Q4 2019 Earnings Call
Today, Please press star zero.
Good day, everyone and welcome to today's Bank of America earnings announcement at this time, all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session. Please note. This call may be recorded.
Be standing by should you need any assistance. It is now my pleasure to turn todays conference over to lean Mcintyre. Please go ahead.
Good morning. Thank you Catherine Thanks for joining the call to review, our fourth quarter 2019, and our full year results.
No I hope everyone has had a chance to review the earnings release documents, which are available on the Investor Relations section of Bank of America Dot Com website before I turn the call over to our CEO , Brian Moynihan for a few remarks, let me remind you that we may make forward looking statements during the call.
For further information the older is forward looking comments, please refer to either our earnings release documents, our website or our FCC filings.
After Brian's comments, our CFO Paul did not for you will reveal more details on the Fourq results well then open up for questions. Please try to limit your questions. So that we can get to all colors. So let's get rolling Brian . Thank you really good morning, everyone and thank you for joining us to review our results.
Paul take you through the fourth quarter, which reflected a strong finish to close out 2019 before that I wanted to give you a high level view on our results of course, our results continue to reflect the strength of the U.S. consumer.
Because the economy the world, we continue to be well positioned here in driving market share gains a great servicing capabilities.
This quarter is also one of transition period rising rates and 2018 to one that is moving through the impact of the declining rates in the second half of 2019.
How do you run it company a big bank can deal with low rates, but we we drive what we can control what are some paternal commitment to responsible growth we drive more loans more deposits more assets under management and driving growth for the right pricing and at the right risks. We also have to manage our cost base carefully well, making a required investments and we have to take advantage of strong balance sheet.
To provide good capital returned to our shareholders.
At Bank of America, we check the box at all these in a quarter.
We grew loans.
Average loans by 6% and all lines of businesses. We grew deposits by 5% was very disciplined deposit pricing.
Fences were relatively flat again, well increased investments across our whole company in doing that we earned $7 billion. After tax this quarter with a return on tangible common equity of 15.4%.
Due to our strong balance sheet balance sheet, we returned $9.1 billion in capital or a common shareholders. This quarter at the same time, you deploy capital support growth for our clients committees and teammates.
Let me, let's start on slide two I'm, referring to full year results, excluding our third COVID-19 joint venture impairment charge.
We generated $29 billion net income in 2019, a record for our company that was 3% better than the prior years results were also able to reduce shares by 9% driving earnings per share up by 12% for 2019.
These results were driven by execution and all the pillars of responsible growth we grew by several clients well and improved our market share across the board remained disciplined in our risk in our client selection framework.
And by the way our results in more sustainable as their focus on operational excellence led to 58% efficiency ratio in 2019, well, making the investments we need to make a return on equity was 11% for the year a return on tangible common equity was 15.8% for the year.
Record earnings allowed us to invest in our client capabilities invest in our people and invest in our communities all the holding expenses in check.
Take a look at slide three you can see the investments we made and across all our constituencies and at the same time, we delivered a strong returns for shareholders.
To deliver for our clients, we continued our investment in town and nine in 2019, we grew the company by 3600 teammates overall, we hired three 2000 teammates in 2019, including 6300, new employees from low to moderate income neighborhoods 4000 College and it'd be a graduates and we also completed a five year go to higher 10000 military.
Veterans into our company.
We completed more than $3 billion into new technology code initiatives last year bidding on years investments award, winning digital and mobile capabilities to serve our clients better and help our teammates be more efficient.
Most importantly, these investments are bearing fruit as you can see you know customer use its numbers or Paul will talk about.
Just a simple example, we surpassed 10 million clients using Erica.
Our industry, leading consumer AI agent, we introduced Erika about 18 months ago, and now starting to read the scale benefits.
Eric as an example billions of dollars a scaled innovation fueled by work on operational like.
These savings generated by operational excellence also enable us to make capital investments in our company of $1.7 billion. During 2019 for newer modernized facilities and other related priorities and in the past three years, we've built two and a 207, new financial centres and modernize more than 1300 <unk>.
Our employees, we will start at $20 per hour minimum starting pay beginning in March the cost. So all these enhancements importantly, our run rate of expenses, providing that capacity to keep investing in the future without increasing expenses.
Also for 2019 for the third consecutive year, we shared our financial success with our teammates with special compensation awards to approximately 95% of them.
For years, the special compensation word start over $1.6 billion in compensation additional all out.
Bonuses American and everything else, allowing our teammates do more of their families last year. We also delivered more than $5 billion a company development financing for affordable housing another important local priorities, we made more than $250 million philanthropic contribution to help drive economic mobility, including workforce training and development and many other local priorities, where we help make.
The difference.
We also completed our 10 year hundred 25 billion dollar environmental business initiative goal in 2019.
Made that commitment for years ago. It was a 10 year commitment and we completed six years early that's why this year, we set a new goal of 300 billion environmental initiatives across the next decade.
It was a strong year for our company and our team capping a first decade, but Europe at Bank of America, we have a saying nice start we know we can do so much more in the future.
So on slide four I want to talk about the line of business results.
The team's hard work has created strong improving earnings across the board and the lines of business destination. The consumer team generated impressive $13 billion, an after tax earnings in our consumer small business group by driving responsible growth. They continue to provide real value for clients through innovative products and services well driving improvements in upgraded facilities entering new markets and dry.
Having innovation.
<unk> consumers record level efficiency and customer satisfaction scores reflect a hard work done the right way.
Have you seen Kt Knox together run our global wealth and investment management businesses.
They drove net new household growth since 2019, and more integration across those businesses, whether with the rest the franchise Merrill Lynch alone brought in more than 40000 net new affluent household during 2019 margins in that business remained near the record levels.
We generated $1 billion, plus and quarterly earnings in the quarters of 2019 and top this quarter three trillion dollars and client balances for the first time.
Todd Montag and his team across the global banking go markets franchises are running one of the biggest commercial lending business, the world and where the top market, making investment banking platforms. This powerful combination of global banking global markets generated $11.6 billion, an after tax net income this year.
The team continues to get its fair share the fee pools across the globe and became a more important partners for many of the world's largest clients.
With a renewed focus our investment banking team again somewhat lost market share from couple of years ago, and Paul will give you those numbers later.
If you go to and team have done a great job of doing that addition that team across the board continues to drive innovation or global Treasury services platform. Paul is going to show you some of those capabilities in the slides what.
Later, all this all this business complishments across all these businesses while driving.
At least flat costs.
Let's move to trends in slide five our strong balance sheets and strong earnings have driven the corresponding strong increase in our return of capital.
We have now dropped below 9 billion shares outstanding want 9.1 billion shares on a fully diluted basis as shown here on left side of the age and total movie reduce the share count by nearly two and half billion shares from its peak if he's a few years ago.
As we look in 2020, probably gives some specific guidance on the company's view of what we see it our outlook, but for more general guidance or our research team Award winning research team sees more generally the U.S. GDP growth out of just below 2% and a global GDP growth just about 3%.
We at Bank of America see not concerned business a substantial amount of activity you know consumer business, we see that our customers are coming off a strong finish in 2019 in their spending activity addition, there's good loan demand. This results from good employment levels and stuff and growing wages at bank of America spending by our consumers grew at five point.
9% over three trillion dollars and spending from 2019 over 2018.
We saw solid loan demand on a commercial client base throughout the year, but that moderated in the second half the year as worries about global economic uncertainty and all the issues that are talking about every day dragged on to get today, we see some resolution those issues and that combined with <unk> continued consumer stretch strange leads us to expect to see businesses continue their solid activity.
And we're hearing more optimism.
All this provides a great backdrop to drive responsible growth and continue to deliver for you with that I'll turn it over to fall.
Thanks, Brian Good morning, everyone.
You can see the summary of our Q4 results on slide six and I'm going to begin on slide seven.
In the fourth quarter, we reported 7 billion and net income and 74 cents in Es.
<unk> increased 6% from Q4, 18, reflecting modestly lower earnings more than offset by a 9% reduction in average diluted shares returns remain strong in Q4 for the return on assets of 113 basis points and a return on tangible common equity a 15.
Percent well above the company's cost of capital.
Our results were driven by our teams focus and solid progress on managing what we can control and gaining market share in an economy that grew at a low single digit pace.
In Q4, we again stayed focused on what we can control client activity remained solid, allowing the benefits of loan and deposit growth to aid in offsetting the negative impact of lower short term rates over the past three quarters.
We also continue to see healthy consumer trends and spending and asset quality lastly, we experienced a nice rebound in FICC trading from a more negative environment a year ago.
So having set the stage, let's turn to the details starting with the balance sheet on slide eight overall compared to the end of Q3. The balance sheet was relatively flat at 2.4 trillion outgrowth of both loans and securities was modestly offset by lower global market assets.
[noise] deposits grew 42 billion and were if I were first deploy to fund 11 billion of loan growth.
With most of the excess funding the growth in debt securities.
Liquidity improved as the average global liquidity sources benefited from deposit growth.
Shareholders' equity declined 4 billion.
Driven mostly by the return of excess capital.
In Q4, we returned 9.1 billion in capital through net share repurchases and dividends, which exceeded the $7 billion earned.
See I declined by roughly 1 billion.
No doubt book value per share of $27.32 has improved 9%.
Q4 18.
With respect to regulatory metrics, we remain comfortably above our minimum requirements driven by the excess.
Driven by the return of the excess capital I just reviewed our C.T., one standardized ratio decreased to 11.2%, but remained well above our 9.5% minimum requirement our risk weighted assets increased modestly from consumer loan growth and increased global banking exposures.
Lastly, our t. lack ratio also remain comfortably above.
Requirements.
Looking at how client activity impacted average balances.
Let's start with deposits on slide nine.
Average deposits grew 65 billion or 5% year over year.
For four and a half years now we have grown deposits on a year over year basis every quarter by more than 40 billion.
Consumer banking deposits grew 33 billion or 5% as we believe customers.
Value the convenience of our financial centres, and ATM network, leading online and mobile capabilities and our unique preferred reward program.
But much of this growth continues to be led by checking balances, which we consider to be the core operational deposits of these customers.
Wealth management deposits grew 8 billion or 3% year over year Global banking deposits grew 19 billion or 5% year over year and reflected both our strong GTS platform and the additional bankers we have deployed over the past couple of years.
Looking at average loans on slide 10.
You see pretty consistent client activity overall average loans of 974 billion were up more than 4% year over year more importantly average loans in our lines of business grew 54 billion or 6% year over year, that's consumer loans grew 7% and commercial loans.
Grew 6%.
As you can see in the bottom right on chart. We continued to demonstrate a fairly consistent range of responsible growth commercial loan growth was broad based loans to middle market clients grew 10%.
But I would note the more stable linked quarter balances here as revolver utilization moved a bit lower.
We also saw growth in lending to small businesses growing 7% and within consumer we saw strong growth of residential mortgages.
I'd also note this the stability.
Of credit card balances, which reflects our decision last year to pull back on less profitable promotional balances.
As we continued to prioritize sustainable long term profitability.
Turning to slide 11, and net interest income.
On a GAAP non ft basis in Q4.
And I was 12.1 billion.
12.3 billion on F T basis, and was relatively flat compared to Q3 19.
Benefits of loan and deposit growth, coupled with disciplined pricing, mostly offset the impact across short term rates of a linked quarter 47 basis point decline and the average fed funds rate.
And while long term rates were up modestly on a spot basis.
On average for the quarter there was little change.
For the full year of 29 team.
GAAP and <unk> of 48.9 billion was up 1% despite lower short term rates.
This is consistent with the perspective, we had conveyed to you since the middle of the year.
We remained disciplined with respect to deposit pricing in Q4 the rate paid on total interest bearing deposits of 61 basis points declined 15 basis points in consumer banking, which accounts for more than half of our 1.4 trillion of deposits.
'cause customer pricing remained relatively unchanged.
On the other hand.
And global banking and wealth management, the decline from Q3 and the rate paid on interest bearing deposits was more in line with the 38 basis point drop and average one month LIBOR.
Okay looking forward.
As we move into 2020, let me start by saying our expectations I assume a stable economic and interest rate environment I eat flat rates relative to the end of the year.
Given those assumptions, we expect and I in Q1 to be lower than Q4, as the benefits of loan and deposit growth, we more than offset by three things first with respect to Q1, we will have one less day of interest.
Second.
We expect lower loan yields to be more fully reflected from the late October fed rate cut.
Third reinvestment rates are expected to dilutive securities yields despite fractionally higher long and rates.
Moving to Q2 weeks, but we typically experience seasonally lower Eni for two reasons first we typically see higher interest expense from funding increased seasonal global markets client activity in equities.
The benefit of this activity shows up in non interest income instead of interest income.
Second we also typically see lower average card balances as clients pay down their holiday balances.
Both of these seasonal patterns have historically led to lower and <unk> in Q2 compared to Q1.
So we would expect <unk> and the first two quarters of 2020 to be.
A bit lower than Q4 19.
From there we would expect Eni to rise modestly in the second half of the year driven by an additional day of interest and continued loan to deposit growth.
Turning to slide 12, and quarterly expenses over the past two years.
At 13.2 billion this quarter expenses were 1% higher than Q4 18 as increased investments throughout 2019 and people real estate and technology initiatives were largely offset by savings from operational excellence and lower amortization of intangibles.
We have we had been operating in a tight range for more than two years now with quarterly expense and the low $13 billion range and all but one quarter. If you adjust for the Three Q1 9 impairment.
Annually, we've been able to maintain a 53 billion dollar expense base. Despite increased investments in tech infrastructure buildings people philanthropy and the other costs as Brian mentioned in the opening of the call.
With respect to head count year over year savings from improved processes and workflows allowed us to fund and increasing the number of sales professionals as our Lsbs added nearly 4000 associates over the past 12 months.
With respect to outlook.
Our expectations for expense in 2020 haven't really changed from where we provided that in 2016.
Despite all the added costs of the higher investments and unknowns like Brexit and others since 2016.
We expect our full year expense to be in the low $52 billion range this year and as long as client activity and the economic environment remains stable our investment plans will likely remain unchanged.
He said that.
I want to provide you with a few reminders with respect to expenses first.
Q1 is expected include about 400 million of seasonally elevated personnel costs related to payroll taxes.
With the remaining quarters of 2020 expected to return to a low $13 billion range.
Also beginning in Q3.
The accounting for the BAMS JV is expected to change following its the solution.
At that time, we will separately record revenue and expense from merchant servicing operations, rather than reflecting our share of the joint venture earnings as a single amount in other income.
This will gross up both expenses and revenue.
With little bottom line impact.
And like we told you in Q3, it's not included in our forward guidance.
We will update you as we move closer to that timeframe.
Alright, turning to asset quality on slide 13.
Our underwriting standards have been responsible and strong for years now.
And asset quality trends reflect this even in this relatively benign credit environment.
Total net charge offs in Q4 were 959 million compared to 811 million in Q3, when comparing to Q3 remember we sold in Q3, we sold some loans in Q3. The resulted in recoveries totaling 198 million that reduced net charge offs adjusting for those recoveries.
Net charge offs declined 50 million and the net charge off ratio declined three basis points to 39 basis points.
Compared to Q4 18 net charge offs were modestly higher driven primarily by seasoning of the card portfolio.
Provision expense was 941 million and mostly mass net charge offs with only modest releases in both Q4 19 and Q4 18.
On slide 14.
We break out credit quality metrics for both our consumer and commercial portfolios. These metrics show you that asset quality remained strong in both categories.
Before turning to the business segments.
I will just provide a couple a perspectives on c. So our day one implementation implementation resulted in a 3.3 billion dollar increase in allowance.
This is in line with the last update we gave you.
All else equal.
This would lower our C.T. one ratio by roughly 20 basis points, but as you know it is phased into regulatory capital evenly through 2023.
Okay, turning to the business segments, and starting with consumer banking on slide 15.
Consumer banking produced another solid quarter of revenue and earnings but was heavily impacted by lower rates and the second half of 2019 net income of 3.1 billion declined 10% as revenue fell.
4% as you know, we had been <unk>, renovating and adding financial centers, adding sales professionals and advancing digital capabilities, plus we increased our minimum wage and 29 team and will again in Q1. Despite the cost of increased investments, we've been able to hold expenses relatively flat and our efficiency.
Ratio was 47%.
Away from the impact of rates, which we can't control.
Client momentum continued as we saw healthy spending borrowing and savings by clients.
As a result year over year average deposits increased by 33 billion up 5% to 720 billion, while maintaining strong pricing discipline client investments increased 54 billion up 29% year over year to 240 billion driven primarily by the market, but we also saw.
20 billion of client flows and our total net accounts grew 7%.
Loans were up a healthy 7% driven by home loans debit and credit spending by our customers was up 6% year over year consistent with a record holiday season and asset quality. In this segment remained strong with a net charge off ratio of 118 basis points.
Down modestly from last year.
Turning to slide 16, I will quickly note continued positive trends across deposits loans and investments all of which I touched upon earlier. This level activity can tend used to drive the acknowledgements and rankings in the upper left.
And this is a short list of the more than 60 industry Awards consumer and digital banking received in 2019.
Turning to slide 17.
Digital banking continued to drive growth and client engagement as we continued to invest heavily in this channel.
As a strong complement to our financial centers and ATM network together, they allowed our customers to bank with us anywhere anytime and anywhere they want.
Over 56% of arc, our clients are now digitally active and log and 8.1 billion times. This year, that's up 9% year over year digital channels generated 27% of overall sales, 30% of mortgages and 56% of client direct auto loans originated through our mobile app.
Or online banking side.
The digital more margin experiencing self originated 11 billion than loans in 2019, as we continued to add capabilities such as the ability to transfer he like balances on a mobile device.
And with respect to mobile car shopping we closed the year with the ability to provide clients accessed to roughly 2 million cars from our participating dealer inventories.
Our market share of as al payments continued to increase this year as well.
We now have a 9.7 million zale users and they sent him received 300 million dollar transfer 300 million transfers this year totaling over.
78 billion.
Erika surpassed 10 million total users and completed nearly 100 million request since its launch was 38% penetration of active B C mobile users.
27% of total deposits are now coming from mobile and over 50% of our clients have gone completely paperless.
Enhancing our efficiency and their experience.
And customers increased their use of our mobile banking app to make appointments with 2.3 million digital appointments scheduled in 2019 up 19% year over year.
Our efforts to move customers past enrollment to engagement and digital capabilities are stronger than ever and we believe industry leading.
Turning to global wealth and investment management on Slide 18 strong results were led by growth across a U M loans and deposits as well as good market conditions in the quarter, but also reflected the headwinds of lower interest rates.
Record level client bounces top three trillion and our full year pre tax margin was 29%.
With 256 billion in deposits. This segment would rank stand alone as a seventh or eighth largest bank in the U.S. So when rates fall due when feels it but much of the impact of falling rates was offset by advisory fees generated from our industry, leading wealth management platform.
Net income was just over a billion dollars down 4% from Q4, 18, reflecting lower interest rates and the absence of a prior your gain from the sale of noncore asset, which also impacted the revenue comparisons excluding the prior year gain revenue was flat and earnings grew 3%.
Asset management fees grew 5% year over year due to higher market valuations and the fees from a when flows which more than offset general pricing pressures and lower transactional revenue.
Expenses decreased slightly as investments in sales professionals technology, and our brand were more than offset by lower intangible amortization and deposit insurance costs digital engagement with affluent clients continue to increase and important 64% of Merrill clients are actively using our mobile or online.
Platforms and that's it just six that's just six an increase to more than 75% for the private our private bank lines.
Moving to slide 19, GM activity reflects the confidence clients place and bank of America and its advisors at both Merrell and the private bank.
As Brian mentioned mentioned household growth has been strong.
As Merrell added more than 40000 net new households, this year and we added 60% more private bank relationships in 2019 than we did in 2018.
On the bottom right note the 427 billion increase in client balances from Q4 18.
383 billion of that increase.
Reflected strong market conditions, increasing the value of assets 44 billion of the increase is from client flows Hey, you inflows accounted for 25 billion, while broken flows contributed 6 billion.
Banking product flows were driven by loans of 12 billion, which doubled from 2018 and deposit flows were modestly negative as clients shifted cash back into investments during the year. Following the Fourq you 18 equity market declines.
Average deposits rose 3%.
Turning to global banking on slide 20.
The business earned 2 billion and generated 20% return on allocated capital in the quarter.
And 8% decline in net income was driven by lower and I and higher investments costs, which outpaced the improvement from investment banking income and leasing related gains.
Continued strong deposit and loan growth reflects the benefit of adding hundreds of bankers over the past few years, increasing our client coverage as well as continued advancement in how we deliver our loan product and Treasury services.
These investments will continue to benefit the franchise for many years to come as new bankers deepen existing relationships and add new ones.
Looking at trends on slide 21, and comparing to Q4 last year throughout the year, we continue to add investment bankers, both in the U.S. and internationally with a focus on expanding our client coverage.
This benefited eni fees with Q4 fees of nearly 1.5 billion up 9% year over year.
Despite excuse me double digit increases in both debt and equity underwriting fees led the year over year improvement.
Bank of America was involved in seven of the top 10 debt deals and six of the top 10 equity deals in the quarter based upon Dealogic data. This performance drove a 50 basis point improvement in market share for the full year.
Turning to slide 22.
One of the reasons for the growth in deposits and global banking has been our consistent investment over multiple years and digital capabilities and transaction services.
No the growth in mobile and digital usage at the top of the page and our focus on solutions for clients on the bottom of the page.
Switching to global markets on slide 23, as I, usually do I will talk about results excluding DVA.
Global markets produced 639 million of earnings.
Year over year revenue was up 10%.
From both higher sales and trading results and improved investment banking fees expenses were up a more modest 2% year over year.
Within revenue sales and trading improved 13% year over year, driven by fixed income currency and commodities with a more risk on environment when compared to Q4 last year.
FICC was up 25% from Q4, 14, well equities declined modestly FICC revenues showed improved results across most products, both particularly strong in mortgage products.
Let me to performance in equities was driven by lower client activities and derivatives, which was partially offset by our financing business, where we have focused some investments.
On slide 24, you can see that our mix of sales and trading revenue.
Remains weighted to domestic activity, where global fee pools are centered within FIC.
Revenue mix remained weighted towards credit products and importantly, please note on the bottom left at roughly $13 billion, the consistency of our sales and trading revenue over the past six years in the face of declining fee pools.
It is particularly noteworthy considering the risk reduction noted at the bottom right.
This goes against the perception that these revenues are generally considered to be more.
Variable.
Finally, turning to slide 25, we show all other which reported the profit of 262 million comparing against Q3 19 is tough because you know that period included the $2.1 billion pretax impairment charge on our bank of America merchant services joint venture.
But there are two things worth, noting as they close out.
First other income.
At the total company level. This quarter included tax advantage investment partnership losses that were about 200 million higher.
When you compare to Q3.
The benefits of this activity.
Shows up and global banking and in our global banking business and our produced by client activity related to tax advantages solar and wind investments.
These investments to generate good returns however, the partnership losses.
Which reduce non interest income.
And the tax benefit in our tax line from these investments are not always realized in the same quarter.
Depending upon the type of investment.
The second thing I Wanna mention is the effective tax rate in the quarter of approximately 14%. It included the impact of a higher tax credits from the increased taxes vans investments and it also included roughly 300 million in discrete benefits from the resolution of several tax matters.
Absent the discrete benefits in the quarter, our Q4 19 tax rate would have been roughly 18%.
And absent any unusual items. This is roughly where we expect the T. R for full year 2020 to be.
So thanks, and with that I will open it up to <unk>.
At this time, if he would like to register to ask a question. Please press star and one on your Touchtone phone again that star and one if you would like to register to ask a question you can remember yourself from the Q at any time, bypassing the pound key well take our first question today from John Mcdonald with Autonomous research.
Please go ahead.
Hi, good morning, falling wanted to ask on the anti outlook when you put together a year or what your commentary about the quarter's a year over year does that imply a flat to down a little bit maybe on the Eni in terms your outlook against flat rates.
Yeah year over year modestly I would say.
Down modestly.
Yes.
Okay and then how are you feeling I guess, if we think about a positive operating leverage for this year you mentioned in this stability in expenses. While you continue to invest how are you feeling on fee income growth when you wrap it all together the prospects for positive operating leverage into 2020.
So obviously you know we talked about in the prepared remarks. The you know transition that we're going through with the in the rate environment.
I would just remind everybody we had 18 consecutive quarters of positive operating leverage.
And admittedly, it's a little bit more difficult to achieve operating leverage given the decline in interest rates, you know last year and the associated impact on and I.
[noise] as I said, though assuming a more stable rate environment, we would expect and I to return to growth in the second half of 2020.
You know driven by loan and deposit growth.
Remember and I was not directly linked to two expenses. The way other revenue is in for example investment banking sales and trading wealth management.
Yeah, we run and invest in the company for the long term sustainability and for growth.
And by the way these investments over many years laid the foundation for operating leverage.
So having said all that were not blind to changes in the operating environment, but we are also not managing bird originally to you know quarterly financial metrics were focused on the things that we can control like driving like client activity.
Pauses loans investments efficiency improvements to our focus on operational excellence so.
If things change, we'll adjust but currently we feel our client activity and market share gains continue to support our investment plans in the near term.
Okay fair enough. Thank you.
Well take our next question from Glenshire with Evercore. Please go ahead.
Thank you.
I have a follow up question on your comments on the promo bounces in cards and your pull back there.
And I'm curious if that is a function of pricing getting tougher their terms getting tougher there or is that youre just responsible thought process 11 years into our recovery.
I think it's more reflection of responsible growth and how we run.
You know, how we're focused on the customer and how we're focused on total revenue and not necessarily and <unk> or.
Our.
Fees when you look at you know card balances they certainly reflect.
A couple of items that we talked about and it certainly reflects our focus more on profitability first we've been reevaluating some relationship prospects, who are just looking to game rewards or take a short term you know take short term advantage of promo balances. So you know clearly that's a fair.
Good.
You know balances a little bit.
Also with less promo balances the percentage of the portfolio paying off he's much has risen a bit I.
I think would you see those you look at our risk adjusted margin.
That's up 25 basis points year over year to 8.7% if you adjust out the though the for Q.
Gains we had last year and we continue to add more than million cards each month.
Again with a focus on profitability of new accounts. So you know I think that lines going to start to grow you know from here.
I think Glenn just to be the pause last point of view into it.
Production of no new customers are taking a card.
Product from us in the usage continues to grow so we had a million plus new.
Cardholders, we still have a lot of room to go from us.
Two thirds type of penetration of customer base and then how many people use as a primary cards. So we really focus a lot on that and what we're focused on that generating new customers are surfing is not exactly this strategy and so it's a it's a mix of profitability. It also really sticking to that core holistic customer strategy.
Appreciate that just one more maybe on on G., when Oh, so markets up a lot and more people don't see based offset lower rates and you talked about that so we've been hanging in this 20% to 30% range, which is great. But the question I have is is Ken as Scott.
Well continues to build an ever all the investments that you've made there.
Ken can we see margins start to tick up a little bit above there I know, we were constrained by payouts and and things like that just curious the bigger picture of the next couple of years.
Yeah, So take a think about it in two dimensions one.
Yeah, and inside the wealth management businesses, a very large bank so.
<unk> stable here from here than the loan deposit growth, which have been strong world and pick up that and that's very leveraged to the margin.
Contribute to margin.
It's one point so you know you've gone through the same twist and that business and what the 75 basis point drop in rates in this very late part of a plus several last few months of 2019, so that that's no different than many other situations that <unk> mitigate and go for it if you think about the.
The other side of the question, which is sort of.
Can you get at higher you've got the you know the basic things the way that compensation system runs from away presentation is yeah, you you've got 50% of revenue round numbers goes into the compensation. So you're basically making 32 cents on their other 50 cents and profit margin, which is a which is a pretty strong margin. So it has all the opportunities.
Along the dimensions, which is a pontius next set of things that we've got to go after which as you know.
Take about the Merrill edge assets growing in the and the Megi portfolio, which is over $4 billion and growing 30, 50% of year type of things as they grow in the products are available to and used to whole team at a phase that provides additional efficiency.
And then you think about the digitization of that customer base, and both private banking wealth and and Merrill Lynch, which is.
Yeah, the least penetrated of all the customer bases in terms of digital statements and things like that we can drive the margins that way then the physical plant we continue to.
Increase the density of the physical plant with are there other physical plant in various.
You know cities and towns they get consolidating offices and getting people in the common space that saves money. So theres a lot of way we can work on digitization physical plant efficiency, adding more financial advisors that more scale contributing to overhead, which then generates for margin.
So it fits your working it's pretty good to make 60 cents.
60% of your margin after comp and we're not changing the cops system, so, but there's a lot of things for and I think we continued improvement it would be.
Appear to be easier.
If in fact rates say stable and drive long growth, which is what our projection is ER and afraid start rising again, it will that will look like here as in terms of margin, but we've been able to sustain and even are falling rate environment.
Thank you.
Our next question comes from Stephen come back with Wolfe Research. Please go ahead.
Hey, good morning.
So I wanted to ask a follow up on fee income so getting high resilient. She has been quite impressive loan deposit account growth as you noted Paul and Brian continues to track very well other core fee growth was a bit softer this past year decline modestly. Despite some of the strong market Tailwinds I know Brian in the past you haven't given Ics.
Let's say guidance on core fee growth expectations, but you didn't know it that it should traject in line with GDP and just given some of the moderating U.S. and global GDP growth expectations. You cited earlier just trying to think about how we should be modeling are forecasting.
Fee income expectations in the coming years.
But you know I think each category the Brian if you think about the broad categories are most doesn't come through.
That up.
The strategy and consumer business has been to reduce reliance over the last decade, plus on penalty fees and things like that we kind of hit your status quo and that you know, though as we brought it down significantly from Regie <unk> all that stuff as kind of done the interchange in a consumer fee areas are cutting comes Duffy.
That's through the system at this point.
Awards impact that but you get the benefit back in the preferred reward system through the ability to have that stable margin. So I think we should see those fees, which.
<unk>.
Got the point, where they ought to grow marginally, but remember that part of the strategy is to is to invest in our client base loyalty to our company and our products and so there'll be modest because the at a high growth and think about 8% growth in checking balances you every year and consumer that has helped driven by people consolidating a relationship with you what.
Do you pay back to divorce system through their card usage. So it's always good to be yet when you go to wealth management you tell me what the market is going to do and you'll see that'll be a heavily influence there that should grow faster as you know trading.
As Paul said isn't as if all those people want it to discuss it but any other hand, you know there's compression on the fee side. So each line items has a different elements Treasury services revenue is up I think it's you know high single digits, but that fee line piece of it's flattish that's because people are pass through balances. So I think that yeah.
Even the guy like he has been around banks for long time. This the differentiation between types of revenue fee versus spread is becoming harder as the business models of more of them together and just terms and total revenue. So we ought to go revenue slightly faster than the economy and have the expenses grow below that a couple hundred basis points and we've been able to do that and it's just twist and rates and this quarter.
You'll see us get back on track as we move through 2020.
Thanks for that color, Brian and maybe just a follow up for you fall you've been retaining a substantial percentage of mortgage loans on balance sheet in lieu of selling those loans are deploying that excess liquidity I intend b S and I'm just wondering as we prepare for C.. So does that inform your appetite or your willingness to continue down.
The same pass and just separately just you know given the strength of your credit position and a relatively clean balance sheet was sort of hoping you guys can be Cecil pioneers and maybe the first bank to provide some more concrete guidance in terms of day to provision impacts your expectations.
Oh, well on your first point.
We are we are originating mortgages and putting 94% of them I think this quarter on the balance sheet. So continuing a trend that we've been doing for many many quarters now well see how that develops over the long term, but for now that's you know our plan clearly where.
You know we consider the effect on liquidity, we consider the effect on capital.
Bouncing you know returning capital with a growing the balance sheet.
HM.
Those loans don't really have a high amount of seasonal impact.
So.
But I'm not saying, we're going to never change what we're doing there in terms of.
In terms of seasonal I think we've given you.
The guidance.
That we're comfortable with.
We would expect provision to be a little higher than net charge offs in 2020 and.
You know due to seasonal.
We've been running you know when you back everything out we've been running at net charge offs <unk> at approximately a billion dollars a quarter.
We don't see that changing much a in the future and when you just factor seasonal into that it means that you know our provisions got to be a little bit higher than the net charge offs.
Yes, you always have to remember that the.
Not on the last part but in the first part then today. The reason why we have securities and mortgage backed mortgage backed securities and treasuries is simple when he journey $60 billion in deposit growth in your loan balances grow by 10 billion or whatever.
Yeah, the 10 or 20 billion if the other half has to go too.
Be invested somewhere and you're raising this money at all in cost in the 40 basis points of deposit pricing of across the whole board and a lot of its coming not interest you you know turned on the good customer activity and we.
We don't take credit risk in that part of the portfolio because we take enough credit risk around the rest of the company and so you the strategy on the investment side mortgage backs. It put with treasuries and think of that is just tech excess liquidity on mortgages. Paul told you that you know we've been putting on a bounce she 'cause or better yielding then mortgage backed securities and frankly, our credit risk is better than others.
The mortgage backed securities availability, so why would we pay somebody else, we're taking that risk.
Fair enough and I appreciate you guys, taking the day 2.2 as well.
[laughter].
Well take our next question from Betsy Graseck with Morgan Stanley . Please go ahead.
Hi, good morning.
Morning Betsy.
[laughter], Brian 10 years or excellent management here driving the bus on improving operating leverage I'm, especially over the past a three four years.
Can you give us a sense as to how you see the rate of change go from here because we've had obviously significant improvement in the consumer side and the question I get from people as.
Is it over and by the way how do you generate positive operating leverage and global banks Little markets you know given.
Skill to producers and is there that much opportunity in the in the back office side. So many could hit on those that'd be helpful. Thanks.
So let me.
Paraphrase, a little bit, but you know its.
Ah, it's a deal activation to be able run this company <unk> with all the power and have the on are doing it for a decade. So we just passed a decade or the team and they've done a great job, but what you point out as they've done a great job of putting the position. So if you look at the.
Operating efficiency of the consumer business or the wealth management business or the ER or the banking business, which we show separately from the markets business. So you can see these are 30, 840% efficiency ratios here at 45 here. It's a how can you improve in Betsy what I'd say is we just don't know how far does digits.
Possession of the actual process season, and where it goes and the company and we just keep coming up we had 6000 simplified improve ideas of last few years, we've implemented they continue to produce great savings and so.
We just don't see an end to that and so you leave aside that the economy's growing it beat up to sub 2% level predictive a 20, they decide that the rate environments low we've been able to push forward or the activities that then you know can produce more efficiency and we think that's there's a lot ahead of us and so you know I'd like to we say nice start today.
Im saying thanks for all the hard work you've done but also we're only getting started here and if you start thinking about we just pass the number of checking accounts that we had in 2007 in this company this quarter.
And so we ran off all the not primary accounts, but on the primary accounts whenever they average balances 7000, if you think about the cost of deposits and consumer I think it went down by four basis points year over year, something like that so they're just it's a grind in its a lot of hard work, but the incremental efficiency that we can get at this scale. It by these investments and by the Digitization.
And then it further.
Taking out yeah.
Activity, which costs more. Another example is checks written since Xcel became really pushed out there about two years ago has started dropping 10 per cent per year, so five years ago.
We had almost <unk> billion checks written by consumers now we're down to 600 million. Each one of those checks is a piece of paper that requires processing time, and you're seeing that dropped by 10% a year is that going to change overnight, where they're gone absolutely not but on the other hand, it's constant positive operating.
Pressure death benefit for us so look for us to improve it across the board your colleague earlier asked about the.
The wealth management business, we think we have upside there Andy in Kadena teams are working on it there's lot of a process simplification that we've worked on hard but there's a lot ahead of US and then you get the markets business you know the electronification of FICC will make it more and more efficient over time like we've seen in equities.
You know, though you know that's a market price business. So that you always fighting the revenue changes at the same time and in fact, if you look at most of US from five four or five years ago. We actually had the same amount trading profits. We have them. We just to turn it into this quarter 600 million a profit generally a billion a profit when it's gotten a little bit better ER and the earlier quarters and activities higher.
That's a good businesses just you're fighting both sides equation, so look for us to improve everything there's room to improve.
Men as scale day, and advantages to new markets opening up provide extra lift and it's our job to do it and the team is excited too.
Hey, good going forward look there Paul on the longer term, Paul maybe I could just be a little bit nearer term with question for you I think you mentioned a couple of times the Eni expectation for 20 trying to being down modestly from 2019 full your full year.
But then you talked a little bit about you know at a better second half. Then then first half and maybe you could give us a little bit more in detail in the granularity why Tom you expect that to be the case I assume it's with you know the forward curve in flattish rates, but and I gave some color earlier on but maybe give a little sense more or like what what's behind that conviction level that yeah.
On year, you get some improvement in the back half.
Well I think its look at its about loan and deposit growth.
And it's about deposit pricing.
Discipline.
You know on deposit pricing.
We we plan some modest reductions and deposit pricing assuming no further cuts.
You know as we continue to being deposit pricing to an appropriate level given the three bad faith.
The three cuts that we've experienced.
You know if the forward curve materializes and we get another short and cut we expect deposit rate paid for the industry and for us decline even further.
As higher pass through products and wealth management global banking react to the relatively quickly to you know any rate cuts. So.
It's about you know the conference we have and how we price our products and the confidence we have.
And and growing deposits and growing loans.
The guidance is more about you know there we have an extra one less day in Q1, we've got to deal with we have the second quarter normal activity that we see in equities, which again, that's a plus.
That's just shows up in noninterest income instead of interest income.
And by the time, you get to the third quarter I'm you know we would expect assuming.
The current sort of economic environment, we would expect our loan and deposit growth.
The lack of that seasonality the deposit pricing to have an effect and we'll start growing again.
I'd just add to that <unk>. Your question. John's question go the same direction, which is you've got this quarter in the first couple of quarters, because the dynamics. Paul just describe that you have to push through but what we see is getting back on you know as we move into the mid <unk> middle of 2020, we're back on that basic operating leverage through and I still.
Already to growth and expense flatness, so it's a but it just takes a lot of good I need to 75 basis point rate cuts and the infant four months.
Got it okay. That's helpful. Thank you.
Our next question comes from Jim Mitchell with Buckingham Research. Please go ahead.
Hey, good morning, guys, maybe I could just following on that last question in a different way is your expectation that the net interest margin should start to stabilize in the back half for the years at what gives you the confidence in high growth or is it really do we still should expect maybe a grind down.
But the balance sheet growth starts to take over how do how do we think about win.
The current rate environment, that's sort of net interest margin you know assuming mix is on change obviously big assumption, but do we assume that NIM starts to stabilize in the second half of this year.
But I think thats, what you've correctly you correctly summarize succinctly, what we are what we said.
Okay. So maybe I get another question. So just tied to popular award your bonus question for that one [laughter] I'm just on the deposit growth the industry. We've seen some acceleration for Q, we have lowered <unk> lower short term rates, we have the fed balance sheet expansion there tends to be some seasonality in for Q, how do we do you.
Do you think this acceleration can continue and into the at least the first half of this year I guess, how do you think about the deposit growth and and if there if we could see continued sort of.
Above mid single digit growth.
Yes, I think if you look at page nine when you have.
Rate movements due to the types of things that up.
Reestablished and reserve levels by the at the Federal reserve et cetera, et cetera, et cetera, you that's going to affect the.
The lower that our markets business in the lower right hand in a banking and stuff like that but.
It really doesn't have that much of an impact in the bank you have the wealth management in the consumer banking area and that's that's really that the what drives the value. So for the 700 odd billion dollars and can you know and that in the consumer business, which grew checking at 8% year over year and that's fairly consistent with what they've been doing you remember that's 11 basis point.
All in including the interest bearing part of which also grew year over year. So.
That's $700 million here in total interest expense for 700 million Bucks of.
Of deposits that that's what drives economics, it and wealth management goal banking you also but in so that doesn't really affected by all the sort of broad macroeconomic variables that just must doing a great job with consumers the great customer satisfaction, great product capabilities create a high touch high Tech and.
In generating more and more checking accounts, while the average bounce for checking kind of $7000 plus and growing and that that's what's going to drive it. So I'd say, you're absolutely right. There can be momentary things that would enhance deposit growth in some of the pure institutional businesses, but it doesn't make much difference to the general U.S. consumer.
That's helpful. Thanks.
Our next question comes from Mike Mayo with Wells Fargo. Please go ahead.
Hi, Mike.
Hi, simple question is what is the dollar amount.
Extending and investment spending in 2019, and how does that compare to last year and that's coming one.
And the backdrop for that question is you know the efficient gotten a lot of questions on efficiency on this call and it was worse than the fourth quarter and your 58% efficiency for the year, it's not where some other banks are targeting like 55% now we know that you're spending a lot of money, we can see slide.
Great I use pointed out that spending is paying off so if you could just put a wrap around spending and put a number two it and we as analysts can figure out okay more core efficiency level you would.
So one of things that just in our efficiency ratio compared to other people are 50% for the year, but remember that we have a lot more wealth management at 30%.
20, 829% prop a pre tax margin I used 71% efficiency ratio than anybody else does that change that answer relative to some other core banking peers. It's just it's just a bigger bigger numbers because we had the biggest business with three trillion assets, making a billion dollars a quarter after tax at the best margins, but it's just the sheer math so.
When you look at it by business unit by business unit, our efficiency is the tops in the class is just our mix is different so I'll, let you figured that out Mike but back to your tech spend we spent.
$3 billion 3.2, or $3 billion and 18 the same in 19, we haven't the scheduled to be the same this year.
It's just it's just you know this cost level spending that's different projects. Obviously every year, that's pure technology initiatives, you put that on top of the backbone and everything and the number people could talk about be higher but that is just to drive new products and capabilities and through the system and we aren't changing that because that's what's driving that ability to keep expenses.
As flat if you look across the chart. Paul showed you when you see Yep 17, 18, and 19 in the expenses per quarter.
Run in 13, one Thirteenthree you know there et cetera think about how much we've done in there in terms of hundreds of new branches that thousands yeah.
2000, 1300 or so.
Right right complete reduce a new.
Buildings for our teammates and wealth management et cetera, et cetera, and so that those are tremendous investment levels that are all in a run rate well, where chopping away and that's coming from the operational excellence. So.
Spending that much on technology with the question isn't spend Mike it's already getting the usage out of it and that's what do you Gotta look at things like the usage themselves, which were going up 80, 90% a year that uses of cash from mobile which grew over 100% a year that usage, what I talked about and checks written coming down you want to talked about that we have 4300 branches, but in there we've actually opened up in new markets.
Last couple of years.
2015 branches 20 branches et cetera, and continue do that so the efficiency the rest of markets funds that even though the or your numbers. The branches are relatively flattish so are coming down slightly so it's it's a complex set of things but.
With that gives you some color.
Yeah, I guess I'll try one more time, it's not in your check number like you are expanding to new markets. You are opening new branches youre hiring new associates.
You know how much does this investing increase the growth rate of expenses.
It's it's 3.3 billion. So it's in the run rate <unk>, you know and if you last year it'll be like come out. This year. So it could you take half of that out you could just be not the right thing to do for the company, but it's it's paid for by the other the cost take out it supports or the.
Mix and how the customer uses which provides efficiency so 50.
More than 50% of our auto loans originated digitally today.
I think we did some $5 billion, it's a mortgage originations. So it's it's what we're reaping the benefits of Mike three years heads is the investments we made in 17 as you go into 20.
Our produce that for example, you have digital audio did not exist and now you're getting 58% just think how much more efficient that processes.
Digital mortgage try one more.
Yeah.
One more time.
This Pakistan to run the bank change the bank I assume you're sending more to change the bank today versus three or four years ago, you that Mexico more toward change the bank what about eight years.
And where do you think they're headed.
Yeah, the three the $3 billion, plus obviously with Brexit behind us with.
Oh by the regulatory environment rules are behind us in terms implementing you know.
See car in the capital rules and the law, the modeling and you're still spending money and proving that data to make those models work. You know that's that's gone are the only thing that works against that is <unk>. So yes. If you thought about how much is going to sort of new business initiatives. The mobile banking feature functionality is higher and to do.
Yes, and 20 it wasn't Nineteena was an 18 largely around this issue that you're running off some of these are long term projects, which is good.
Alright, thank you.
Our next question comes from Gerard Cassidy with RBC. Your line is open.
According to our money, Brian how are you.
Hi.
Brian can you remind us you touched on it.
Some of your comments already about the number of checks that were processed five years ago versus today. When you moving from the paper to the digital can you share remind us what the cost savings or when you do that per unit.
So that was going to checks written by our customers, which is this good point because that stops the thing before it starts but.
It basically if you look at the positive, which I think switch a reference in Gerard we are now.
More mobile than we are at the branches have been for about five quarters and then the ATM.
We are still half.
The mobile is a little over a 24 like 27% or something like that and branches of the rest. So if you think about that that is $5 and physical movement.
50 cents and five cents 50 cents day, Tim five cents round numbers.
Great and then moving on one of the credit can you guys give us any color I mean kind of stronger across the board for almost all the banks and.
Are you guys, keeping an eye on any particular sectors.
Within your portfolio and then as part of that question, we sense from some of your peers that have reported that the corporate sort of commercial customers seems to be maybe a little more optimistic in the fourth quarter because of some of these trade issues. If you could comment on that if you're seeing that in your customer base as well.
I'll take the second half an hour <unk>, yes, you are seeing.
With the.
Lee beside the what happens day to day, but generally yeah.
The company's there are seeing the resolutions emerged for some of these issues that makes him in a.
A little but a more confidence in terms or activities will hopefully see that in the first half. This year, if nothing goes backwards at the market being up obviously because people are a good feeling but one other thing you have to think about as the in the first part of 19 yard you know you had to your inventory.
You know decline you have recession as people in call it.
That went through the system. So youve entered a new place right. So if you come down you hit a ball you hit a bottom and then you start to grow from there what kind of in that transition phase. So I think the combination the external environment getting.
The deal today with China, obviously, as a resolution and why the issues that was over People's minds are there. Other U.S.M.C.A. everybody says is gonna be passed I think of that got past it'd be very helpful to two people. The fact that people have done what they needed to do it was during the year 19 to change supply chains and think about it you know that that's just.
Dropped it without endpoint value the customer so to speak and it's like us with Brexit, we spent $400 million plus money the customers didn't get better services out of we just had to create more entities and comes up and running its you know that those things are sort of through the system. So I think it's that what you're feeling a little bit of relief on the other side of that have that work, which.
It was being done and worry which is being done without a lot of.
Activity and so even capital expenditures, which grew grew at a much slower rate off the high in 2018 years started.
People are experts say will stabilize and kind of come out from there.
And not on the credit fall short strong credit.
You know I'd start by saying that we are always I'm running through the portfolio.
Teen leap analyzing various sectors, bringing it to senior management discussing it. So we've got a real great process for four always looking for you know some risks that are on the horizon.
As you know we've been.
You know we've been running the company with.
Strong underwriting standards for years now you see that NRC CCAR results. So I mean, I hesitate to sort of pick one sector or another because.
Because you know we noticed stuff out in the marketplace, but it may not affect us directly given how we've you know run the company for years now, but if you're looking for some sectors that were paying attention to not do we think were overly concerned about them given how we manage the company, but we're certainly paying attention.
You know to to leverage loan market Levered lending.
Certainly paying attention to energy with respect to natural gas prices were certainly looking at retail with respect to enclosed malls.
At our eye on you know always up around spots around the world It may be experiencing a little disruption.
So you know that that's hard answer that question.
Very good thank you.
Well now that you can extend with Jefferies. Please go ahead.
Hey, Thanks. Good morning, just a question on the balance sheet and capital. So you know you're at 11 to see T. One your stated target has been around 10, we're still waiting for the FCB Finalization. Two questions are one any anticipated changes to where you think your your your capital goal might be.
Any on what we got and then secondly, how have you gotten to a point, where you might rethink the mix between your dividend payout, which is wrong is lower than peers on <unk> and the and the buyback in terms of the mix. Thanks.
Let me I'll start on you know I guess buffers and you can.
Brian you might want to pick up on the dividends or buybacks.
But look today as you point out we have a like a meaningful cushion.
So it's it's really not an issue for us right now.
In terms of you know what our ultimate buffer is gonna be when we don't have as much of a cushion.
You know, we haven't really talked about that publicly because we don't think it makes sense today to pre charge, what a buffer needs to be given you know the size of the current cushion and given as you mentioned regulations SCB. Other things there are still changing and lots of things can affect that buffer.
When we get there so.
You know, but but I would just emphasize we have a sizable buffer right now.
In terms of dividend versus buyback <unk>, yeah, we will keep increasing the dividend.
As we move up to sort of the 30% level and earnings payout Weve.
Unclear about that and then the rest will go into reducing the share count and if you look at the page we showed you earlier.
Part of the.
She was.
The share count was a lot higher than we did it people expected a sort of in the 2009 timeframe. After the mail transaction. So you know we're pushing it back down and we think that's a good use of our capital we don't need to capital fund the loan growth and deposit growth, you're seeing is able to do that.
Through continuing to fine tune the balance sheet, and so expect us to move the dividend up consistent with what we've done before assuming see car approval and all that good stuff, but it's the ideas will keep it up we'll keep at a level that allows us to use the share buyback to help drive dps growth and you saw the benefits that year over year in an environment where.
The rate movements.
The earnings flattened in the second half the year. What you saw was yes, you every year was up.
Double digits, because we can retire the shares and so we think that's the best thing to do for sure.
Understood. Thank you guys.
Well take our next question from Matt O'connor with Deutsche Bank. Please go ahead.
Hi, guys I was just wondering if you could talk about the pace of long growth that you're expecting for 20, <unk>, maybe both kind of within the business lines and net of some of the drives some run off.
And then the drivers of growth and that's that's changing at all versus what it's been a loss kind of 612 months, obviously commercial industrial slowdown maybe that's temporary so just talk about the pace and the drivers of loan growth. This year. Thanks.
Sure.
So look growth in our business segments should continue to be kind of mid single digits. As you know we grew 6% this quarter.
Both consumer and you wouldn't grew at 7% driven by increased.
Residential mortgage activity global banking grew 6% year over year and that was that was you know driven by large corporates middle market companies leasing activity and solid growth and international region, So pretty pretty broad based we.
We anticipate you know solid growth in consumer loans, assuming the current economic environment as well as the sort of pull through of applications to the <unk> mortgage application to the pipeline.
With respect to card, we've already talked a little bit about that.
You know, we we expect that we can start growing the growing card overtime here.
With respect to residential mortgages originations were you know strong this quarter.
They were up significantly so that's going to translate the to solid Q1 growth.
How are you have to remember that that's gonna be partially offset by continued run off of the noncore portfolio.
We expect all growth to be up modestly year over year, we expect solid growth and a small business.
And remember and all these categories that I'm talking about we remain focused on prime and Super Prime.
And on commercial loans.
Our outlook remains you know favorable.
Again growth year over year should be in sort of mid single digits.
[noise]. So that's that's hard month what.
Okay, then netting out the kind of mid single digit growth in that business segments, where the run off.
You said, you're kind of stay in this case of 4% growth that you saw this quarter some of the macro.
Yep Yep, Yeah. If you look at the run off the chart on the loan page, there and if right hand corner, you're gonna Yeah, you see that.
We basically have gotten.
Really to the point, where that's that's now natural run off or will they won't be yeah. There. They don't being sales of major impacts for purposes of we're doing before to.
Continue to move loans, which were not getting income on because their status in terms of restructuring and things like that out and clean portfolio. So that just smaller so I think that helps the overall nominal growth some stuff.
It's not going to be one of them okay.
Sorry, if I do want to have articulating a loan sales, but nothing major so you're saying no not loan sale down on off the run off as you know running at about one and a half 2 billion per quarter.
Just natural pay downs and those mortgages in America.
Got it okay. That's helpful. Thank you.
Well take our last question today from Saul Martinez with you B.S. Please go ahead. Your line is open hey, good morning, guys. So forgive me for beating a dead horse on on the efficiency ratio.
Question, Yeah, but all I guess Alaskan in a slightly different way I mean, you guys are out what 57, 58%.
Even with you know t. when being you know big part of the Oh, the overall mix revenue mix, but you know if we assume that revenue growth gets back to say GDP growth.
Oh, Yeah overtime is there any reason why you couldn't.
Reduce your efficiency ratio below say the mid fiftys percent range into the low Fiftys given you know somebody opportunities you talked about Brian and just secular trends towards Digitization electronification of payments, which obviously reduce it is a unit cost pretty materially there doesn't seem like there is an obvious reason why you couldn't continue to.
Drive that down pretty materially even from here.
But that's our that's what we're doing what can did he keeps expenses, but the base.
If the revenue grows you know PDP, plus that's 200 basis points of operating leverage and that'll keep producing efficiency ratio by definition. So your stating what you know our job is and we've been able to do it and we'll continue to do.
Okay. So there's no obvious yeah. It was there any point at which are any obvious you know point at which it becomes just much more difficult or is there such as the glide path from here is just to seems like there's nothing really to prevent you from doing that for awhile.
Well, let you know when we think we can't do it anymore, but we don't see it so okay got it alright, thanks a lot.
We have no further questions at this time. It is now my pleasure to turn the call back to Brian Moynihan for any closing remarks.
Well, thank all of you for your attention on the call.
We finished another strong year in 2019 for the team and they did a great job growing your earnings due at the right way, making the investments across the franchise.
As we say, it's a nice start well continue to focus on responsible growth. We've got a lot of room to run. This company every business had good client activity the loan deposit.
Underlying customer growth up at the size and scale this institution or a tremendous work by our teammates and all that helped us they provide stable performance and with the rate cut.
That came through relatively late in the years. So we feel good about that and we feel good about working through the other side of as Paul described earlier, we're focused on the cost as many of you asked about but we're focused on continuing to develop and implement products and services, which meet the market's needs and can do to help us grow market share across every business.
Right, we're doing it which we think is an opportunity which is ours to continue to take thank you.
This does conclude today's program. Thank you for your participation you may disconnect at anytime.