Investment banking saw a nice rebound this quarter. We delivered nearly $1.6 billion in investment banking fees and grew 35% from the first quarter 2023. Matthew Koder and the team have done a great job delivering market share growth. In addition, our results reflect the benefits of investments made in our middle market investment banking teams and dual coverage teams. Matthew has utilized [indiscernible] power wisely to grow our middle market team from 15 bankers in 2018 across a dozen cities, to more than 200 bankers in twice as many cities today. Both groups work with our commercial bankers and wealth management advisors in those cities to deliver for our clients. Investment and brokerage services revenue across Merrill and the private bank grew 11% year-over-year in quarter one to nearly $3.6 billion.

Continued investments in our advisor training programs and digital delivery for our clients as well as positive market helped us deliver strong revenue. Asset under management flows were $25 billion in the quarter. Sales and trading excluding DBA delivered its eighth consecutive quarter of year-over-year revenue improvement. At $5.2 billion, this is the highest first quarter result in over a decade. We have allocated more balance sheet invested in talent to build our [indiscernible] for the last five years in this business. Those investments plus the intensity of the teams under Jimmy DeMare’s leadership have resulted in good momentum and market share improvement. From a balance sheet perspective, we entered the quarter expecting modest moves in loan growth and a decline in deposits - those were our expectations.

What we actually delivered was growth in ending deposits of more than $20 billion. Ending loans were down modestly due to the expected credit card seasonality, otherwise loans were pretty stable. This balance sheet performance along with our continued pricing discipline allowed us to deliver better than expected NII performance. We told you last quarter that we expected NII to decline from the fourth quarter of 2023 to the first quarter of 2024, a decline of about $100 million to $200 million. We actually reported today NII of $14.2 billion - that was $100 million higher than quarter four, exceeding our guidance. We continue to deliver strong expense management. Year-over-year expenses adjusted for the FDIC assessment was up a little less than 2% - that compares to the 4%-plus inflation rate.

We also continued to invest in our company while managing those expenses. We had several categories with stronger fee-based revenue in the first quarter this year. This drove higher formulaic compensation and processing costs of the increased activity. Fees and commissions were up 10% year-over-year. We are happy to pay for that revenue and deliver more earnings to the bottom line because of it. How did we do all that and hold expenses under the inflation rate? Well, we remain focused on three primary drivers at Bank of America. First, our operational excellence platform continues to deliver and improve processes. These savings from that growth help fund the future growth in the company and lower the risk. Second, we managed headcount as we eliminated work.

Recall, we noted an expectation in January of last year that our headcount would be down throughout the year. Our headcount at the end of first quarter 2024 was down by more than 4,700 people from the first quarter 2023. It declined 650 people just from the end of 2023. The digitization activity is also driving ongoing expense cost savings, customer retention and market share improvement, driving across all three factors. It also supports the ever-increasing volumes of client activity with little increased cost. I would highlight our continued capital strength with common equity Tier 1 capital of $197 billion. That amount of capital is $31 billion over the current regulatory minimums for our company. That capital has allowed us to both support our clients and return $4.4 billion to shareholders this quarter in share repurchases and dividends.

Let me highlight a few points on our organic growth before I pass it over to Alastair. Now I’m turning to Slide 3. You can see on Slide 3 the highlights of quarter one successful organic activity across the businesses. We continue to invest and enhance our digital platforms. We provide our customers with convenient and secure banking experiences. By leveraging our technology and continuous investment in that technology and putting customers at the center of everything we do, we have successfully deepened our relationships and expanded our customer base across all our businesses. In consumer, we had added 245,000 net new checking accounts this quarter. This completes 21 straight quarters of net additions. Dean Athanasia, Aron Levine and Holly O’Neill helped drive that business for us and continue to perform well, driving strong performance across our consumer franchise.

These checking balances continue to drive the performance of our consumer deposits. These checking additions are important for many other reasons. On average, 68% of our deposit balances have been with us for more than 10 years; 92% of the customer checking accounts are primary checking accounts in the household, meaning that they’re the core operating account for the household for their financial lives. When we on-board a client, we start a long-term valuable relationship. About 60% of our checking accounts customers use a debit card and on average they do about 400 transactions per year on that card. The new checking accounts have traditionally opened savings accounts, about 25% of the time within a few months of opening that checking account.

Opening a new checking account on average brings about $4,000 in balances below our averages, but that continues to grow and within a year, it’s two times that amount. Likewise when we open a new savings account, it on average brings about $7,000 in balances. This also deepens by about two times during the year. Investment relationships and credit card account openings continued to be strong in the first quarter as well. While we believe some of these statistics are best in class, rest assured there are plenty opportunities for further growth in our franchise and our company. As we think about our global wealth team led by Eric Schimpf, Lindsay Hans and Katy Knox, that team added 7,300 net new wealth relationships with Merrill and the private bank.

Our advisors opened 29,000 new bank accounts in the quarter with our customers, deepening their relationships. More than 60% are investing clients in Merrill and 90% of our private banking clients now have a core banking relationship with us. In addition, across our wealth spectrum we saw $60 billion in total flows over the last year. As you can see on this slide, we now manage more than $5.6 trillion in total client balances across loans, deposits and investments, and consumer and wealth management. When we move to global banking, we added more new relationships in this quarter than we did in last year’s first quarter. We also increased the number of solutions per relationship with preexisting clients. Just like in our consumer business, we have seen good growth in customers seeking the benefits of both our physical and our online capabilities and also the care of our talented relationship managers, who provide financing solutions and advice for our clients with global needs.

A couple other points I’d make on our digital success. Erica, our virtual banking assistant, reached a key milestone of more than 2 billion interactions since its introduction about six years ago. It took four years to reach 1 billion interactions; it took just 18 months to reach the second billion. In August, we extended Erica’s reach and launched Erica in our global treasury services business and CashPro. Erica has resolved 43% of the CashPro chat inquiries automatedly, demonstrating more and more clients are able to self-solve. This is a great example of best practices being shared across the scale of our company. Second, as an example of our digital success, Zelle continues to grow. It wasn’t long ago that we noted that the number of Zelle transactions in a quarter had surpassed the number of checks written.

Shortly after that, Zelle transactions reached two times the number of checks written. This quarter, Zelle transactions have now passed the combined number of checks written plus the amount of cash withdrawals from tellers and from ATMs. That is a rapid adoption and represents continued cost savings and convenience and security for the customers. These stats and others are included in our quarterly activity for our digital banking progress. That’s included in Slides 20, 22 and 24. I encourage you to read them. They show our market-leading efforts representing billions of dollars of our investment over the years, and we are continuing to drive growth with expense growth under control. The solid earnings results achieved this quarter are a testament to the dedication and talent of our 212,000 people who work here and deliver for our customers every day.

I thank them for another great quarter. With that, I’ll turn it over to Alastair.

Alastair Borthwick: Thank you Brian. I’m going to start on Slide 4 of the earnings presentation. Brian covered much of the income statement highlights and he noted the difference in our reported results and the results adjusted for the FDIC assessment, so I’m not going to repeat that; I’d just add that we delivered strong returns. On a reported basis, our return on average assets was 83 basis points, and return on tangible common equity was 12.7%. When adjusted for the FDIC assessment, our efficiency ratio was 64%, ROA at 89 basis points, and ROTCE at 14%. Let’s move to the balance sheet on Slide 5, where we ended the quarter at $3.27 trillion of total assets, up $94 billion from the fourth quarter, and the bulk of that increase was in global markets to support seasonally elevated levels of client activity.

Outside of the global markets activity, we’d highlight both the $23 billion growth in deposits and the $20 billion decline in cash levels. With that increase in liquidity, you’ll also note that debt securities increased $39 billion, which included an $8 billion decline in hold-to-maturity securities and a $47 billion increase in AFS securities. Those are mostly hedged U.S. treasuries added with yields effectively at cash rates. At $313 billion, our absolute cash levels remain higher than required. Liquidity remains strong with $909 billion of global liquidity sources, and that’s up $12 billion from the fourth quarter and remains $333 billion above our pre-pandemic fourth quarter ’19 level. Shareholder equity increased $1.9 billion [indiscernible] earnings, as they were only partially offset by capital distributed to shareholders, and AOCI was little changed in the quarter.

During the quarter, we paid out $1.9 billion in common dividends and we bought back $2.5 billion in shares, which more than offset our employee awards. As part of those share awards in the first quarter, we announced our seventh consecutive year of share and success compensation awards, covering more than 95% of our associates and further aligning their interests with shareholders. Tangible book value per share of $24.79 is up 9% year-over-year. Looking at regulatory capital, our CET-1 level improved to $197 billion from December 31, and the CET-1 ratio was stable at 11.8% and remained well above our current 10% requirement. We also remain quite well positioned against the current proposed capital rules as our CET-1 level is also above the 10% requirement even when we include estimated RWA inflation from those new proposed rules.

Risk-weighted assets increased modestly, driven by client activity in global markets, and our supplemental leverage ratio was 6% compared to a minimum requirement of 5%, which leaves capacity for balance sheet growth. At $475 billion of total loss absorbing capital, our TLAC ratio remains comfortably above our requirements. Let’s turn our balance sheet focus to loans by looking at the average balances in Slide 6. Average loans in the first quarter of $1.048 trillion were flat compared to the fourth quarter, and they improved 1% year-over-year as solid credit card growth was partially offset by declines in securities-based lending. Commercial loans grew modestly year-over-year. We experienced modest improvement in revolver utilization in commercial lending in the first quarter, and that’s being offset for the most part by pay downs as larger client financing solutions are being met through capital markets access.

Lastly on a positive note, loan spreads continued to widen. Moving to deposits, we’ll stay focused on averages on Slide 7, and relative to pre-pandemic Q4 2019, average deposits are still up 35%. Every line of business remains well above their pre-pandemic levels and consumer is up 32%, with checking up 38% driven by net new checking accounts added, as Brian noted earlier. Linked quarter total average deposits remained steady at more than $1.9 trillion. The total rate paid on consumer deposits in the quarter was 55 basis points, and while the rate increased nine basis points from the fourth quarter, the pace of increases continues to slow. The mix of low rate and high quality transactional accounts keeps the rate paid low. Wealth management and global banking also saw a slowdown in the increases in their rate paid and slowdown in the rotation out of non-interest bearing accounts in the first quarter.

Focusing for a moment on ending deposits and movement from the fourth quarter, this quarter we delivered good deposit growth. Total deposits grew $23 billion and are now $100 billion above their trough in mid-May of 2023. Consumer banking deposits saw growth in both consumer interest-bearing and non-interest bearing. Global banking continued their more normal pattern of deposits seen for the past five quarters and up more than $30 billion over the last year. Deposit growth exceeded loan growth for the third straight quarter and our excess of deposits over loans expanded to $897 billion, and that’s nearly two times the $450 billion we had pre-pandemic. You can see that on the upper left-hand side of Slide 8. We continue to have a mix of cash, available-for-sale securities and held-to-maturity securities, and this quarter our combination of cash and AFS is now 52% of the total $1.2 trillion noted on this page.

You’ll also notice the continued change in mix of the shorter term portfolio as we again lower cash and increase AFS securities that are mostly hedged and at similar yields to the cash. Note also the hold-to-maturity book continues to decline from pay downs. In total, the hold-to-maturity book is now down $96 billion from its peak and consists of about $122 billion in treasuries and about $458 billion in mortgage-backed securities, along with $7 billion of other securities. Lastly, a blended cash and securities yield of 360 basis points continued to rise and remained about 168 basis points above the rate we paid for deposits. The replacement of lower earning assets into higher yielding assets continues to provide an ongoing benefit to NII.

Let’s turn our focus to NII performance using Slide 9, where you can see on a fully tax-equivalent basis NII was $14.2 billion. Good deposit growth provided a strong start to the year for NII, and as Brian noted, NII of $14.2 billion increased by $100 million from the fourth quarter. That compares to our expectation and guidance of a decline of $100 million to $200 million, and that would have resulted in NII this quarter of $13.9 billion to $14 billion, so we did quite a bit better than we had originally expected. The improvement in quarterly NII in Q1 compared to Q4 included the benefits of higher yielding assets and improvement in global markets NII, partially offset by higher deposit cots and one less day in Q1 than 4Q23. Deposit balance activity more generally also aided in the beat versus our expectations.

As we look forward for Q2, we expect some modest impact of lower deposits in wealth management as client make their seasonal income tax payments, and we expect global markets NII to decline mostly seasonally a little bit as well, so we expect second quarter NII could approach $14 billion on an FTE basis. Further, we continue to expect that Q2 will be the low point for NII and we expect the back half of 2024 to grow. Compared to our guidance last quarter, we’re obviously growing off a larger base of NII after having outperformed in the first quarter. With regard to that forward view, let me just note a few other caveats. It includes our assumption that interest rates in the forward curve at the end of the quarter materialize, and at the end of first quarter there were still three cuts expected this year, starting in June.

Our forward view also includes an expectation of low single-digit loan growth and some moderate growth in deposits as we move into the back half of 2024. Given our recent deposit and loan performance, we continue to feel good about these assumptions. Turning to asset sensitivity and focused on a forward yield curve basis, our sensitivity to the plus and minus-100 basis points parallel shift in the forward curve at March 31 remains well balance. Let’s turn to expense, and we’ll use Slide 10 for that discussion, where we reported $17.2 billion expense this quarter including the FDIC assessment. Adjusted for the assessment, expenses were $16.5 billion and the increase over the fourth quarter included a little more than $400 million in seasonal payroll tax expense, as well as higher revenue-related costs and, to a lesser extent, annual merit increases and other annual awards, like sharing success awards provided this quarter.

$16.5 billion was just a little above our forecast for Q1 which we made last quarter, and the increase is driven by better than expected fee revenue across wealth management, investment banking, and sales and trading, and as Brian said, that’s a trade-off we’re more than happy to make, bringing more earnings to the bottom line. While expense is up almost 2% from last year, we simply remind you inflation is up by more than 4% and we’ve increased our investment, and we’re paying for the revenue growth, so we think it represents good work by our teams. As we look forward in Q2, we expect a decline from the Q1 level as we typically see about two-thirds of the Q1 elevate payroll tax expense come back out, and the remainder of the year expense is expected to trend down.

Continued digital engagement savings and operational excellent initiatives should help us offset other cost increases for people and technology through the back half of the year. Turning to credit on Slide 11, provision expense was $1.3 billion in the first quarter, and that included $179 million of reserve release due to a modestly improved macro environment outlook as the baseline consensus expectations improved from the fourth quarter. On a weighted basis, we remain reserved for an unemployment rate of nearly 5% by the end of 2025 compared to the most recent actual 3.8% rate. Net charge-offs of $1.5 billion increased $306 million from the fourth quarter, driven by continued credit card seasoning and commercial real estate office exposures as swift revaluations from current appraisals and resolutions drove higher charge-offs.

The net charge-off ratio was 58 basis points, a 13 basis point increase from the fourth quarter. On Slide 12, we show you the credit quality metrics for both our consumer and commercial portfolios. Consumer net charge-offs increased $150 million versus the fourth quarter from the flow-through of higher late stage credit card delinquencies. We included a credit card delinquency slide, No. 28 in our appendix, and we’re encouraged by the trend of delinquencies because the late stage increases slowed and early stage delinquencies improved as well, and that leads us to believe we should begin to see consumer net charge-offs start to level out over the next quarter or so. All of this is still well within our risk appetite and our expectations, and it’s consistent with the normalization of credit we discussed with you in prior calls.

Commercial net charge-offs increased $191 million versus the fourth quarter, driven by commercial real estate losses and office exposures. On office losses this quarter, we recorded charge-offs on 16 office loans. Four were a result of sales activity, i.e. final resolution, seven were from losses that we expect on exposures that are in the process of expected resolution in the course of the next 90 days, and the rest we took as a result of refreshed valuations. We use a continuous and thorough loan-by-loan analysis and we’re quick to recognize impacts in the commercial real estate office space through our risk ratings, and that’s resulted in several downgrades in the last few quarters. As a result of these quick actions and our downgrades in categorization, we’ve also refreshed the valuation of our reservable criticized properties, and we’ve taken appropriate reserves and charge-offs in the process.

Roughly one-third of our office exposure is now categorized as reservable criticized, and importantly the pace of the increase in reservable criticized exposures has slowed each quarter since the second quarter of last year, so we believe the losses on these office properties have been front-loaded and largely reserved. We expect the losses to move lower in the second quarter and we expect a notable decline in the second half of the year when compared to the first half of this year, absent any material change in expected real estate prices. In the appendix on Slide 29, we’ve included a current view of our commercial real estate and office portfolio metrics, as we usually do. Let’s turn to the various lines of business and offer some brief comments on their results, starting on Slide 13 with consumer banking.

For the quarter, consumer banking earned $2.7 billion on continued strong organic growth. The reported earnings declined 15% year-over-year as revenue declined from lower deposit balances compared to the first quarter of ’23. Credit card loss normalization also caused year-over-year provision expense to increase. As Brian noted, customer activity showed another strong quarter of net new checking growth, another strong period of card openings, and investment balances for consumer clients which climbed 29% year-over-year to a record $456 billion. That included market appreciation and also very strong full-year flows of $44 billion. As noted earlier, loans grew nicely year-over-year from credit card as well as small business, where we remain the industry leader.

Expenses were flat year-over-year, fighting off inflation, merit increases, higher minimum wages, and new and renovated financial centers and technology investments, so holding expense flat reflected very good work by the consumer team. As you can see on the appendix, Page 20, digital adoption and engagement continued to improve, reaching a record of $3.4 billion digital log-ins in the quarter, and it showed good year-over-year improvement. Customer satisfaction scores at near record levels illustrate the continued appreciation of the enhanced capabilities we provide. Moving to wealth management on Slide 14, we produced good results, and that included good organic client activity, market favorability and strong flows. Our comprehensive suite of investment and advisory services coupled with a commitment to personalized wealth management planning and solutions has enabled us to meet the diverse needs and aspirations of our clients.

In first quarter, we reported record revenue of $5.6 billion and a little more than $1 billion in net income. That net income was 10% from the first quarter of ’23. The business generated positive operating leverage and grew revenue faster than expense, while improving the pre-tax margin year-over-year. While overall average loans were down year-over-year, driven by the securities-based lending, it’s worth noting the strong growth we’re seeing in custom lending, and ending loans in the wealth management custom loan book are up 6% year-over-year. As Brian noted earlier, both Merrill and the private bank continued to see strong organic growth and produce good assets under management flows of more than $60 billion since the first quarter of ’23, which reflects a good mix of new client money, as well as existing clients putting money to work.

Expense growth here matched the revenue growth, otherwise fighting off higher investment costs and inflation. Let me also highlight the continued digital momentum here. As an example, Merrill has 86% of its clients now engaging with us digitally and 80% utilizing e-delivery. 76% of their eligible accounts are now opened digitally, so the cost for us to open is half and the customer cycle times are improved greatly. On Slide 15, you’ll see our global banking results, and the business produced earnings of just less than $2 billion, down 22% year-over-year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 4% driven by the impact of interest rates and deposit rotation to interest-bearing, and that impacted NII.

The diversification of our revenue across products and regions continues to reflect the strength in this platform, and GTS and investment banking fees are good examples. In our global treasury services business, some of the NII pressure from higher rates on deposits is offset by the fees paid for moving and managing the cash of clients, and that continues to grow with existing clients as well as with new client generation. As Brian noted, investment banking had a strong quarter, and at $1.6 billion in investment banking fees, this quarter was the strongest quarter in seven years, absent the pandemic 2020 and 2021 periods. An increase in provision expense included the commercial real estate net charge-offs I discussed earlier, as well as a larger reserve release in the prior year period.

Expense increased 2% year-over-year, including the 35% lift in investment banking fees from the first quarter of ’23. Switching to global markets on Slide 16, we’ll focus our comments on results excluding DVA, as we normally do. The team had another terrific quarter with $1.8 billion in earnings, growing 7% year-over-year. Revenue improved 6% from the first quarter of ’23 and return on average allocated capital was 16%. Focusing on sales and trading ex-DVA, revenue improved 2% year-over-year to $5.2 billion, which is the highest first quarter result in over a decade. FICC was down 4% while equities increased 15% compared to the first quarter of ’23. The decline in the FICC revenues versus the first quarter was driven by a weaker macro trading quarter that was partially offset by better mortgage trading results.

Equities was driven by strong trading results in derivatives, and year-over-year expenses were up 4% from continued investment in the business. Finally on Slide 17, all other shows a loss of $700 million driven by the FDIC assessment. Revenue declined year-over-year, reflecting higher investment tax credit yields, and expense adjusted for the FDIC assessment was down $133 million, driven by lower unemployment processing costs. Our effective tax rate for the quarter was 8%, and excluding the FDIC assessment and other discrete items, it would have been 9%. Further excluding tax credits related to investments in renewable energy and affordable housing, our effective tax rate would have been 26%. Thank you, and with that, we’ll jump into Q&A.

Operator: [Operator instructions] We’ll take our first question from Steven Chubak of Wolfe Research.

See also

14 Cheap Penny Stocks to Buy According to Analysts and

10 Best Password Managers in 2024.

To continue reading the Q&A session, please click here.