Q1 2021 Bank of America Corp Earnings Call

Good day, everyone and welcome to the Bank of America first quarter earnings announcement.

At this time all participants are in a listen only mode. Later, you'll have the opportunity to ask questions. During the question and answer session.

You made ready to sort of ask a question at any time of pressing star one on your Touchtone phone.

Please note today's call is being recorded it is now my pleasure to turn the conference over to Lee Mcentire. Please go ahead.

Good morning, Thank you for joining to this call to review our first quarter results.

<unk> all had a chance to review our earnings release documents.

As usual there are available, including the earnings presentation that we'll be referring to during the call on the new and improved Investor Relations section of the Bank of America Dot Com website.

I'm going to first turn the call over to our CEO, Brian Moynihan for some opening comments and then I'll ask Paul Donofrio, our CFO to cover the details of the quarter.

Before I turn the call over to Brian and Paul Let me just remind you that we may make forward looking statements and refer to non-GAAP financial measures during the call regarding various elements of the financial results are.

Our forward looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, particularly during the pandemic period, we've been operating in.

Factors that may cause those to be different.

Our are detailed in our earnings materials and the SEC filings that are on our website.

Information about the non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in our earnings materials that are available on the website. So with that I will turn it over to you Brian take it away.

Thank you Lee and thank all of you for joining us.

Ben of years since we first reported results, which would include the health health crisis impact.

But what we see different now is we see an accelerating recovery burst of the economic uncertainty that we would of face to last year at this time.

The most recent economic indicators reflect in an economic recovery that has gained momentum and continues to be supported by fiscal and monetary policies.

From our company's perspective, we have emerged as of Stephens stronger company than competitor.

We were when we entered of health care crisis.

Compared to last year of Bank of America is balance sheet. It has higher capital ratios higher reserves, but lower charge offs and record liquidity.

Our diverse business model with leadership positions across all of our businesses has helped us earn our way through the crisis.

Our global markets and cause of wealth management businesses, which would typically benefit from them. This healthy capital markets environment continue.

Continued to perform well this quarter.

Our consumer and global banking businesses also performed well.

But they were.

This is after being more negatively impacted for several quarters by the interest rate environment and credit costs.

Businesses in our full recovery of motor out generating new assets and new relationship with our clients.

All of this work by my team and which we're very proud of here has led to EPS in the first quarter of 86 per share.

Return on tangible common equity of 17%.

Paul is going to take you through the details in a moment, but simply put we believe our decade plus.

A lot of the decade, plus long dedication to responsible growth has put us in a position of both earn more money and deliver more back to you our shareholders.

This morning regarding share repurchases.

It's our intention to increase those repurchases over the coming quarters.

The current restrictions are lifted by the federal reserve.

So first lets discuss the recovering economy.

On slides three four and five we we've shared slides like this with you in the last few quarters. They are updated for the most quarterly data day.

The key economic signposts I won't go through all of the details on them, but they're there for your reference.

But a few highlights obviously GDP consensus of protection projections continue to improve and you can see our tremendous best in class Bank of America Research channel teams pretty actions the upper left hand corner of slide three.

You will note also the increases in the consumer spending from our bank of America customers at the bottom of slide.

Which is not only much higher.

In the prior year, when payments began to kind of but notably as much higher this year to date and year to date 2019, a more appropriate comparison.

This is a key element of the economic optimism you're seeing reflected in the market looking back to 2017.

After tax reform and other matters, we saw a step change in money movement by our customers moving from a previously of 5% year over year type of growth rate to up to 9%.

In 2019 versus 2018, then the pandemic hit in gross of 20 over 19 was only 1%.

But so far year to date, we're going faster on a larger base than the 2019, 9% plus growth churn at 10% plus.

The first quarter was a record dollar amount of money moved by Bank of America consumers.

The trend is fully on track, even though the economy is not yet fully reopened.

March was a record month of spending by bank of America consumers and led to the highest ever quarter of consumer spending.

As you look also on the slides note on slide four of the lower level of card delinquencies as of Spike from the expiry of deferrals.

And of Foofaraw. There was a company that has worked its way through the charge offs. In addition, early stage delinquencies are at or near historic lows, suggesting low levels of card charge offs again next year.

So next quarter excuse me.

As the economy has improved customers of continued increase their business across our platform.

When you think about it from a customer perspective, which is what we do as a business and comparing across the pandemic period of last 12 months.

We have simply added more customers across every line of business.

And those customers are more digitally engaged in every business as well you guys. See later on slide 17 that we added nearly 1 million active digital customers this quarter.

Pushing this past 40 million of active users led.

Led by increased use by boomers and seniors.

We have more deposits and cash manager of customers imbalances in every business from consumer to small business to Merrill Lynch of private bank of business Bank and the commercial bank across all of franchise.

New investment relationships and our consumer businesses Merrill edge platform now total more than 3 million accounts and net new households continue to growth both both of Merrill Lynch and of private bank.

We saw aggregate of client flows across our investment platforms up $48 million in the quarter, bringing those total investment assets of over four trillion.

With a range of those capabilities from our digital only capabilities and our consumer business all the way through the great service and capabilities provided by a 20000 wealth advisors.

We added new lending customers, whether through P. P P in small business and business banking.

And along with too broad of traditional banking relationships of our middle market and corporate clients and we've helped existing of new clients obtained funding taxes markets, where our sales and trading investment banking platforms combined sales and trading investment banking revenue of $7 $3 billion because of the highest in a decade it ends up.

<unk> 28 per cent year over year Jim.

Tomorrow.

And Matthew Coda and the teams led by Tom Montag has done a great job there.

Our customer satisfaction levels across all of these groups of clients rose during the pandemic and of brand loyalty of our company as of at the highest its been.

We also note that our employee engagement is high as its been.

And we have driven our success to our teammates this quarter and you'll note in our expenses with another broad based.

Bonus plan, which as of fourth time, we've done this.

The support provided to the communities, we serve our employees' sense of pride in our company and what it does is reached new levels of set of satisfaction. So of that being said, we do have some work to do in certain areas as we have sort of last decade.

Those three areas with a couple of comments on each of those areas of our loan growth net interest income and expense non.

Growth of kidney continues to be a lot of liquidity in the system of customer payments remain high which impacts of loan balances.

And this is across the whole <unk>.

Consumers and companies pipeline origination of improving but remain below pre pandemic levels. We've reinstated all of our credit standards back to where they were before the pandemic and we remain highly focused on capturing long growth as the economy expands and continues to recover.

The projected economic growth should cause of need for companies to borrow build inventory increase hiring and invest and do what they do in their businesses.

As you can see from slide four four global banking loans after falling of January appear to have stabilized again in March we'll have to see how this plays out but that's the first of this month the month of March was a good sign.

<unk> continue to build it but line usage remains low card applications of mortgage originations originations continued increase in each of the last three quarters.

This along with more mortgage rates, moving higher and driving a level of prepayments and runoff of current mortgage loans sets up consumer loan growth.

That strong customer liquidity, obviously negatively impacts of loan growth, but it has benefited credit cost we.

Quarter, one net charge offs from million below pre pandemic levels in dollars and percentage of further supporting a reduction in our credit reserves this quarter.

Our net interest income.

We told you six months ago.

With that we believe the third quarter would be the trough and is proven to be so.

Despite the drawdown of loans from two less days of interest in this current quarter and how it was flat.

For fourth quarter of last year.

As we move through 2021, we believe the benefits from of Steepened interest rate curve should begin to work its way into our revenue driven by continued investment of our liquidity.

As well as picking up those lost days of interest.

And thinking about the expected out of a trajectory this year.

In the year ahead, I would set the stage is as follows.

The forward interest rate curve materializes, and we see modest loan growth late in the later quarters of the year, we ought to see NII as we exit the fourth quarter.

This year of $1 billion of quarter higher than the most recent level of $10 3 billion in this quarter.

The last area I would highlight is expense we had a large expense this quarter driven by several factors some of our seasonal impacts some of them.

Good news in that there of volume and revenue driven impacts and others were not typical of our normal of operating expense due to charges taken.

We expect a significant decline as you look forward to the second quarter 2021 and expense we've seen of head count in our company start to work its way back down due to attrition, especially as of specialized programs begin to run their course.

I'd also remind you that for the first quarter is typically elevated payroll tax expense and this year it was about $350 million.

Next I would say roughly 500 million of of our increase is driven by the improved activity and higher revenue, which of course is a pause of it's what we're in the business to do.

Either they items I'd classify as different from our typical cost were as follows first given the progress made in our digital gaming engagement with our customers and other customer traffic behavior.

We will continue to rationalize real estate for our teammates and our customers and recorded an impairment charge to do that of $240 million in the quarter.

Second of portion of the equity awarded last year to go with bank before last year's work in a photo of a global banking markets teammates.

It has different retirement rule and as previously reported we change out retirement rule, which caused that to accelerate and full of this quarter instead of being amortized over the next four years.

Other costs worth noting include severance costs and a special incentive award recognizing a broad base of 200000 teammates for their outstanding efforts during this pandemic.

That award for the fourth time of spilled on shared success of worst of three times prior that was giving of three priority of previous years.

Additionally, COVID-19 expense remains elevated as we continue to help our clients through the various assistant programs established by the government P. P. P. Unemployment claims stimulus payment disbursement M. P. P P forgiveness.

But broadly speaking we have done a great job in helping customers of these programs. We have now originated almost 500000 PPP loans and have obtained forgiveness for our clients for 200000 of those.

We processed $180 billion unemployment claims and $73 billion in the IP stimulus payments.

Paul is going to share a bit of of details in the quarter as expensive as even after absorbing these expenses, our pizza and our Roes from fourth quarter.

As we ended last year, we talked about of target for this year's expenses may of 2021 fiscal year expenses to be similar to the 55 billion level in 2020, given the charges. This quarter, we would increase that target by about 1 billion of half hour ever I just want you to keep some perspective here.

We reported $57 billion and expense for the year of 2015.

Six years ago.

Even though all of the investments we've made in technology and the build out of branches in new markets, New sales resources, and just having more customers more activities the inflation of health care and real estate and other costs moving our teammates our starting wages from $15 of $20 an hour of during that time period.

We are targeting 2021 expense.

At roughly two of where it was in 2015 six years later and a lot bigger company later.

That discipline and operational excellence is what we do and you should expect us to continue that.

So in summary of this quarter week weekend drove responsible growth we support our employees by keeping them safe from boarding their efforts in the pandemic, we support our customers by providing strong balance sheet and resilient systems to transact, we support our communities by supplying critical finding of driving improvement toward Rachel.

Social equality with our increase in.

In our $1 billion commitment of one point to $5 billion.

We've already delivered over $300 million of that commitment at the same time, we delivered to you our shareholders $8 billion in earnings generating return on tangible common equity of 17% and returned $5 billion in capital to the shareholders in the first quarter.

It shows you we can both deliver for you our shareholders and deliver for our customers our employees and other stakeholders and society with that let me hand off to Paul to cover the quarter a little more detail.

Thanks, Brian.

And Hello, everyone.

I'm, starting on slide six and seven together.

As I've done in the past few quarters now.

The majority of my comparisons will be relative to the prior quarter to reflect how we are progressing through this health crisis, rather than year over year in.

In Q1, we earned net income of $8 1 billion or.

86 cents per share, which compares to $5 5 billion or 59 cents per share in Q4.

The earnings improvement included strong revenue growth, which more than offset higher expense. Additionally earnings also included a $2 7 billion reserve release, which resulted in a 1.9 billion dollar provision benefit.

Revenue growth was driven by strong sales and trading results record investment banking fees and record asset management fees in our wealth management business.

While consumer fees faced the seasonal challenge against elevated Q4 holiday spending.

With respect of returns return on tangible common equity was 17.1 and ROA was 130 113 basis points.

Moving to the balance sheet on slide eight the balance sheet expanded 150 billion versus Q4, two 2.97 trillion in total assets deposit growth continued to drive the balance sheet higher deposits grew 89 billion in the quarter and are up 300 billion from Q1.

Note that as deposits continue to grow loans declined 25 billion from Q4.

We reported some of this excess liquidity into debt securities, which increased 172 billion, while cash balances declined 54 billion and we reverse repo awful felt.

It is also worth noting that our liquidity portfolio is now more than one third of our total balance sheet and of surpassed <unk> one trillion dollars.

On a period end basis I'll go over markets balance sheet increased by 129 billion coming off year end seasonal lows.

And as customers increased their activity with us.

Note that on an average basis. It is only up marginally from the prior year and versus Q4 up only 40 billion share.

<unk> equity increased 1 billion earnings were mostly offset by a $4 5 billion and net capital distributions and a decrease in OCI of $1 8 billion, driven by an increase and long bond rates.

With respect of regulatory ratios consistent with the fourth quarter standardized remain however of binding approach for us and at 11.8% our CET one ratio is our binding metric.

Well the CET one ratio declined 15 basis points from Q4. It is 230 basis points above our minimum requirement of 95 per cent, which translates into a 35 billion dollar of capital question.

The benefits to the ratio from an increased level of capital.

Were more than offset by higher arguably a from the liquidity of poured into mortgage backed securities.

And growth in our global markets balance sheet.

Our supplemental leverage ratio.

At quarter, Andrew was 7%.

And $6 one per cent on a pro forma basis, excluding the relief for deposits at the fed and investments in treasuries six 1% versus the five per cent minimum requirement leaves us plenty of room for growth in the balance sheet.

R T Lac ratio remained comfortably above our requirements.

Let me spend a minute on loans and deposits before moving away from the balance sheet I will focus on average is.

That is what drives NII.

With respect of loans on slide nine you can see the downward trend across the year as customer of liquidity and accommodating capital markets drove paydowns well.

Well above historic levels.

I would draw your attention to the linked quarter change global banking commercial loans declined 16 billion, but as Brian noted earlier, we are seeing pipelines build and.

And balances have stabilized for more than a month.

So we are hopeful for a turnaround.

Loan payments by consumers continued to outpace originations with loans declining 14 billion in consumer banking led by mortgages.

Plus we saw normal seasonality and our card products as customers paid down holiday balances with stimulus contributing to the high payment rates.

But what is also noteworthy is the linked quarter improvement in GE and global markets Jim.

<unk> continued to benefit from security based lending as well as custom lending in global markets. We relax some hold limits as the economy continued to strengthen.

With respect of deposits on slide 10, we continue to see tremendous growth across the client base not only because of growth in the money supply, but also because we are adding new accounts and attracting liquidity from existing customers.

Turning to slide 11, and net interest income.

On a GAAP non FTE basis NII in Q1 was $10 2 billion $10 3 billion on an FTE basis.

Net interest income declined $1 9 billion from Q1, 'twenty driven by the rate environment and lower loan balances.

<unk> was relatively flat to Q4.

Compared to Q4.

We see this as a good outcome considering the headwinds of two fewer days of interest.

Lower loan levels and modestly higher premium amortization expense.

These headwinds were mostly offset by the deployment of excess deposits into securities and a benefit of approximately $100 million from a legacy litigation settlement involving some securities.

The net interest yield was relatively stable declining three basis points from Q4, and it was flat if you exclude global markets.

Reducing cash and repo we deployed some of our excess liquidity into securities in Q1 split across treasuries and mortgage backed securities.

Securities increased 172 billion from year end.

On a weighted average basis relative to what we were earning on the cash.

We improved our yield on that roughly 170 billion by approximately 150 basis points.

Now the improvement of Neil could have been higher.

However.

But similar to.

Q4 purchases, we hedged a portion of the treasury's purchased with swaps effectively keeping those securities floating.

As you will know.

Given all of the deposit growth and low rates our asset sensitivity is rising.

Our asset sensitivity to rising rates remained significant.

Highlighting the value of our deposits and customer relationships.

Our sensitivity is.

Is lower from the year end levels as higher rates.

And deployment of liquidity into securities increased.

Our baseline so the sensitivity no longer assumes that liquidity is available to invest at higher rates.

A few thoughts on NII for the remainder of the year.

But first please note that these forward looking comments on NII I assume that the forward interest rate curve materializes.

The economy continues to recover and that we have some fairly modest loan growth in the back half of the year.

Given those assumptions, we expect some improvement in premium amortization across the next few quarters, if mortgage rates follow the forward curve.

At $1 5 billion in Q1 right off of premium continued to be of headwind as mortgage prepayments remained quite high.

So forward looking comments include a lot of it of material moving parts.

From rates loan levels and premium amortization, but as Brian said, we believe.

<unk> 'twenty, one NII could rise by as much as $1 billion from this quarter's level.

Yeah.

Okay, turning to slide 12 in expenses Q1 expenses were $15 5 billion of $1 6 billion higher than Q4.

I will add to some of the remarks, Brian mentioned earlier.

Q1 included the normal seasonal elevation of payroll tax expense of about $250 million second as a result of the current period's solid revenue performance and a better outlook for revenue for the remainder of the year, we accrued for higher incentives.

And experienced increased processing costs. This added roughly $500 million to the quarter third we incurred some expense.

That differs from our typical operating expense, we reversed a decision made on some twenty-twenty instead of comp awards, making certain portions of those wards retirement eligible this accelerated approximately $300 million of expense into Q1 that would have been expensed over four years. We also recorded an impairment charge.

Of $240 million for real estate utilization and we incurred.

$160 million of severance charge as we move back towards business as usual with respect to our head count.

This is based on an expectation that as rules get eliminated through process improvement some of associates might choose severance over opportunities to work in a different role in the company.

Lastly, our COVID-19 costs remained largely unchanged.

As modest declines in some employee related costs were offset by costs associated with restarting PPP originations and forgiveness and additional unemployment claims processing.

Covid costs are proving a little slower.

A little.

A little slower to safely reduce than we had hoped.

Turning to asset quality on slide 13.

Government stimulus and support has helped customers get through this pandemic that support coupled with our customer assistance programs and years of underwriting discipline and of responsible growth has resulted in low net charge offs net charge offs this quarter were $833 million or 37 basis.

Once of average loans and were lower than Q4.

And.

They were 14% lower than the fourth quarter of 2019.

Which was the last quarter before the pandemic. Despite an expected increase in card losses of $229 million in Q1.

With the exception of a small uptick in small business.

And the card losses losses in every other category declined.

From Q4.

Provision was a 1.9 benefit.

In the quarter as an improvement in the macroeconomic outlook and lower loan balances resulted in a $2 $7 billion release of credit reserves.

Total consumer consumer reserve receivable.

At leases were $1 4 billion driven primarily by card while the commercial release was $1 2 billion.

Our allowance as a percent of loans and leases ended the quarter at 1.8 per cent.

Which still remained well above the one point to 7%, where we began 2020 following our day one adoption of Cecil.

Well with respect to our reserve setting assumptions.

We continued to include.

A multitude of scenarios.

Based upon our Q1 waiting of those scenarios GDP is forecasted to return to its for Q19 level by the end of 2021.

The weighted scenario also assumes.

The unemployment rate at the end of 2021 will be just north of 6%.

Which is in line with March unemployment rate.

For 2022.

The weighted average scenario assumed.

Unemployment of just under five five per cent as we exit the year.

To the extent of the economic outlook and the remaining uncertainties continue to improve.

We expect our reserve levels will move lower.

Okay.

On slide 14.

We show the credit quality metrics for both our consumer and commercial portfolios overall.

Consumer net charge offs rose 211 million from Q4 and absent the $229 million increase noted in card.

Other losses declined.

With respect of card losses.

Given the reduction in late stage delinquencies in the 180 day pipeline.

We expect card losses to be lower in Q2.

Npls remained low despite a small uptick due to our consumer real estate deferrals, which have limited expected loss content given healthy LTV ratios.

Moving to commercial.

Net charge offs declined $296 million from the fourth quarter.

As the portfolio stabilize with resorbable criticized exposure and mpls declining in the quarter overall, given the environment the asset quality of our commercial book remains solid and 90% of the exposures are either investment grade or collateralized.

Yeah.

Turning to the business segments, and starting with consumer banking on slide 15.

Consumer banking produced another strong quarter in terms of customer deposits and of best in flows reflecting the strength of our brand the innovation around digital and deployment of specialists in our centers all of which has enabled us to capture more than our fair share of the increase in customer liquidity.

The segment earned $2 7 billion in Q1 versus $2 6 billion in Q4, as the provision benefit more than offset lower mostly seasonal revenue antics and higher expense.

Okay.

Revenue declined 2%, reflecting lower card income from Q4.

Q4 is elevated holiday spending.

Expenses moved higher as a result of our real estate impairment costs as well as seasonally higher payroll tax expense.

This also caused an increase in our cost of deposits this quarter to 142 basis points absent the impairment charge the cost of deposits would have been 131 basis points.

As expected.

Net charge offs rose from Q4 due to the flow through of the bold in card delinquencies as noted earlier.

At.

A $1 4 billion dollar of reserve release.

It resulted in a.

$617 million provision benefit in the quarter.

Okay.

On Slide 16, you can see the significant increase in our consumer deposits and investments.

Average deposits of 924 billion are up 25% compared to Q1, 'twenty with nearly two thirds of that growth in checking.

Rate paid is down to three basis points as 56 per cent of the deposits are low interest checking.

Lastly, north.

North of growth throughout the quarter as average deposits were up 39 billion from Q4.

We covered loans earlier, so I would just note.

That's been balances of 324 billion are up 53% year over year as customers continue to recognize the value of our online offering.

As Brian noted and as you can see on slide 17, we continued to see improvement in digital enrollment this quarter 70 per cent of our consumer households use some part of our digital platform. This year.

We continued to see digital payments and zelle, taking hold across all of our businesses.

Zelle consumer dollar volume is up 72% year over year small business is up 182% of year over year, and 90% of our business to consumer payments and global banking are now made via zelle.

As you can see our digital assistant Erica continues to add users capabilities and usage.

Plus.

We are applying our success with Erika to other businesses as well.

Okay, turning to wealth management, we continued to deliver solid organic growth.

Serve the comprehensive banking and investing needs of clients and manage risk responsibly.

We experienced strong household new household acquisition.

In a virtual environment and a very competitive market.

This resulted in a record quarter with respect to total client flows, including near record AUM flows and record AUM fees.

Net income of 881 million improved six per cent from Q4 as revenue growth and improvement in provision exceeded.

An increase in expense.

With respect of revenue the record AUM fees or complemented by higher NII on the back of solid loan and deposit increases.

<unk> increased driven by revenue related costs and seasonally elevated payroll tax.

[noise] Merrill Lynch and the private bank, both continued to grow clients.

As we remain a provider of choice for affluent clients.

Client balances rose to a record $3 five trillion.

822 billion year over year.

Driven by higher market levels as well as strong client flows.

In Q1, our advisors added over 6000, net new households in Merrill Lynch and nearly 700 net new relationships in the private bank.

Let's skip to slide 20, which is of new page that highlights our progress to digitally engage wealth management clients.

In Merrill and the private bank, our clients and advisors have both embraced the value of of digitally enabled relationship in which digital tools are critical mechanisms for fast safe and secure trends of interactions.

Our wealth manager of our wealth clients.

Are some of the most highly engaged clients in the franchise with 80% of Merrill households digitally active.

In Q1.

We saw a record number of logins clients are logging into trade check balances and originate loans with ease.

All of which can be done through a simple side signing.

We continue to enhance and modernize the capabilities for both of the client and advisor and these capabilities are becoming key differentiators as well as being recognized by third parties.

Moving to global banking on slide 21.

The business earned nearly $2 2 billion in Q1, improving $500 million from Q4, driven by a provision benefit and solid revenue.

While loan growth has been challenging deposit growth has been strong and investment banking revenue exceeded previous records.

The team produced $2 2 billion in firm wide investment banking fees growing year over year by 62 per cent and 20% over Q4.

Looking at revenue and comparing to Q4, despite the higher I be fees total revenue declined 3% driven by the by weather related impairments on some tax advantage investments.

Provision expense reflected a reserve release of $1 2 billion in Q1 importantly, net charge offs.

Of 36 million fell by $278 million from Q4.

Non interest expense rose, 14% from Q4, reflecting the incentive award changes noted earlier. Additionally.

The strong performance and improved outlook.

And seasonally elevated payroll tax.

Increased personnel cost in Q1.

Yeah.

Looking at the balance sheet on slide 22.

Average deposits move.

Moved up relative to the Q4 as customers remained highly liquid.

Year over year.

Deposits were up an impressive 27% while repaid is at an historic low.

Earlier loans declined early in the quarter, but stabilized late in the quarter.

Yeah.

Wholesale digital engagement continued to accelerate and usage continue to grow driven by the same.

These safety and convenience of.

Of our digital banking capabilities.

That our consumer customers enjoy.

Yeah.

We presented some of wholesale digital highlights on slide 23.

Switching to global markets on slide 24.

<unk> reflected the highest revenue quarter in over a decade with solid year over year improvement.

And an even more significant increase relative to Q4.

I will talk about the segments results, excluding DVA this quarter net DVA was negligible, but the year ago quarter had a $300 million game.

Global markets produced $2 1 billion of earnings in Q1 more.

More than double the level of Q4 and up 39% from Q1 'twenty.

Focusing on year over year revenue was up 26% on higher sales and trading and equity underwriting fees. The year over year expense increase was driven by volume related expenses in both card and trading.

And an acceleration in expense from changes in the incentive awards.

Sales and trading contributed $5 1 billion to revenue, increasing 17% year over year, driven by a 22% improvement in FIC and a 10% increase in equities.

Results reflected gain.

Gains in commodities and strong results in credit mortgage and municipal products versus relatively relative weakness in the year ago period. This was partially offset by reduced activity and trading opportunities and other macro products.

The strength in equities was driven by a strong trading performance in cash.

The business of produced strong returns delivering a 22% return on capital in Q1.

Yeah.

Finally on slide 26, we show all other which reported profits of $257 million.

Compared to Q1 'twenty the improvement of net income was driven by a larger tax benefit given.

And expected increase in ESG activities this year.

The year ago quarter also included a modest reserve build.

Our effective tax rate this quarter was 12% and excluding the tax credits driven by our portfolio of ESG investments our tax rate would have been 23%.

For the full year absent any changes in the current tax laws or other unusual items, we expect an effective tax rate to be in the range of 10% to 12%.

Okay with that let's go to Q&A.

And after sort of you would like to ask a question. Please press star and one on your Touchtone phone that star one on your Touchtone phone.

Today, we will go first to Glenn Schorr with Evercore ISI. Please go ahead.

[laughter].

Hi, Thanks very much.

I Wonder if we could just.

You gave us a lot of people kind of on the expense side I just wanted to try to get a jumping off point on the second quarter I think with all your comments you'd get some type of low to mid 14 billion range.

Wanted to see if that's right and then if you could give us the right perspective meet many of you.

You on what April total expenses flat for many years.

While you grew the franchise now the economies growing cap of markets.

Very strong on the expense dollars of crept up.

I don't believe.

He has an expense creep problem, but I wonder if you could address that and give us the right perspective to look at thanks.

Sure.

In terms of the second quarter.

You're I think you're about right. We expect expenses you know just north of a $14 billion dependent on the revenue environment and the amount of progress we make in taking down.

The COVID-19 costs.

In terms of.

Of.

Your comment about the our ability to manage expenses, we agree with you I think as Brian noted in his opening comments.

We've.

We've managed.

Not to increased expenses for years, now and we've absorbed merit increases.

Investments.

Minimum wage improvement and benefits all.

All of the dramatic increase in processing volumes digital increases. So you know where we have sort of talked about on other calls we've been using operational excellence and other <unk>.

Initiatives to basically fund.

The investments in our future.

You know I think our goal here is is to.

Clearly create operating leverage.

[noise] over an extended period of time, we've talked about maybe expenses.

Rising maybe out of 1% level per year.

And I think that's probably the best guidance, we can give you.

And again some of the.

Ins and outs, we had a lot of variability of this quarter and obviously, we're sitting here.

In the middle of of pandemic with a lot of.

Corporate expenses.

That had been a little bit more sticky than we had all hoped.

But they're going to come out there's no question about that and so we'll get back to cash.

End of a normal level of of expenses.

Expenses and in a very reasonable growth level over the long term.

Relative to revenue.

Yeah.

Thank you that's exactly what I was looking for maybe just one other one.

We've seen a lot of growth from the private credit markets.

It started out strong in middle market lending, it's it's transitioning in doing so now large corporate lending those specialized lending of aircrafts.

Transportation of my time zone.

Curious given the breadth of your franchise.

Those all of those things I mentioned are kind of in your backyard they don't like.

That's just of lending relationship didn't hadn't seen franchise you have but curious if you see.

Well the growth in private credit as a significant competitor in your traditional.

Our backyard.

I'd say Glenn.

Depending on the.

The type of loan people who've been in these markets for years.

Bank mortgage stink.

The other types of consumer credit and then in the commercial side so share there.

That has an impact but our job is to compete through but the reality of what's happening. In fact, now frankly is to draw rates of lines of credit and stuff of low and companies.

That are operating well, there's companies that still need to get through the pandemic impact just aren't using of lines and thats bump along the bottom of we've shown you of those long term charters. So we feel good about our minimum.

Marketing of business banking businesses small businesses, we feel good about they're getting set up as the economy continues to improve and the growth will come back in and they're in their services and rate. We can provide a competitive and so I don't think that'll ever changed and I think it reaches further sometimes it reaches of stuff, we want to do as a company obviously.

In terms of leverage.

Extra amounts of leverage and things like that but but we feel we feel we're very strongly.

Strong of competitive than before the pandemic hit.

Middle market will grow mid single digits, and we would expect to return back to that level.

That's great. Thanks, Brian.

We'll take our next question from Gerard Cassidy with RBC. Please go ahead of your line is open.

Good morning, Brian.

Hey, Gerard how right.

Good.

Can you guys share with US I think you touched on the capital cushion being about $35 billion, and you announced a $25 billion share repurchase program today.

Obviously with the new stress capital buffer construct that goes into effect in the third quarter, you and your peers will be free to buyback your stock in the fashion in which you see if it's best for you guys can you give us some color of how you're thinking about that $25 billion buyback on how it will proceed.

<unk> after you get the okay.

I'm, assuming you're going to pass CCAR of of course in June's gives you the green light to do the buyback.

Yeah well.

So let's start with a couple of things one is the number of goes up this quarter because the average of the four quarters.

Moving forward a quarter and that's a higher average so we'll be able to do more of this quarter and then assuming the.

The.

The new rules come into effect in July we have substantial cushion and we will look to bring that question down.

Yeah, we're not kind of we're going to maintain a cushion.

All of requirements nine of half of it.

It will maintain a cushion over that you would expect us to move fairly of pace to start to bring us closer to the cushion that was honestly held up.

You know by the suspension of last year. This time of our ability to repurchase stock at all from the first for the second.

Second quarter third quarter or fourth quarter of last year, which if you go back and think about our original.

CCAR filings, we're gonna buyback of substantial amounts so we'll get back on the back of the saddle and drive of Florida and also yep.

Because of the earnings.

Yep power of the company work on continue to work the dividend and so expect us to get right. After as soon as we can.

Very good.

Paul you you talked about the loan loss reserve levels and when you compare them to your day one.

Seasonal number from January of 'twenty, 'twenty, obviously, your considerably higher than net number.

Can you share with us the outlook for potential loan loss reserve releases and could you just see an environment, where you could approach that day, one reserve level considering the economy. When you look at your own forecast that you gave us today is much stronger than what it was on the day one in <unk>.

January 20.

Can you give some further color on that.

Sure.

Just on reserves.

Absolutely.

A deterioration of an environment, which we don't expect.

We believe the reserves will continue to come down in the coming quarters.

We remain as the remaining.

Certainties.

Continue to diminish.

In terms of the reserve versus sort of day one Cecil.

You know every quarter, where we are reserving based upon the size of the mix of our portfolio at that moment.

And our view of the future based upon you know independent sources.

So as you think about that.

Hum.

You've got to recognize that our portfolio has changed.

For example card.

Which had which as you know as some of the highest reserve rate is down 25% from day one.

So you really need to think about how the mix has changed are you could you just can't go back to our of.

Our reserve level.

On day, one, which I think was 127 basis points of I'm not mistaken.

And just you know.

Slide two of today's numbers I think of you got to do a little bit of of product mix. There to get you know get back we've done that work and it shows we have.

Still a significant.

Paul at Cushing to day one.

Very good thank you.

Yeah.

Our next question is from Mike Mayo of Wells Fargo. Please go ahead.

Hi, I have two opposing views and I'm, hoping that you can help me reconcile that magic as it relates to efficiency on the one hand, it's like your slides of our very positive global bank, 74% gauged all connections well, it's 80 per cent of households, consumer gauge at all.

Still growing and you know that the unit cost per dollar of deposits.

130 basis points of it like best in class. So all of that technology progress is noted.

On the other hand, I look at slide 12, and I see the efficiency ratio and I see the expenses and I hear the higher guidance.

For expenses of poured this year. So I guess, if you could help me reconcile these positive underlying trends.

This number on the page of <unk> 68 per cent efficiency ratio and I do recognize that you're calling out a lot of expenses. The $1 6 billion increase quarter over quarter or is that should we consider that kind of just one time and where should this efficiency ratio go over time. Thanks.

But so yes.

Mike you pointed out that you know the the operating posture of the businesses continues to improve.

But you know of should go cross page 12, you've got to remember and you will notice that in the stuff out of left hand side of the page you had a rate environment that it finally after years of come up.

Some level of fed.

Fed funds rate and then shortly of LIBOR rates and stuff and that helped our efficiency ratio move under 60, but even if you look at this quarter of 68 and you back out the type of expenses that you're dropping of low Sixty's and then the NII improvement will because of that frankly as you well know it comes with very little expense attached to it and I E that we don't need more branches and more.

Infrastructure of more even more commercial bankers of those.

One usage goes up and the spreads just spread off of our floor is due to our <unk>.

Mass of deposit base.

So I think you should expect it even of our pro forma basis, you could say the low sixteens you expect it to move back into levels you see here as we move through the year of pick up the NII and then if rates.

Start to move up you'd even pick up more.

And you don't always disclose how much you're investing.

How is your investing spend I mean did you.

Lighten up during the pandemic are you.

And you're going to take all of them.

Yeah.

Oh, My God of technology side from Baby, we did.

Yeah I mean.

Technology initiatives last year with three three and change and this year will go up frankly, a bit and those numbers. We gave you because we continue to take advantage of that.

And so.

25 branches opened up of new cities this quarter and we're seeing of success from that.

Markets.

That we weren't in.

Two of 345 years ago, we're now moving into the top 10, all organic in and driving off of that and then salespeople now that's what we probably have lightened up last year, just because of the opportunities weren't there but.

But youre going to see us continue to reposition people from the efficiencies of the Opex program to the front.

And so of head count rose really to support.

You know the exigencies of the circumstances when you couldnt have of teammates of appropriate approach.

Equity at each other you know we had to have a few more of the move in AR and AR and AR and the issues that were there for social distancing is working from home and Overstaffing because of high risk employees. So we ran up a little higher and now you're starting to see of stripped down so that that that you know of core number of head count will drive our expenses, but the reality is we invested at the.

Same rate last year in everything except for incremental of commercial bankers, probably the and then we did it in past years, and we're going to do it again this year because it's the payback is huge.

And then my follow up just on the Covid related expenses, it seems like a little bit of a longer tail.

That maybe you had expected when do you think some of those come off I mean, you've cleaned your your employees well with the special payments in and all of the other efforts that you've made is that like another quarter or two are we towards the end of that.

Well, we're planning it it's blending down because of the situation change obviously of schools reopen and things like that we can normalize that.

We started last year. This time instead of teammates when you work from home, we will give you $100 of day to hire somebody come into your home to take care of their kids. So you can do a great job for our clients. That's why our client scores continue to rise during the pandemic of.

Obviously, if schools reopen we've tailored that program all of normalize it at the end of the second quarter, you'll have your that's one thing obviously PPP, Mike you know they've got extended again.

As we're seeing the volumes to be more modest this time of could start to shape those teammates out of forgiveness program will take us.

Longer just because its a tale, obviously, but we're sort of 200000 done and so you'll see that happen in the extra cleaning and meals for the teammates of of testing and all of those things we've done.

You know that all will come down as we sort of normalize operations over the next six months, but it took longer because things like P. P. P came out two more time since since eight of two or three times I guess moving forward would be the right number but so it's good but we're doing what we need to do to support our customers you know half a billion or have millions of excuse me.

Loans originated.

Originated under four different programs of the constantly changing rules are.

At the peak, we had 10000 people working on it now we got about 3000, there of 3000 forgiveness and then we can work it back down so I think over the next six months you see it start to blend down piece after fees after fees.

Alright, thank you.

Okay.

Our next question comes from John Mcdonald with Autonomous Research. Please go ahead.

Thanks.

Sorry on the expenses again, just on the Covid expenses that you were discussing Brian with Paul.

What's the kind of size ballpark of that I'm trying to think about the 56 and a half.

Total expenses and if we took off of 500 kind of special stuff you announced this quarter.

Then the COVID-19 costs, which might be of 1 billion of year is might you rebase at some point at 55 before business growth and things like that I'm, just trying to kind of put some numbers on it is that reasonable.

I would think of corporate expenses and acute in the first quarter to be of.

Approximately 400 million of.

Net COVID-19 expenses.

You know that was roughly flat by the weight of the last quarter as Brian said, we we ramped up for the new P. P. P and unemployment processing of claims, but we did offset some of that ramp up with.

Lower expenses associated with childcare and supplemental pay and things like that.

Yeah, So John just to be simple minded about it.

The reason why we had we told you the full year's can be higher is because we think it's a 1 billion billion of half higher in the first quarter here that wasn't sort of an a.

Remind us because of timing differences on some of the compensation matters and other things so.

As you well know we'll get it pushing.

Pushing it back down as fast as possible.

Yeah, Yeah, okay.

And then Paul I, just wanted to follow up when you're talking about the interest rate disclosures you mentioned that the model doesn't assume.

Deployment of automatic deployment of liquidity anymore can you just explain that like what changed because of rate moves or deployment.

Okay. Thank you.

Our model doesn't assume automatic deployment of liquidity I think you were talking about the.

125 day, Yeah, Yeah exactly yeah.

We got a little bit less asset sensitive because we.

We deployed some liquidity.

You know in the fourth quarter and in the first quarter.

And so now that's in the baseline and if one rate shock up you obviously.

Ah you're not deploying that liquidity at a higher rate anymore.

It kind of moved from the sensitivity to into the baseline.

What I'm, saying.

Okay Gotcha Gotcha.

Okay got it and last thing was just NII ramp that could happen you know to get your of 1 billion higher by the fourth quarter. How do you see that distributors that kind of evenly or is it kind of based on the second half loan growth coming back.

Yeah look we've been fairly careful about our guidance and there's a lot of moving pieces here you've got you now.

Amortization of premium that can move around you've got loan growth, which is hard to predict.

Yeah.

So we want to be careful about being too specific about how we get from from.

From here to there where I think we feel very good about getting to their.

Again, you know our the guidance that we gave you that NII.

In the fourth quarter could be $1 billion higher than what it was in the first quarter. That's based upon the forward curve materializing in and some modest loan growth in the back half of the year.

We've got some flexibility because we do have.

Liquidity.

You can go faster or slower on in terms of investing we'd like to put that in loan growth and not necessarily into securities, but we will invest in over time.

We've got to see the amortization expense start to come down.

It hasnt come down yet, even though mortgage rates have gone up.

And like I said, we've got to see some loan growth and we will pick up at least two days here. So that's the best perspective, I can give you.

Okay fair enough. Thank you.

Yeah.

And our next question comes from Matthew O'connor with Deutsche Bank. Please go ahead.

Good morning, I, just wanted to follow up on the deployment of liquidity that you've done Hey, Joe.

A lot this quarter of last quarter, if we look back since the end of 2019.

Most of your deposits have been deployed and sort of securities are.

And most of those securities I think are you no longer term mortgage backed that arent hedged I I know you said some of the treasuries were hedged, but that's a small portion of all of you added. So I guess just conceptually like is this signaling that you think rates of kind of gone up.

Kind of.

The big moves already happened for the next few years are you kind of thinking long gross not gonna come back that much.

Or what's the thought of locking in so many assets happiest rates this quarter and in the last couple of quarters.

Yeah, well, let me back up because I want to make sure that everyone.

It is clear of what kind of what we have done he who you want all of that for 2019. If you go all the way back to here in 2019 deposits are up 450 billion.

And loans are down 80 doing.

So we created 530 billion of.

Liquidity to deploy somewhere plus we're going to see some more deposit growth of 530 billion of liquidity had a dupont point somewhere.

Through the end of Q1 Securities are up 380 billion of cash and equivalents are up 150 billion to 300 billion, but as I said in the remarks.

We bought treasuries, but on about 150 billion of US treasuries, we of interest rate swaps. So you can really think of the $300 billion of cash.

450 billion in terms of our ability to fund loan growth or invest.

Turn or other uses.

So you know we've been balancing.

Liquidity capital and earnings throughout this whole process. We do we don't tend to make bets on interest rates, one way or another word just want to make sure that we can deliver for our customers.

No matter, what happens and I think we've been trying to do that as we've gone through this pandemic of again, it's all about balancing of course.

The capital and earnings.

Okay, and then just separately in the prepared remarks, you guys mentioned about increasing hold limits a little bit I think youre, referring to the trading businesses, but if you could just circle back on that concept.

And give a little more detail on on kind of where you are and where you are now in terms of the hold limits.

Yeah.

Yeah sure I mean look we we in terms of if you think about pre pandemic.

Underwriting criteria, we are on the consumer side I think back to pre pandemic now.

In terms of the commercial side there are still the effect of industries that we're watching carefully but everywhere else I think we are back to pre pandemic and.

In light of the size of our company in light of of.

The need for loan growth I think for relax a little bit on some hold levels, particularly in global markets, where they have a you know more of a moving and storage mentality around loans and what they do for customers. So yeah. We're just we're just taking a few maybe bigger positions than we might have otherwise taken a prepay.

But there's no real change in the underwriting standards.

The company is bigger and we have more liquidity, we have more capital. So we think all of this as appropriate.

Yeah.

With respect to large corporate loans not the trading book just to clarify.

That's right yes, okay.

Ross long long ago.

Just to think about it.

What's going to drive.

Yet the company's P&L also.

On the consumer side, especially.

If you look at it by business. So the wealth management business actually is growing a little bit you've got the commercial business down of consumers down consumers largely down because of mortgage churn but.

The big thing that happened as part of it came down.

And what's been interesting to watch now and so because we pulled back.

Time last year's unemployment went to 15% of everybody pulled back there.

Underwriting criteria met we'd now reinstated as Paul said, but so what's happened we did a million units of new cards of quarter going into the.

Yeah of last year's first quarter it fell as low as 400, it's back up to 600 change already and moving north on that and if you look by month of stacking backups. So yeah. So that's and if you look at where that's coming from obviously the branch system, which basically was running at around 2500 of the 43 out of branches for.

The last six to eight months nine months is only catching back up as it opens up in sales commenced so that bodes.

Bodes well.

You see that.

On the consumer side on the cards, which are most important mortgages production will continue to cut back up in of prepayments of slow down as of a slightly higher rate environment, you'll see that that bodes well there.

G. When that's done.

Some of the mortgage aspects, but on the.

Type of lending of G. When does the asset wealthy people they've done a good job and they've actually seen that grow and then you go to the business banking middle market and that's all.

Line usage, and so that should come through.

In order for the economy expanded 7%. This year is what which one of our bank of America team has of that yes.

At some point companies have to access capital to meet that final demand and you can see that used to come up.

So even in things like the car business because of just aren't the cars to sell you are seeing line uses down of lower level. So yes. So as you think across the things of whole levels and things of that Paul is talking about enable us to push a little harder just because of the sheer size of our company, but if you think about it that they think about that.

Flywheel of we have in our company as of production engine.

Having had necessarily to be slowed down.

And of crisis of 15% of unemployment peaks in.

The final demand.

Being crushed in the second quarter of last year. You then turning net crank back up of just watched that fly will start to take off of it. That's that's what we have good confidence in terms of getting right back on loan growth, but if you added all of that together and we grew 5% maybe $45 billion of loans. So.

To Paul's point, you still have tremendous excess capacity because the deposit growth is so strong on core transactional deposits of the commercial and consumers.

Understood. That's helpful. Thank you.

Okay.

Our next question is from Betsy <unk> with Morgan Stanley. Please go ahead.

Hi, good morning.

Hi, Beth.

Question, Brian on just capital capital allocation.

And you know you were one of the only G. Sibs to really you know kind of.

Trimmed down so that your G SIB number and even go up you know recently and I'm wondering if you're thinking about the opportunities there to lean into a higher G. SIB, maybe you know do more in capital markets I know traditionally you've.

Then are you now looking to keep your or dummy ways in markets very tight.

And I'm wondering if there's any thought to maybe leaning in at this stage given all of the excess capital and liquidity that you have is that potentially an option. That's on the table. In addition to the buybacks you discussed earlier.

Yeah. So.

And the two are not mutually exclusive at all.

Except way at the margin way away from where we are now but.

With stock price increases in all of those things that go into that calculation as you well know and they're not all related to straight risk.

In terms of sheer size in stock.

Things that go in.

It's it is harder to maintain where we were at the end of last year and you might expect that we may move up of bucket.

And take advantage of that by actually expanding the business.

In the markets business that's.

What are the opportunities there based on either on the capabilities of Jimmy and.

The team and Thomas team put together so why would you do that the reason why we do that as you know our clients had been growing and we kept of about a third of the size and even if you took away some of the growth just due to the deposit things. It has got to come down around 20 per cent the size of the company and the idea is to keep it in synergy and <unk>.

You know synchronize it with the company's overall all size, but the company is growing around and another step in so we told Tom dominant team of working on ideas to continue to do that we say, we're a little bigger now than we were at year end, obviously first quarter activity, but you shouldn't expect us to come down now those ratios aren't effective for you.

It's a bit of time here. So we'll see how it plays out but if the opportunity is there we'll take that team's done a great job and manage the risk well.

You look at the trading results for the quarter of looking at from last quarter looking at throughout the pandemic they've done a great job of managing our risks more balanced and we're proud of them in and of work they've done and we're going to support him some work out.

Okay. That's great. Thanks, and then separately.

One of the most tedious discussions that I have with people is on.

Comping your skill set and digital consumer.

And everything Youre doing there not only for consumer but also for our corporate and Smbs with Fintech players and I say, it's tedious because you have huge market presence.

But I don't feel like Youre getting your message out there beyond this call.

Have you given any thought to trying to get the.

Message of what you've done for consumers in the digital and that's of Fintech that you actually are bringing to your clients beyond the four walls of your clients.

So, let's always start with of.

First thing that the reason why we do this is to serve our clients and do a great job and it it flows through the numbers as Mike said earlier, you know the idea that we run.

There's huge consumer business at a cost advantage.

Which is significant due to the.

Digitization of all of the consumer activity.

Due to the way customers interact with us the way, we can help them to wait and get a guidepost.

And frankly, the way we can take the fee structure out and that's eight of them.

We dropped overdraft fees dramatically over the years made up for it in terms of efficiency.

And the other types of things and so yeah we.

Get the word out we tell everybody. We went to all kinds of awards in the list go on and on in terms of the different ranking agencies and you've seen it in the Merrill edge growth.

There's over 300 billion now and so.

Our job is to do a great job for our customers and I think I'll leave it to you and your colleagues of debate the relative merits of a.

Fintech or czars, but I will tell you.

For example, we make an $8 billion and having 40 million new digital customers are fully active on the consumer side.

On the digital on the on the <unk>.

Corporate side the impact on our ability to have expenses be flat from even with extra money of 1 billion of half of it so the first quarter from.

From six years ago shows the impact of the ability of digitizing the company and we learn more about at this end of last year and areas of we didn't do so well keep pushing it out there you can couple of stellar story, but the reality is is that the number one person. We want to understand is are our customers of that means of attrition.

No attrition of customers of way down the debt.

Penetration of the wallets way up just look on the wealth manager of statistics, we sort of wait and see how that they've adapted to it.

These are these are major changes the size of which don't exist much out there so.

Well, we'll keep pounding away you keep telling the story of will keep telling the story, but the key is it's producing.

It's produced and they've kind of of earnings we're producing and the kind of efficiency, we're producing which continues to be down to our benefit.

For the Neatest thing about this stuff is where we go next with of where we've been going with it. So Erika Theres, just nothing close to it out there and driving with volumes and thanks Zelle.

A look at the charts on the pages and show it in it so it's the usage and the personalization and the ability of help people manage their payments and their big things for the mass market and their investments.

So we feel good about it will tell the story as often.

As we can but the reality is as I just would like to see us keep growing the number of customers and driving it and drive it are non integrated basis, we're putting major investments in it.

And a couple of years, we had to improve merchant services payments on the commercial side of the merchant level and we're putting major investments of four one K technology.

It pushed out of one number seven of that business is lowest market position of any business, we add number six or seven of what if we are so these are major investments were making hundreds of millions of dollars of year that go into that expense base, but of paid for by the efficiency of the core businesses.

Okay. Thanks.

And our next question from Stephen <unk> with Wolfe Research. Please go ahead.

Hi, good morning.

So wanted to ask a follow up on the NII outlook and really specific to our premium amortization now just given the.

The sheer amount of growth we've seen the MBS portfolio of the deployment of all of the excess liquidity of Paul.

Paul I was hoping you could help size, what the premium and benefit would be if we did see prepayment speeds revert to more normal levels and how much of that benefit is contemplated in the billion dollar increase in the exit rate for 2021.

Sure.

Can you just give me a couple of perspectives one.

The premium amortization of the first quarter.

It was about a 1 billion and a half and.

And as you you know.

As you point out is the securities portfolio has grown so as you try to size what it could come down to you just can't go back to last year and look at what it was because the portfolio has gotten a lot bigger.

Sort of one two I think about that $1 billion I.

I would say the most important.

Driver would be the modest loan growth.

And the second most important driver would be the reduction in premium amortization.

So maybe that's.

Enough guidance right there.

Again, we're not going to go down to where it was.

In Q1.

Well I think you know for.

<unk> 19, because we've grown so much but it's kind of be it's gonna be meaningful in terms of a you know a few.

More than a few hundred million dollars in terms of.

That kind of forgive you.

Okay I understood and from my follow up just wanted to ask on capital if I look at your SLR ratio, excluding the relief in your CET one ratios if I assume maybe like a 10 five per cent target onset one five in a quarter on SLR. The CET one is still your binding.

Constraint today, but just looking at the sheer amount of balance sheet growth you guys saw this past quarter I think it was about 150 billion or so.

Our analysis suggests that you maybe haven't Ah another 160 to 200 billion of balance sheet growth headwind headroom before the SLR becomes binding and as we consider expectation just for additional QE fed balance sheet growth now how are you preparing for that potential what sort of mitigating actions might you take if the SLR.

In fact become binding.

It's just way out there Steven it I don't think your numbers are right match to what Lee take it through some calculations, but I think the numbers a lot bigger than you think.

Yes.

We've done that work and we come up with a bigger number in terms of balance sheet capacity.

Yeah on the SLR of 100 basis points of times that much.

Bigger base of 75 basis points of New example, maintain of five quarters. So it's it's multiples of that it's multiples of its bigger than what the growth so far from a lot of it.

Yeah, I guess, Mike I think what the difference is there is the lens of like what constraint becomes more binding and as she SLR I recognize you have excess under both.

But if the ratio is going to shake out sub six.

Pro forma that relief I guess that out of 5% ratio. It's that's 500 billions of capacity to grow but in terms of like what where you have the most access it looks like SLR becomes binding in relatively short order with just maybe a couple of more quarters of 150 billion plus growth in the balance sheet.

So.

I guess, that's what I was trying to share that is would you look to mitigate it given it becomes a little bit more binding than your set one constraints.

We manage that all of the capital ratios to maintain the minimum requirements, that's not the issue but.

I think it's just it's hundreds of billions of dollars away. So.

What's the point of them were $6, one pro forma right.

So April one.

And you know that's that's $700 billion ish of capacity down to the regulatory minimum of as you said, but we'd want to of a buffer but that's.

That's the rough math.

Okay fair enough I can take it offline with Lee later on anyway, but that's that's very helpful and how you framed it. So thanks very much for taking the question.

Yeah.

And the next question is from Jim Mitchell with Seaport Global Securities. Please go ahead.

Hey, good morning.

Maybe first on just maybe the cadence for card charge offs.

Yeah, obviously, we had a little bit of the of an increase this quarter.

30, plus day delinquencies are now back down to almost near lows.

Could we expect you know I think we had charge offs that were in the four hundreds in the fourth quarter are we heading back towards that.

Or how do we think you'll have a lower balances how do we think about the trajectory of card charge offs given your view of the delinquency book delinquencies.

Just if you go to page four.

Jim you can see it I mean, you kind of summarized a bit.

We went from 400 ish up to six centers still turned back down just because look at the charts you can see what producers next quarter's charge offs is obviously on the right hand side of this page of this come debt is coming down so and so you have.

<unk> is lower but also just ask share delinquency and as you think further out it's going to come from the left hand side of the page and migrate to the right from actual charge offs Lee decided to projected in provisioning under the sea so but just so you've got it right.

It comes down and you would hope frankly that yep.

If we get the growth that might change the dynamic in six months or something like that just because it takes a lot of get any delinquency out of anything maybe even much longer net but this is this is this bodes well for the next couple of quarters.

Right. So I mean, the reason I ask is that if you look at charge off ratios.

Late last year, they were lower than pre pre COVID-19 levels. So yes.

Still think we can sort of keep that very low level at least for now until balances maybe start to grow more significantly is that the takeaway.

But.

Probably yes, it will go down as balances grow because there'll be no delinquency then a year later when the delinquency from those balances whatever minor amount of data that comes through it might add to that so the denominator effect of pushing even down further on percentages of thousands go up near term right. Okay. And then my follow up on the technology side, you guys did an acquisition.

Paul one obviously of vaccine.

Free in your merchant processing business can you just sort of give your thoughts on the opportunity set.

As you build out that platform are there more acquisitions do you think involved.

Your excitement level I guess of building that platform out.

Uh huh.

It's a great little company.

Any that we can put across the platform has a wonderful market position where it plays.

Yeah.

Very proud of the deal.

And but the key is that we you got to go back to the whole history of merchant services, we sold half of it.

Joint venture of 15 years ago and out of whatever it was.

Raised some capital come forward, we bought it back.

But that's one of the reasons why your expense run rate moved up by eight $900 million of years that people forget about it because we brought that in last year for half of year and it wasn't in two years ago.

But the reason why we bought it back is really to invest around the platform. So what's exciting about it is things like the acquisition to take us in the medical area, what's exciting about is the ability to actually sell it.

Through this sales force without having to have a non owned sales force selling it in our small business and our in.

In our business banking colleagues that.

Of people out there and can help deliver the product and then what's really exciting is the integration of payment scheme that we've been working on.

Commercial payments so it's the integration of that.

The Peter B.

Zelda small business.

All of these payment gateways, which is outside the traditional merchant business, but you have to be completely flexible along all of payment schemes to actually route at much more favorable to the merchant.

With very low cost of them and in real time contemporary as value exchange. So what we're doing with real time payments and zelle in combination into the.

Business platforms through the merchant through the payment gateways. These are all exciting things then you go larger and it's a different elements in blockchain payments and everything else. So that's the core of the business on the commercial side, but it goes all the way from small business all the way up to large companies and so that investment was part of that day.

New investments part of that and Youll expect us to keep driving it that day.

Implementation of the good news is we're getting the network effect of Zelle and things like that when you look at those pages that sales half of the credit card charge from volume used by consumers to make payments now yep noodle on that for a minute.

$35 million.

Credit card people out there charging zone, reaching of half of it checks down 25 per cent of the last couple of years in terms of checks written volume buyer of consumers.

So you get the network effect of that and then you get the merchants to use it to use it with real time. So that this is all part of the thing that tongue win and Marc Monaco and a team of leading it is ahmed on the commercial side of that you should expect to see a lot of lot of investment has been made including a major replacement of system.

Coming through the P&L this year and the change in bringing the people on fully on balance sheet and a lot of investment will be made including acquisitions like we just made.

Okay, that's great color thanks, Brian.

Our next question is from Kevin used them with Jeffries. Please go ahead.

Hey, Thanks, just one just one question on just card and stimulus and.

How do you guys get the sense of of how much of the stimulus and incremental deposit growth is sticking around versus now kind of starting to be spent in and what's the tradeoff with regards to the staging of round that that that re leveraging of our that balanced growth that that might start to come over time in the card business specifically thanks.

Yeah, I think just on.

It depends literally when you look in customers.

Earning earnings power and things like that but Lee.

Largely I think Paul last I saw was 30 odd percent of the stimulus money has been spent to make it to be of simple minded about it.

And so the other 70 per cent sitting on People's accounts, it's little differently by stratification of earnings power of the household.

So that's to be spent that bodes well for economic reopening and stuff.

Effect on AR balances in card and stuff, yes, because consumers of used to pay down their debt and part of what it has been spent has been spent to pay down card balances.

And then if then.

But they are limited travel just not getting as much juice is good news as you've watched January February and March.

With the virus and vaccine pathways come in before with.

You're starting to see the purchase of numbers go up.

And the payments.

Ray went way up as you observed last year of 30% sort.

Through last year in this quarter, but you would expect that that might be more constant and then of usage rate will go up and start to drive some balance growth, which is good news so.

The good news is of consumers are healthy from every aspect we have no deferrals left except from the mortgage business. So all of the.

Debate, we had about this plan.

Joe This time through the system.

Delinquencies down consumers sitting with money in accounts and the economy open up which bodes well and that's what you saw in our retail sales numbers today and you expect that number of those numbers to.

Even be higher in the month of April because.

Which was partly partly reopened.

And the weather isn't too pleasant in the northeast of well.

Even if you want to eat outside so in northern parts of the of the central our country.

Okay got it and that's the offset of the offset is in Jim's question about that back better credit because it could stick as an offset as well if if there's still 70 per cent sitting around so we'll take that trade off yet.

Yeah, and remember where we play.

When we when we blend money in and of consumer space.

We never came close to what the projected losses, where we did.

Lee decided to models predicted it you knew by watching of consumer delinquency and unemployment levels of our consumers. They are much lower in society and there's that became clear that's what you're seeing coming through the reserve releases right now.

Alright, Thanks, Brian.

Thank you.

And it appears we have no from all the questions about return of the Florida of our presenters for closing remarks.

Alright, well, thank all of you for joining us.

Thank you and the company, but it is day six.

Sense of earnings per share of $1 billion return on tangible.

Oh of common equity of 17%.

We look forward to talking to you next quarter and we continue to we will continue to drive responsible growth while we're doing that thank you.

We will conclude today's program. Thank you for your participation you may now disconnect.

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