in challenging times, as highlighted in these slides—demonstrating our company’s relative strength compared to peers. Thank you, and now we’ll transition into the Q&A segment.
Operator, Operator
We will begin the Q&A session. Our first question comes from Stephen Chubach with Wolfe Research. Your line is open.
Stephen Chubak, Analyst
Hi. Good morning, Brian. Good morning, Alistair. Thank you for taking my questions. I wanted to start with one on capital management. Certainly encouraging to see the acceleration in buybacks towards the $4.5 billion level. At the same time, you're still running with more than 100 basis points of cushion. I was hoping you could speak to, given the uncertainty in the environment, what level of CET1 you're currently comfortable running with in terms of the ratio, and whether this $4.5 billion buyback level is something we expect to sustain over the near to medium term.
Alastair Borthwick, CFO
So Steve, looking at what we achieved this quarter, take a look at slide eight in the earnings materials. This quarter, we earned $7 billion, which allowed us to boost the share buyback from $3.5 billion to $4.5 billion. We also invested more in RWAs in global markets as well as higher loan balances. While we are growing our loans organically, we also acquired a loan portfolio this quarter. This enables us to grow into our capital at present. We still have flexibility to potentially increase the share buyback going forward. Our priority for the moment is ensuring CET1 remains in a strong position while we continue to grow into our existing capital base. That is likely the best way to articulate it.
Stephen Chubak, Analyst
That's great color. For my follow-up, could you discuss the outlook for loan and deposit growth? You delivered better growth across both KPIs compared to peers. Could you elaborate on what drove this strength in Q1 beyond the portfolio purchase you mentioned earlier? And looking at the big picture, what’s your outlook for commercial loan growth given the concerns about tariffs and policy uncertainty possibly leading to weakening loan demand and weaker CapEx?
Brian Moynihan, CEO
Sure, Steve. Just to start on this point—over the past few years, we've invested in building out more commercial bankers globally, including in places like Switzerland, the UK, and the US. We've increased the number of commercial loan officers and enhanced support within our public commercial banking business. These investments are now bearing fruit, driving our performance ahead of our competitors in linked quarter loan growth. Looking ahead, given all the factors you outlined—like tariff changes and economic outlook—clients may draw back their activity in anticipation of tougher conditions. However, our improved capabilities have enhanced our efficiencies, utilizing AI and machine learning to better direct our calling efforts so as to onboard new clients. You’re seeing this start to manifest in the form of new client balances, as relationships we’ve built mature and renew after underwriting, particularly in the commercial business.
Stephen Chubak, Analyst
Thanks so much for taking my questions.
Operator, Operator
Next, we have John McDonald with Truist Securities. Your line is open.
John McDonald, Analyst
Thank you. Good morning, guys. Thanks for the long-term perspective on credit. I’d like to follow-up on the loan loss reserve. What were the dynamics of the reserve’s setting this quarter? Did you adjust the weighting of scenarios regarding tariffs, and was it determined based on a March 31 view or early April view?
Alastair Borthwick, CFO
So John, we assess everything thoroughly through to the close using a methodology we’ve undergone consistently. Our focus is always on data from March 31, allowing for any relevant adjustments thereafter. We utilize blue-chip economic indicators—i.e., consensus views—rather than proprietary ones. This ensures a more independent perspective on macro assumptions. The baseline this quarter shows a dip in GDP growth expectations and a slight uptick in inflation. Therefore, our weightings this quarter are unchanged from those in previous quarters. Ultimately, our model-derived figures, once layered with judgments at close, led us to reserve closer to a 6% unemployment rate in 2025-2026.
Brian Moynihan, CEO
John, a key point we’ve been analyzing relates to trends, especially since CECL and the pandemic period. The data shows that following periods of government intervention, stimulus, and inflation growth, we observed charge-off rates drop. Now we’re seeing them normalize to where we might have expected them, so comparisons are becoming meaningful versus historical averages.
John McDonald, Analyst
Thanks. That’s helpful. Could you also update us on your expense outlook? You had previously indicated a full-year expense increase of 2% to 3% relative to last year. Is that still your current expectation?
Alastair Borthwick, CFO
Yes, that's still our current outlook, John. We are looking at a full-year growth of 2% to 3%. Expenses might trend towards the higher end of that range based on our fee outlook for the year.
Operator, Operator
Next, we’ll take our question from Jim Mitchell with Seaport Global Securities. Your line is open.
Jim Mitchell, Analyst
Great. Good morning. Alastair, you're able to absorb four rate cuts this year and maintain that $4 billion NII target, which is encouraging. As we think about the full impact of the rate cuts, do you believe this could make achieving that intermediate-term target NIM of 2.3% by the end of next year more difficult, or is the timing of those cuts beneficial since they’re being announced now?
Alastair Borthwick, CFO
So, Jim, just to clarify, we are targeting a NIM of 2.3%. We remain confident over the next couple of years in reaching that objective. The four cuts included in our guidance for this year won't notably impact 2025's outcome, though they may pose challenges for 2026 if they materialize as anticipated.
Brian Moynihan, CEO
Exactly. There’s considerable time for interest rate dynamics to develop further before that period. While forecasts may change, our team’s focus and objectives remain consistently aimed at our targets. Also, regarding rate sensitivities, bear in mind these are instantaneous shifts. Various assets—both floating and fixed—will adjust in due course.
Jim Mitchell, Analyst
That makes sense. Switching gears, can you provide insights on recent market volatility? Are there indications of flight to safety flows, and has this volatility been beneficial or adverse?
Alastair Borthwick, CFO
We’ve observed significant increases in customer activity within global markets. Overall, the environment remains constructive, with no signs of the extreme volatility seen in past banking crises—so day-to-day deposit growth continues positively.
Brian Moynihan, CEO
To highlight something I mentioned earlier, consumer spending has maintained a strong pace, averaging around 5%. Caution is warranted when interpreting short weekly averages, especially with calendar variances like Easter. Overall, customers remain actively engaged in the market.
Operator, Operator
Next, we have Glenn Shore with Evercore. Your line is open.
Glenn Shore, Analyst
Hi, thanks very much. Another strong trading quarter, but I'm intrigued about your performance against top peer benchmarks. There's approximately a $3 billion gap to the largest platforms. Are these discrepancies gaps you're choosing to pursue? How do you view capital deployment, and is it a business strategy or an operational focus?
Brian Moynihan, CEO
This growth trajectory has been consistent over the last few years. We've made considerable investments to ensure steady, long-term growth, avoiding volatility. Over the years, we’ve built a larger capital structure. Our capacity remains robust and methodical as we climb higher, promoting growth without drastic fluctuations. The investment in systems acts as a competitive advantage and finding opportunities continues to drive our focus. We aim for sustained market share gains without overreaching.
Glenn Shore, Analyst
I appreciate your perspective. As I reflect on your reserving approach, I'd like to explore your view on sector risks, particularly pertaining to tariffs and economic uncertainty. Has the risk profile shifted with recent dynamics?
Brian Moynihan, CEO
The purpose of the extra disclosures we shared is to remind everyone that we’ve navigated uncertainties in the past, reassessing as scenarios evolve. We continuously monitor various potential triggers, and while many observers predict reduced growth, we must be ready for diverse economic outcomes based on underlying client performance.
Operator, Operator
Next, we’ll hear from Mike Mayo with Wells Fargo Securities. Your line is open.
Mike Mayo, Analyst
Hi, Brian. Listening to this call, I gathered it might have mirrored the fourth quarter earnings call with growing loans, rising deposits, and stable credit metrics. The stock market appears troubled, but your evaluation suggests confidence. What’s your analysis on this disparity?
Brian Moynihan, CEO
Mike, you are distinguishing between present realities and potential future concerns. Our aim is to communicate the strength we see in our operations, and as we analyze our environmental landscape, we maintain focus on current strengths while being conscious of the challenges ahead. Managing uncertainties while optimizing our current position is pivotal.
Mike Mayo, Analyst
On another note, you described how deregulation is intended to streamline operations. How are you envisioning this to benefit your clientele in terms of ease of doing business with Bank of America?
Brian Moynihan, CEO
The new administration is focused on alleviating the regulatory burden in two principal ways: reducing the scope of new regulations while also refining existing regulations. This aims for a more balanced regulatory environment, ensuring we operate efficiently while being well-capitalized to meet consumer and client needs. The potential deregulatory changes will enable us to provide better liquidity and access to customers in both stable and uncertain times.
Mike Mayo, Analyst
Following up on your $1.2 trillion in cash and government investments, how would those numbers ideally differ in a more balanced regulatory framework? What operational savings could potentially emerge?
Brian Moynihan, CEO
While the ideal adjustments may not translate to drastic variances, we could envision $150 billion being a reasonable estimate for improvement in our long-term debt posture if we were able to eliminate unnecessary capital due to overly stringent regulatory requirements. Essentially, we seek to focus on maintaining efficiency without imposing excessive compliance costs.
Operator, Operator
Next, we have Erika Najarian with UBS. Your line is open.
Erika Najarian, Analyst
Given the ongoing movements in the regulatory agenda, I’ve noticed your GSIB score suggests that, if no changes occur to your exposure this year, you could face a higher GCIB surcharge come January 2027. Based on your assessment, are your plans adjusting to lessen this exposure?
Alastair Borthwick, CFO
Erika, these fluctuations largely correlate with our markets business. While certain variables can drive the score, our objective is to maintain growth in a healthy manner. Although the G-SIB calculations appropriately reflect data from 2012, we believe it should be indexed to examine our relative contribution to the economy and industry. Should we achieve the desired returns from the markets business and expand clientele in a controlled manner, we can continue to grow with respect to G-SIB standards. However, it is necessary to capture current realities as past data doesn't reflect growth adequately.
Erika Najarian, Analyst
Regarding the net interest income outlook for the fourth quarter, your prior points seemed to indicate stability in both balance sheet and NIM levels. Can we retain those original forecasts?
Alastair Borthwick, CFO
Yes, you correctly captured that, Erika. We remain comfortable with our expectations.
Operator, Operator
Next, we have Matt O'Connor with Deutsche Bank. Your line is open.
Matt O'Connor, Analyst
Good morning. I want to follow-up on capital utilization and look closer at RWA growth in relation to the presented figures on Slide eight. You’ve stated there’s variability in one-quarter growth from soft year-end markets. Can you expand on how you’ll utilize capital as loan growth ramps up again while buybacks dictate your available incentives?
Brian Moynihan, CEO
Matt, you've essentially answered your own question regarding the loan growth potential from RWAs. The earnings potential from our revenue sources provides the pathway for adequate RWA growth while still enhancing loan volume and maintaining a robust capital expenditure balance.
Alastair Borthwick, CFO
As we maintain our capital-efficient growth strategy, capital investment continues to support businesses with adequate returns. Our reserve builds can also direct capital consumption to ensure productive deployment aligned with our long-term strategic goals.
Matt O'Connor, Analyst
On a different note, the All Other fee line typically showed a close to breakeven now. Was this due to lumpiness stemming from loan sale gains, or was it something else you saw in the marketplace this past quarter?
Alastair Borthwick, CFO
Indeed, you are mostly correct, though the timing of our tax credit activities largely influences outcomes here. We occasionally catch up in later quarters, and this could involve solar, wind, or housing projects as we expedite debit points over time. This quarter also registered gains from the leveraged finance position we liquidated, alongside settling long-term legal matters that further affected income adjustments.
Operator, Operator
Next, we’ll take our question from Betsy Gray with Morgan Stanley. Your line is open.
Betsy Graseck, Analyst
Good morning. I had two brief questions. Brian, earlier you mentioned that some of the commercial loan growth stemmed from increased investments, particularly internationally. With the backdrop of tariff considerations—do you view this investment growth as an opportunity, or do you see potential risks emerging from it?
Brian Moynihan, CEO
As we assess potential opportunities internationally, we do have established partnerships in multiple key markets—Japan, India, Australia, and throughout Europe. Our investments remain strong as we continue to assist multinational clients while addressing supply chain shifts due to market changes. Ongoing fluctuations will require our adaptation, yet operational flexibility allows us to maintain ahead of the curve.
Betsy Graseck, Analyst
Thanks for that insight. Second, could you elaborate on what small businesses are saying in this environment? Given your position as the foremost small business lender, understanding their investment perspectives amidst tariff concerns would be beneficial.
Brian Moynihan, CEO
Betsy, our small business clients are navigating through various policy changes, including tariffs and taxation matters. Consequently, they are considering how to approach investments in their operations. While they remain active in producing, worries linger on how these factors may influence their business trajectories and future growth opportunities. Their decisions are currently tempered by uncertainty; in the meantime, they are looking at reliable sectors to invest, like healthcare, which tend to be less susceptible to adverse impacts.
Operator, Operator
Next, we have Ken Houston with Autonomous Research. Your line is open.
Ken Usdin, Analyst
Good morning. I appreciate the interest income outlook slide presented. Could you clarify how much is rolling off each quarter within the HTM securities and mortgage loan books, and what are the expected benefits associated with that? As we look towards second-half cash flow hedges, what kinds of adjustments can we anticipate?
Alastair Borthwick, CFO
Ken, focusing on hold-to-maturity securities, we’ve noted a rolling average of $8 to $9 billion each quarter, with market conditions slightly affecting this figure. During these roll-offs, we’ve typically secured between 200 to 225 basis points. For mortgages, we see origins averaging $5 billion each quarter and noting similar returns in terms of basis. As we transfer to hedge cash flows, there will be incremental benefits as well, which we can discuss further as the year progresses.
Ken Usdin, Analyst
Optimally, as we observe ongoing deposits and their maintained cost reductions, how do you foresee continued contractions relative to overall funding costs?
Alastair Borthwick, CFO
We do not envisage a change in our overarching approach here. When it comes to commercial and wealth clients, we are eager to pass through rate reductions. Regarding the consumer base, given that a considerable segment remains in non-interest bearing deposits, our attention will be mainly directed at CDs and preferred deposits. This quarter saw some beneficial adjustments to rates, and we aim to continue this trend as needed.
Operator, Operator
We will conclude our Q&A session. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.