Q3 2023 Bank of America Corp Earnings Call

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

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Later, you will have the opportunity to ask questions. During the question and answer session.

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My pleasure to turn today's conference over to Lee Mcintire Investor Relations. Please go ahead.

Good morning, Thank you wells.

Welcome and thank you for joining the call to review the third quarter results.

As usual our earnings release documents are available on the Investor Relations section of the Bank of America Dot Com website.

And it includes the earnings presentation that we will be referring to during the call I Trust everybody has had a chance to review the documents.

I'm going to first turn the call over to our CEO , Brian Moynihan for some opening comments before Alastair Borthwick, our CFO discusses the details of the quarter.

Before we do that let me just remind you that we may make forward looking statements and refer to some non-GAAP financial measures during the call.

Forward looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties.

Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials as well as the SEC filings available on our website.

Information about non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in our earnings materials that are on the website, so with that Brian I'll turn the call over to you.

Good morning, everyone and thank you for joining us as usual, we're starting on slide two.

Our third quarter here at Bank of America was another strong quarter as we delivered $7 $8 billion in net income that is a 10% growth over the year ago third quarter.

For the first nine months of the year, we have earned $23 $4 billion, an increase of 15% over 2022.

We grew up with clients and accounts organically and at a strong pace across all our businesses.

Our operating leverage was about flat.

We improved our common equity tier one ratio by nearly 30 basis points in the quarter to a level of 11, 9% against the current minimum of nine 5%.

We saw an increase in our deposits.

And we maintained our strong pricing discipline.

We continue to maintain $859 billion in global liquidity sources.

It also delivered a good return for you our shareholders with a return on tangible common equity of over 15% and a 1% return on assets.

Just a quick note on what we see in the economy.

Our team of economists predict a soft landing.

Where their trough in the middle of next year.

We see that in our customer data are 37 million checking customers, we see them spending slowing down you can see that on slide 30 for the third quarter was up about 4% over last year's third quarter.

Earlier this year that would have been more of a 10% increase year over year.

For the entire year of 2022, it increased 10% round numbers of a 21.

This 4% level is consistent with the spending that we saw in the pre pandemic period from 2016 to 2019 that it's consistent with a low inflation lower growth economy.

As we move into October spending is holding at that 4% level, so growing but growing at a basis more consistent with a low growth low inflation economy.

With that let me turn to slide three we provide various highlights analysis is going to cover a lot of this.

Our team continues to focus on driving organic growth driving digital progress and operational excellence, which keeps us focused on operating leverage.

A few words on organic growth as we flip to slide four.

Every business segment had organic growth in consumer in quarter. Three we opened more than 200000 net new checking accounts. This quarter alone. We also opened another 1 billion credit card accounts, we have 10% more investment accounts this year third quarter and we did last year.

Mall business, we've seen 35 straight quarters of net new checking account growth. We've also seen good small business loan growth in our loans were up 14% from last year that was in this quarter, our small business teammates extended to $8 billion in credit to small businesses in America alone.

In global wealth, we added nearly 7000 net new relationships to the Maryland, private banking franchises and our advisors up more than 35000, New bank accounts for the third consecutive quarter fulfilling both investing in banking needs of those clients. We also increased our number of advisors in the past year.

Across our wealth spectrum and G win and then consumer investments they have combined together $87 billion in total net flows.

And our global banking team, we added clients and increase the number of products per relationship year to date, we've added 1900, new commercial and business banking clients that is more than we added in the full year last year.

Even while activity is low investment banking team continues to hold its number three position in.

Global markets, we continue to see performance established new records for our fault for I'm going to cover that in a little more detail in a moment.

As you can move to slide five you can see the digital adoption engagement and volumes continue to increase.

We lead the industry in digital banking and continue to provide the best in class disclosures you can find those.

Disclosures by a lot of business in the appendix on slides 26 29 to 31.

We also continue to receive top accolades from third parties around these capabilities.

Most important these capabilities are valued by our clients and customers allow us to grow with great expense leverage let me give you a few examples are.

Our consumer Merrill clients logged into our consumer banking app.

A record $3.2 billion at times this quarter.

Even at this scale and stage of maturity of this of this operation Logins were up double digits from the year prior.

Customer use of Erica continued to beat our expectations with almost 19 million users up 16% in the past 12 months.

Cash pro App science with our business clients are up more than 40%.

And we recently added the Erika functionality to cash pro to help court corporate clients benefit from that artificial intelligence.

Likewise, all usage continues to grow.

So all transaction levels are up more than 25% from last year, and it's also becoming a meaningful way.

Our customers move money in fact customers now send money was L. At twice the rate they write checks, we're nearing we're nearing a period, where the zelle transactions.

Sent will exceed the combination of checks written and ATM withdrawal transactions as.

As you move across the lines of business on the slide. The story is just as I say all of these capabilities help us deliver faster safer and more efficiently and all of it gets strong customer client feedback.

So when you put that together that helps us drive operating leverage and you can see it on slide six.

We have a strong record of driving operating leverage on a company. We drove operating leverage every quarter for nearly five years before the pandemic and then again more recently, we've had an eight quarter streak leading in this quarter.

We'd knowledge to this last quarter that operating leverage is going to be tough for a few quarters as we navigate through the trough in net interest income.

But as you can see on slide six we managed to grow revenue year over year faster than expense.

In dollar terms this quarter, even though the percentage change is basically flat.

Now in January we told you we'd manage our head count down to help make sure. We got our expenses in line over the course of 2023.

We've seen moving from 2022 is great resignation to a current level of a record low attrition of our company.

All that met the team had to work harder to manage that head count down.

And they did it our head count is now down over 7000 Ftes for a peak in January .

The addition of 2500 College grads this fall.

As a result, you've seen expense declined from 16.2 billion in quarter 116 billion in quarter two to 15 8.8 billion this quarter.

And by the way we've done this without special charges or large layoffs.

Expense will decline again in the fourth quarter, excluding any FDIC special assessment of course, we expect to report $15 6 billion in expenses and for Q1.

Oh interesting.

That is up only one around 1% from fourth quarter of last year.

This is stronger expense guidance than we thought we could do earlier in the year and sets us up nicely for next year.

Shifting gears, let's focus on the balance sheet.

Yeah.

Slide seven shows the breakout of deposit trends on a weekly basis, and then base across the third quarter. We gave you. This chart last quarter also in the upper left hand, you can see the agenda trend of total deposits. We ended quarter three at 1.88 trillion up from quarter, two and better than industry results.

Well you should also note is of course. These deposits are team is rewarded customers with higher rates for the investment already cast reinitiate deposit growth and grown share.

I'll have a superior mixing cost you'll note that we're not paying a 155 basis points all in for deposits, which is up 31 basis points from last quarter.

We ask that you remember two things when you think about the deposits.

The rate remains low relative to many because of the transactional nature of our deposit relationships with 565 billion and noninterest bearing deposits and you can see in the upper right alone and low interested no interest checking theres 504 billion in consumer.

Secondly, remember the importance of spread against the quarter's average fed funds rate.

This position is very advantaged compared to past cycles, because it transactional accounts in the current cycle are a much higher mix of bank of America's deposits I would also add that while we maintain discipline in deposit pricing, we pay competitive rates to customers with excess cash seeing higher yields across all the businesses if rates fall those particular products will see the rates.

I'm down also.

Dropping into the business trends and consumer if you look at the top right chart, you saw $22 billion decline.

Note the difference in the movements for the quarter between the balance of low to no interest checking accounts and higher yielding non checking accounts. You can also you can also see the low levels of our more rate sensitive balances consumer investments in CD balances broken out.

In total we have $982 billion in consumer deposits in consumer alone. This is $250 billion more than we had pre pandemic.

The total rate paid on consumer deposits in the quarter was 34 basis points. This remains very good very low driven by the high percentage of transactional high quality transaction counts.

Most of the quarters right increased is concentrated in Cds and consumer investment deposits were about which are about 13% of the deposits turning to wealth management balances were flat.

We saw slowing in the previous quarterly trend of clients moving money from lower yielding sweep accounts into higher yielding preferred deposits and off balance sheet products sweep balances were down by 7 billion and replaced by new account generation and deepening.

At the bottom right note the global banking deposits grew $2 billion and have hovered around $500 billion in the past six quarters. These are generally the transaction deposits of our commercial customers used to manage a cashless.

Interest bearing deposits were 37% of deposits at the end of the quarter.

Secondly, the balance sheet, but moving to capital.

Give you a few thoughts on the proposed capital rules.

You are well aware our banking industry in the United States is the most highly capitalized the most profitable banking group in the world. It's a source of strength for our country and its economy.

The annual stress tests of our now.

Over a dozen years old using ever increasingly harsher test scenarios have proven that capital is sufficient.

Banks have proven to be a part of the solution during the more recent COVID-19 pandemic and the banking disruption in March this year.

If we add to our capital and reduce our lending capacity to American business consumers and those trade offs are being debated.

But as far as the rules are proposed concern there for any parts of the rules that are industry doesn't agree with because of double counts or increased trading and market risk.

And we're talking to are suppose isn't working and we're hopeful they'll change.

But in any event they may not if they don't how will they affect us. If you go to slide eight you can show the expected impact of and interpret those proposed rules.

This assumes that the proposed today without any changes the proposals would inflate our risk weighted assets by about 20%. So if I apply the inflation against this quarter's R. W. A 1.63 trillion that means if nothing else changed in the rules, we'd end up with about $320 billion more risk weighted assets.

The biggest increase in RW it would be a couple of hundred billion dollars in operational RW way.

The next biggest category would be driven by a four fold increase in yard W. O R. W. A against non publicly traded equity exposures in our case that really is mostly about the tax advantaged investments in solar and wind.

Looking at the capital would be held against the inflated our W. E are on the right side of the slide.

To remind you today that our minimum capital requirement is to hold 9.5% and common equity tier one.

But based on our G SIB charges.

That's going to come into effect on January one 2024, we moved to 10% so I'm going to use that as a requirement holding 10% today means 163 billion.

We finished the third quarter with 194 billion.

Today, we have more than $30 billion of excess capital.

Now, let's assume the proposed changes going through in full.

That was for proposed changes are phased in from 25 at the middle of 'twenty five 'twenty eight under the current proposal.

When those are fully phased in as we used to call Basel felt fully phased. It. If you remember we would have a need for $195 billion of total capital.

Now if you look on the upper right hand side of the page, you'll see that where today were 194 billion.

So we hold the required capital today and of course, we'd have to build a buffer to that throughout the implementation period, but if you look at the bottom of the page you can see just in the last nine quarters of kind of capital generation. This company has.

Once we understand the final rules will of course have a chance to optimize our balance sheet and appropriately price assets to improve the return on tangible common equity.

Now before I turn it over to Alastair I just wanted to highlight one of the businesses that we've talked about over the many years, that's our global markets business.

Global markets represent 17% of the company's year to date earnings and it's one of the top capital markets platforms in the world. It's one of a handful of firms can do it as do providing advice and execution in every major market around the world do you mean tomorrow and the team have run the business asked us for an additional investment of around four years ago and they've grown this business with an intensity of clients are appreciative and reward.

As with more of the business. This has produced strong revenue growth.

We've grown the balance sheet here, but have done it efficiently that.

It's allowed us to grow sales and trading revenue over the past 12 months consistently now stands at 32% higher than the average of the five years, leading into the pandemic and the investment in the business.

And through effective cost management, we also generated 11% 12% returns on capital in this business. This exceeds our cost of capital even as we continue to allocate more capital to the business returns are even larger you that combined with the global banking business that many show the businesses combined intake because our corporate clients also take advantage of these industry leading business case.

Abilities.

With that let me turn over the call to Alastair to walk through the quarter's elster. Thanks.

Thanks, Brian and on Slide 10, we present, a summary income statement I'm not going to spend a lot of time here because Brian touched on this and the highlights that we show on slide three.

For the quarter, we generated $7.8 billion in net income, resulting in 90 cents per diluted share both of those are up double digits from the third quarter of last year.

The year over year revenue growth of 3% was led by improvement in net interest income coupled with a strong 8% increase in sales and trading results and that excludes T V. A.

And a 4% increase in investment in brokerage revenue driven by our wealth management businesses.

Expense for the quarter of $15 8 billion included good discipline from our team, which allowed us to reduce costs from the second quarter, even as we continue our planned investments for marketing technology, and physical presence build outs, including financial center openings and renovations.

Asset quality remains stellar and provision expense for the quarter was $1 2 billion that consisted of 931 million of net charge offs and $303 million of reserve built.

The provision expense reflects the continued trend in charge offs toward pre pandemic levels and remains below historical levels.

Our charge off rate was 35 basis points, that's two basis points higher than the second quarter and still below the 13 nine basis points. We saw in the fourth quarter of 19 and as a reminder, that 2019 was a multi decade low.

30 day delinquencies also remained below their fourth COVID-19 level.

Lastly, our tax rate this quarter was 4% driven mostly by higher than expected volume of investment tax credit our I T. C deals for the rest of the year and we can expect other income in Q4 will reflect seasonally higher renewables investment losses. When these projects get placed into service.

Okay.

Let's turn to the balance sheet. That's on slide 11, and you can see it ended the quarter at 3.2 trillion up 31 billion from the second quarter, so not a lot to note here.

The driver of the increase was a 34 billion dollar increase in available for sale securities with cash levels. So high we chose to reduce the cash and just put some of the money into short term T bills this quarter and those earn essentially the same rate as cash or cash remains high at 352 billion in.

In addition to the cash level change we saw another 11 billion dollar decline and hold to maturity securities as those securities matured and paid down.

And as Brian noted global excess liquidity sources remained strong at 859 billion, that's down very modestly from the second quarter and still remains approximately 280 billion above our pre pandemic fourth COVID-19 level.

Shareholders' equity increased to 4 billion from the second quarter as earnings were only partially offset by capital distributed to shareholders.

During the quarter, we paid out 1.9 billion in common dividends and we bought back 1 billion in shares to offset our employee awards.

A O C. I was 1 billion, one lower reflecting both a modest decline in the value of F. S securities modestly impacting CET, one as well as a small change in cash flow hedges, which doesn't impact the regulatory capital.

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Tangible book value per share is up 12% year over year.

Turning to regulatory capital our CET, one level improved to 194 billion from June 30.

Operator: Good day everyone and welcome to the Bank of America earnings announcement. At this time, all participants are in a snowly mode. Later you will have the opportunity to ask questions during a question and answer session. Please note today's call will be recorded and we will be standing by if you should need any assistance.

And our CET, one ratio improved 30 basis points to 11, 9% its now well above our current 9.5% requirement as Brian noted.

Risk weighted assets declined modestly as loans and global markets. Our W. Eight both moved lower.

Lee McIntyre: It is now my pleasure to turn today's conference over to Lee McIntyre, Investor Relations. Please go ahead. Good morning. Thank you. Welcome and thank you for joining the call to review the third quarter results. As usual, our earnings release documents are available on the Investor Relations section of the Bank of America dot com website. And it includes the earnings presentation that we will be referring to during the call. I trust everybody's had a chance to review the documents.

Our supplemental leverage ratio was six 2% versus a minimum requirement of 5%, which leaves capacity for balance sheet growth and our T. Lac ratio remains well above our requirements LCR ratios remain well above minimums for P. A C metrics.

And stronger at the bank level.

Let's now focus on loans by looking at average balances on slide 12.

And loan growth slowed this quarter as a decline in demand for commercial borrowing more.

Brian Moynihan: I'm going to first turn the call over to the C to our CEO Brian Moynihan for some opening comments before Alistair Borthwick, our CFO discusses the details of the quarter. Before we do that, let me just remind you that we may make forward looking statements and refer to some non gap financial measures during the call. Forward looking statements are based on management's current expectations and assumptions that are subject to risk and uncertainties.

More than offset our credit card growth.

So we saw that lower commercial demand and lower revolver utilization.

Higher funding costs and commercial balances were also impacted by term loan repayments due to borrowers accessing other capital market solutions.

Brian Moynihan: Factors that may cause are actual results to materially differ from expectations are detailed in our earnings materials as well as the SEC filings available on our website. Information about non gap financial measures, including reconciliations to US gap can also be found in our earnings materials that are on the website.

Focusing for a moment on average deposits and using slide 13, given Brian's earlier comments I just note the comparisons.

Relative to pre pandemic fourth COVID-19.

Average deposits were up 33% consumer is up 13, 6% with consumer checking up 45% and you can see the other segment comparisons on the page.

Brian Moynihan: So with that, Bryant, I'll turn the call over to you. Good morning, everyone. And thank you for joining us. As usual, we're starting on slide two. Our third quarter here at Bank America was another strong quarters. We delivered $7.8 billion in net income. That is a 10% growth over the year ago, third quarter. And for the first nine months of the year, we have earned $23.4 billion and increased a 15% over 2022.

Turning to slide 14, let's extend the conversation we've been having over the course of the past couple of quarters around management of our excess liquidity.

This slide serves as a reminder of the size of our high quality deposit book.

The magnitude of deposits, we have in excess of those needed to fund loans.

And the way, we've extracted the value of that excess.

To deliver value back to our shareholders.

Brian Moynihan: We grew clients and accounts organically and a strong price across all our businesses. Our operating leverage was about flat. We improved our common equity tier one ratio by nearly 30 basis points in the quarter to a level of 11.9% against a current minimum of 9.5%. We saw an increase in our deposits. And we maintained our strong pricing discipline. We continue to maintain $859 billion in global equity sources. We also delivered a good return for your shareholders with a return on change of a common equity of over 15% and a 1% return on assets.

The excess of deposits needed to fund loans increased from 420 billion pre pandemic to a peak of 1.1 trillion in the fall of 2021 and as you can see it remains high at 835 billion today.

That 1.1 trillion of excess liquidity has always included a balanced mix of cash.

Available for sale Securities and Securities we hold to maturity.

In late 2020 and into 'twenty 'twenty. One we concluded that additional stimulus was going to remain in client accounts for an extended period and we increased our hold to maturity securities portion. So we could lock in value from those deposits and we made these investments given the coordinator of our customers' deposits.

Brian Moynihan: Just a quick note of what we see in the economy. Our team of economists predicts the soft landing with a trough in the middle of next year. We see that in our customer data are 37 million checking customers. We see their spending slowing down. You can see that on slide 34. The third quarter was up about 4% over last year's third quarter. Earlier this year, that would have been more of a 10% increase year over year.

Note the split of the shorter term investments in cash and available for sale Securities and then the longer term hold to maturity securities and I'd just draw your attention to just how much cash we have.

Above the actual level, we need to run the company.

On the available for sale, we would just note that duration is less than six months as it's mostly all short term treasuries and the combination of the cash and available for sale Securities represents about 47% of the total noted on this page in the third quarter of 'twenty three.

Brian Moynihan: And for the entire year 2022, it increased 10% round numbers over 21. This 4% level is consistent with the spending we saw in a pre-pandemic period, from 2016 to 2019, that it's consistent with a low inflation lower growth economy. As we move in October, the spending is holding at that 4% level, so growing, but growing at a basis more consistent with low growth low inflation economy.

Give us the balance we're looking for.

And if we look at the hold to maturity book It had grown from 190 billion pre pandemic, peaking two years ago and now falling to just over 600 billion. Currently that's 600 billion consists of about 122 billion in treasuries.

Brian Moynihan: That let me turn to slide three. We provide various highlights and Alastair is going to cover a lot of this. Our team continues to[inaudible] lot of progress, but Tax, We're nearing a period where the Zell transactions sent will exceed the combination of checks written and ATM withdrawal transactions. As you move across the lines of business on the slide, the story is the same. All these capabilities help us deliver faster, safer, and more efficiently, and all of it gets strong customer client feedback.

Those will mature and a little more than six years and.

And about 474 billion and mortgage back securities and a few billion other.

The hold to maturity Securities peaked at 683 billion and we're now down 80 billion from the peak and 11 billion in the last quarter that 80 billion decline from peak was all driven by the reduction of mortgages from 555 to 474 billion.

With less loan funding needs over the past several quarters. The proceeds from security pay downs have been deployed into higher yielding cash and this mix shift has been happening at about a 300 basis point spread benefit for these assets.

Given the increased cash rates, the combined cash and security yield has risen to more than 3%, it's up more than 200 basis points since the peak size of the portfolio in the third quarter of 'twenty one.

And it's risen faster than the rate paid on deposits in fact today, it's 178 basis points above what we pay for deposits and remember also we have a trillion of loans that are largely in floating rate. In addition.

From a valuation perspective, we did experience a decline in the valuation of the whole to maturity book this quarter and that's in the context of mortgage rates, reaching a two decade high comparing the valuation change to the year ago period, It worsened 15 billion.

And over that same time period, we grew regulatory capital by 19 billion and hold global liquidity sources in excess of $850 billion.

And importantly, as we move to slide 15, I'll make one final comment here, which is the improved and I I over this investment period.

Net interest income, excluding global markets, which we disclose each quarter troughs in Q3 'twenty at 9.1 billion that compares to 13.9 billion in the third quarter of 'twenty, three or 4.7 billion higher.

Every quarter on a quarterly basis and that gives a sense of the entire balance sheet working together.

Okay, Let's now turn our focus to NII performance over the past quarter, and we'll talk about the path forward and I'm going to use slide 15 for that.

On last quarters call, we guided to expect Q3 NII to be about 14.2 to 14.3 billion on an FTE basis.

Our third quarter performance turned out to be better than our guidance.

On an FTE basis, NII was 14.5 billion this quarter.

We expect Q4 will be around 14 billion fully taxable equivalent.

It increases our full year guidance for NII in 2023 versus 2022% to 9% growth for the year.

We believe NII will hover around this expected fourth quarter 14 billion level plus or minus in the first half of next year.

And then we anticipate modest growth in the second half of 2024.

By the time, we get to the fourth quarter of 2024, we believe we can see NII up low single digits compared to the fourth quarter of 2023.

Brian Moynihan: When you put that together, that helps us drive operating leverage, and you can see it on slide six. We have a strong record of driving operating leverage on a company. We drove operating leverage every quarter for nearly five years before the pandemic, and then again, more recently, we've had an eight quarter streak leading us quarter. We acknowledged to you this last quarter that operating leverage is going to be tough for a few quarters as we navigate through the trough of that interesting come. But as you can see on slide six, we managed to grow revenue year-to-year faster than expense, and dollar terms is quarter, even though the percentage changes are basically flat.

The good news is we believe NII will likely trough around the fourth quarter level of 14 billion and begin to grow again in the middle of next year.

I know a few caveats around that forward view I just provided it includes an assumption that interest rates and the forward curve materialize.

And it includes rate cuts for the second half of 2024. It also includes an expectation of modest loan and deposit growth as we move into the second half of 2024.

Focusing again on this quarter $14 5 billion.

Brian Moynihan: Now in January, we told you we'd manage our head countdown to help make sure we got our expenses in line. Over the course of 2023, we've seen moving from 2022 as a great resignation to a current level of a record-low attrition in our company. All that meant the team had to work harder to manage that head countdown. And they did it. Our head count is now down over 7,000 FTEs for a peak in January, even with the addition of 2500 college grads this fall.

It was an increase of nearly 700 million from the third quarter of 'twenty, two or 4%, while our net interest yield improved five basis points to 2.11%.

The year over year improvement was driven by higher interest rates and partially offset by lower deposit balances.

On a linked quarter comparison, NII improved 239 million from Q2.

It comes from the benefit of an extra day of interest rate hike and higher global markets NII.

Brian Moynihan: As a result, you've seen expense decline from 16.2 billion in quarter one to 16 billion in quarter two to 158.8 billion this quarter. And by the way, we've done this without special charges or large layouts. Expense with a client again in the fourth quarter, excluding any FDIC special assessment, of course. We expect to report 15.6 billion in expenses in 4Q. Now interestingly, the debt is up only around 1% from fourth quarter of last year. This is stronger expense guidance than we thought we could do earlier in the year, and sets us up nicely for next year.

Partially offset by increased deposit pricing and.

And the net interest yield improved five basis points.

Turning to asset sensitivity and focused on a forward yield curve basis.

Plus 100 basis point parallel shift at September 30.

With $3 1 billion of expected NII benefit over the next 12 months from our banking book and that expect well that assumes no expected change in balance sheet levels or mix relative to our baseline forecast and 95% of the sensitivity is driven by short rates.

Brian Moynihan: Shifting gears, let's focus on the balance sheet. Side seven shows the breakout deposit trends on a weekly base and then base across the third quarter. We gave you this chart last quarter and you have the left hand. You can see the trend of total deposits. We ended quarter three of 1.88 trillion up from quarter two and better than industry results. What you should also note is the cost of these deposits. Our team has rewarded customers with higher rates for their investment already cast, reinitiated deposit growth and grown share with all the superior mix and cost.

100 basis point down rate scenario was 3.3 billion.

Okay, let's turn to expense and will use slide 16 for the discussion.

We previously highlighted that we guided you to a trend of sequential declines in our expense each quarter. This year.

And we achieved that in Q3 with our expense down 200 million to $15 8 billion.

Additionally, we expect the fourth quarter to go down another couple of hundred million to $15 6 billion, excluding any FDIC special assessment.

Brian Moynihan: You will note that we're now paying 155 basis points all in for deposits, which is up 31 basis points from last quarter. We ask that you remember two things when you think about the deposits. The rate remains low relative to many because of the transactional nature or deposit relationships with 565 billion and non-interest bearing deposits, and you can see the upper right alone and low interest in low interest checking. There's 500 and 4 billion in consumer.

That would mean, our fourth quarter expense of $15 6 billion compared to the fourth quarter of 'twenty, two would be up by only 100 million or less than 1%.

We're proud of that work by the team, especially considering our regular FDIC insurance expense alone increased by 125 million quarterly starting in the first quarter of this year, so without that we would be flat year over year in Q4.

Brian Moynihan: Secondly, remember the importance of the spread against the quarter's average fed fund rate. This position is very advanced compared to past cycles because the transactional counts in the current cycle are a much higher mix of bank America's deposits. I would also say that that while we maintain this split in deposit price and we pay competitive rates to customers with excess cash seeing higher yields across all the business. Services. If rates fall, those particular products will see the rates come down also.

The decline this quarter from the second was driven by the reduction in litigation expense and lower head count offset somewhat by investments in inflationary costs.

Our head count is down.

Nearly 2800 from the second quarter.

The 213000 and that includes the addition.

Of 2005 hundred or so fulltime campus hires we brought into the company.

Brian Moynihan: Dropping into the business trends and consumer, if you look at the top right chart, you saw a $22 billion decline. Note the difference in the movements through the quarter between the balance of low to no interest checking accounts and higher yielding non checking accounts. You can also see the low levels of our more rate sense of balance and consumer investments and CD balances broken out. And total, we have $982 billion in consumer deposits.

So that's good work by the team. After we peaked at 218000 in January month end and you can see the movement here across the past year at the bottom left of the slide.

As we look forward to next quarter.

We'd add 1.9 billion of expense for the proposed notice of special assessment from the FDIC as a possibility.

Absent that we would expect our fourth quarter $15 6 billion expense target to more fully benefit from the third quarter head count reductions and that will allow expense to continue the decline experienced throughout the year. So far all of that is going to set us up well for next year.

Brian Moynihan: In consumer low on, this is $250 billion more than we had pre pandemic. The total rate paid on conservative deposits in the quarter is 34 basis points. This remains very very low driven by the high percentage of transactional high quality transaction accounts. Most of the quarters rate increased is concentrated in CDs and consumer investment deposits were about which are about 13% of the deposits.

Let's now turn to credit and we will turn to slide 17, net charge offs of 931 million increased 62 million from the second quarter.

Brian Moynihan: Turn to wealth management balances were flat. We saw it slowing in the previous quarterly trend of clients moving money from lower yielding sweep accounts and higher yielding preferred deposits and off balance sheet products. Sweet balances were down by $7 billion and were replaced by no account generation in deepening. At the bottom right note, the global banking deposits screwed to $2 billion and have hovered around $500 billion to pass 6 quarters. These are generally the transactions of deposits of our commercial customers used to manage their cashless. Not interest bearing deposits were 37% of deposits at the end of the quarter.

The increase was driven by credit card losses, as higher late stage delinquencies flow through to charge offs.

For context, the credit card net charge off rate rose 12 basis points to two points suite.

Seven two in.

In Q3, and it remains below the three point or three pre pandemic rate in the fourth quarter of 19.

Provision expense was 1.2 billion in Q3 and that included a $303 million reserve built.

It reflects a macroeconomic outlook that on a weighted basis continues to include in the unemployment rate rises to north of 5% during 2024.

Brian Moynihan: Thickening the balance sheet but moving to capital. Let me give you a few thoughts on it. As you are well aware, our banking industry in the United States is the most highly capitalized and most profitable banking group in the world. It's the source of strength for our country and its economy. The annual stress test over now over a dozen years old using ever increasingly harsher test scenarios have proven that capital is sufficient.

On slide 18, we highlight the credit quality metrics for both our consumer and our commercial portfolios.

And on consumer we just note that we continue to see the asset quality metrics come off the bottom and for the most part they remain below historical averages.

Brian Moynihan: Thanks have proven to be a part of the solution during the more recent COVID pandemic and a banking disruption march this year. If we add to our capital, it will reduce our lending capacity to American business consumers and those trade-offs are being debated. But as far as the rules are concerned, there are many parts of the rules that our industry doesn't agree with because of double counts or increased trading and market risk. And we're talking to those proposals and working and we're hopeful they'll change. But in any event, they may not. If they don't, how will they affect us?

Our T. A 90 day consumer delinquencies still remain below the fourth quarter of 2019 as an example.

Commercial net charge offs declined from the second quarter, driven mostly by a reduction in office write downs.

And as a reminder, our C. R E credit exposure represents 7% of total loans and that includes office exposure, which represents less than 2% of our loans.

We've been very intentional around client selection and portfolio concentration.

Brian Moynihan: If you go to slide 8, you can show the expected impact it was interpreted as proposed rules. This assumes that they're proposed today without any changes. The proposed rules would inflate or risk-weighted assets by about 20%. So if I apply the inflation against this quarter's RWA of $1.63 trillion, that means if nothing else changes in the rules. We'd end up with about $320 billion more risk-weighted assets. The biggest increase in RWA would be a couple hundred billion dollars in operational RWA.

The deal structure over many years and that's helped us to mitigate risk in this portfolio.

We continue to believe that the portfolio is well positioned and adequately reserved against the current conditions.

And in the Appendix. We've included our current view of our commercial real estate and office portfolio stats. We provided last quarter. We've also included the historical perspective of our loan book Derisking and our net charge offs and you can see all of those on slides 36, 37 38 39.

Brian Moynihan: The next biggest category would be driven by a four-fold increase in the RWA against non-publicly traded equity exposures. In our case that really is mostly about the tax of managed investments and solar and wind. Looking at the capital, be held against the inflated RWA on the right side of the slide. I'd remind you today that our minimum capital requirement is to hold 9.5% in common equity tier 1. But based on our G-SIP charges that are going to come in effect on January 1st, 2024, we move to 10%. So I'm going to use that as the requirement. Holding 10% today means 163 billion. Johnson, that we finished the third quarter without a 94 billion. Today, we have more than $30 billion excess capital.

Okay, let's move on to the various lines of business and their results and I'm going to start on slide 19 with consumer banking.

For the quarter consumer earned 2.9 billion on good organic revenue growth and delivered its 10th consecutive quarter of operating leverage while we continue to invest for the future.

Note that the top line revenue grew 6% while expense rose 3%.

Reported earnings declined 7% year over year, given credit costs continue to return to pre pandemic level and we believe this understates the underlying success of the business and driving revenue and managing costs because P. PNR grew 9% year over year.

Brian Moynihan: Now, let's assume the proposed changes going through and full. Those proposed changes are phased in from the middle 25 to 28 under the current proposal. When those are fully phased in, as we used to call it bozzled fully phased in, if you remember, we would have a need for $195 billion dollars of total capital. Now, if you look at an upper right hand side of the page, you'll see that we're today we're $194 billion. So, we hold the required capital today. And, of course, we'd have to build a buffer of that throughout the implementation period.

Much of this success is driven by the pace of organic growth of checking and card accounts as well as investment accounts and balances as Brian noted earlier.

And expense reflects the continued investments by the business for their future growth.

Moving to wealth management on Slide 20, we produced good results and we earned a little more than $1 billion.

These results are down from last year.

Due to a decline in NII from higher deposit costs, which more than offset higher fees from asset management.

Brian Moynihan: But, if you look at the bottom of the page, you can see just in the last nine quarters, a kind of capital generation this company has. Once we understand the final rules, we'll, of course, have a chance to optimize our balance sheet and appropriately price asses to improve the return on change of common equity.

While lower this quarter NII of 1 billion eight derives from our world class banking offering and it provides a good balance in our revenue stream and a competitive advantage in the business for us.

Brian Moynihan: Now, before I turn over to Alistair, I just wanted to highlight one of the businesses that we talked about over the many years. That's our global market business. Global market represents 17% of the company's year-to-date earnings, and it's one of the top capital markets platforms in the world. It's one of a handful of firms can do what it's do, providing advice and execution in every major market around the world. To me, tomorrow, and the team run the business, asked us for an additional investment around four years ago, and they've grown this business within intensity of clients that appreciate and reward us with more of the business.

As Brian noted, both Merrill and the private bank continued to see strong organic growth and they produced solid assets under management flows of 44 billion since the third quarter of last year, reflecting good mix of new client money as well as our existing clients putting their money to work.

Expense reflects continued investments in the business as we add financial advisors and capabilities from technology investments.

Brian Moynihan: This has produced strong revenue growth. We've grown a balance sheet here, but have done it efficiently. That's a lot of growth sales and trading revenue over the past 12 months consistently. Now, stands 32% higher than the average of the five years leading into the pandemic in the investment in the business. And through effective cost management, we also generate 11 to 12% returns on capital in this business. This exceeds our cost to capital, even as we continue to allocate more capital to the business. Returns are even larger if a combined of the global banking business, than many show the businesses combined, because our corporate clients also take advantage of these industry-leading business capabilities.

On Slide 21, you see the global banking results.

And this business produced very strong results with earnings of $2 6 billion, driven by 11% year over year growth in revenue to $6 2 billion a couple.

Coupled with good expense management businesses produced solid operating leverage.

Our G T S or global Treasury services business has been robust.

We've also seen a steady volume of solar and wind investment projects this quarter and our investment banking business is performing well in a sluggish environment.

Year over year revenue growth also benefited from the absence of marks taken on leveraged loans in the prior year ago period.

Alistair Borthwick: With that, let me turn over the call to Alistair to walk through the quarters. Alistair. Thanks, Brian.

The company's overall investment banking fees were 1.2 billion in Q3 growing modestly over the prior year. Despite a pool that was down nearly 20%.

Alistair Borthwick: And on slide 10, we present the summary income statement. I'm not going to spend a lot of time here because Brian touched on this and the highlights that we show on slide three. For the quarter, we generated $7.8 billion in net income, resulting in 90 cents per diluted share. Both of those are up to double digits from the third quarter of last year. The year-over-year revenue growth of 3% was led by improvement in net interest income, coupled with a strong 8% increase in sales and trading results, and that excludes DVA.

And we held on to number three position given our performance.

Provision expense reflected reserve release of 139 million of certain troubled industries and.

And credits outside of commercial real estate continued to have improved outlooks.

Spence increased 6% year over year, reflecting our continued investments in this business.

Switching to global markets on slide 22.

Alistair Borthwick: And a 4% increase in investment and brokerage revenue driven by our wealth management businesses. Expense for the quarter of $15.8 billion included good discipline from our team, which allowed us to reduce costs from the second quarter, even as we continue our planned investments for marketing, technology, and physical presence build-outs including financial center openings and renovations. As a quality remains stellar, and provision expense for the quarter was $1.2 billion, that consisted of $931 million of net chargeoffs and $303 million of reserve build.

Team had another strong quarter with earnings growing to 1.3 billion driven by revenue growth of 10% and I'm, referring to results excluding DVA as we normally do.

The continued things of inflation.

Geopolitical tensions and central banks changing monetary policies around the globe have continued to impact both bond and equity markets.

And as a result, it was a quarter, where we saw strong performance in our FIC trading businesses as well as a record third quarter in equities.

Focusing on sales and trading ex DVA revenue improved 8% year over year to $4 4 billion.

Alistair Borthwick: The provision expense reflects the continued trend in chargeoffs toward pre-pandemic levels, and remains below historical levels. Our charge-off rate was 35 basis points, that two basis points higher than the second quarter, and still below the 39 basis points we saw in the fourth quarter of 19. And as a reminder, that 2019 was a multi-decade low. 30-day delinquencies also remain below their fourth quarter 19 level. Lastly, our tax rate this quarter was 4%, driven mostly by higher than expected volume of investment tax credit or ITC deals for the rest of the year. And we can expect other income in Q4 will reflect seasonally higher renewables investment losses when these projects get placed into service.

Thick improved 6% and equities improved 10% compared to the third quarter of last year and at 1.7 billion. That's a record third quarter for our equities teammates.

Year over year expense increased 7%, primarily driven by investments for people and technology.

And finally on slide 13, all other shows a profit of 18 9 million.

So revenue improved from the second quarter, driven by the absence of prior period.

Debt securities sale losses and available for sale Securities.

And partially offset by higher operating losses on tax credit investments in wind solar and affordable housing as.

As I mentioned earlier, our effective tax rate in the quarter was 4% and that reflects a higher than expected volume of investment tax credits in which the value of the deals are recognized upfront.

Alistair Borthwick: Okay, let's turn to the balance sheet that's on slide 11, and you can see it ended the quarter at 3.2 trillion, up 31 billion from the second quarter, so not a lot to note here. The driver of the increase was a $34 billion increase in available for sale securities. With cash levels so high, we chose to reduce the cash and just put some of the money into short term. T bills this quarter, and those earn essentially the same rate as cash.

We also had a small discrete benefit to tax expense from a state tax law change excluding.

Excluding renewable investments and any other discrete tax benefits our tax rate would have been 25%.

And as we wrap up 2023, we expect our full year tax rate, excluding discrete and special items, such as the FDIC Special assessment.

Alistair Borthwick: Our cash remains high at 352 billion. In addition to the cash level change, we saw another $11 billion decline in whole to maturity securities as those securities matured and paid down. And as Brian noted, global excess liquidity sources remain strong at $859 billion. That's done very modestly from the second quarter and still remains approximately $280 billion above our pre-pandemic fourth quarter 19 level. Shareholders' equity may be increased $4 billion from the second quarter, as earnings were only partially offset by capital distributed to shareholders.

We expect that full year tax rates should end up in the 9% to 10% range. So to summarize we grew our earnings double digit year over year.

We reported NII that was above our expectations and we increased our full year expectations. We've managed costs aligned with our guidance and brought expenses down in every quarter. So far this year and we expect to do that again in the fourth quarter.

We earned more than 15% return on tangible common equity, we returned $2 9 billion in capital back to shareholders, including a 9% dividend increase and we built 30 basis points of C. E. T. One positioning us well for the proposed capital rules. So all in all it was a strong quarter.

Alistair Borthwick: During the quarter, we paid out $1.9 billion in common dividends, and we bought back a billion in shares to offset our employee awards. AOCI was a billion one lower, reflecting both a modest decline in the value of AFS securities, modestly impacting CET1, as well as a small change in cash flow hedges, which doesn't impact the regulatory capital, tangible book value per share is up 12 percent year over year. Turning to regulatory capital, our CET1 level improved $194 billion from June 30, and our CET1 ratio improved 30 basis points to 11.9 percent.

It was one where our teams executed well against responsible growth.

And with that David I think we'll open it up for the Q&A session.

At this time, if you'd like to ask a question. Please press the star and one Keith on your telephone keypad keep in mind, you may remove yourself from the question queue at any time by pressing the pound key.

Alistair Borthwick: It's now well above our current 9.5 percent requirement, as Brian noted. Risk-rated assets declined modestly as loans and global markets are WA both move lower. Our supplemental leverage ratio was 6.2 percent versus a minimum requirement of 5 percent, which leaves capacity for balance sheet growth, and our T-lac ratio remains well above our requirements. LCR ratios remain well above minimums for BAC metrics and stronger at the bank level.

And we will take our first question from Gerard Cassidy with RBC. Please go ahead. Your line is open.

Thank you Hi, Brian Hi, Alastair.

Hi, there Hey, Gerard.

Brian can you come back to your your thoughts when you were talking about the consumer spending holding at 4% right now and obviously down from the very strong levels of a year or two years ago. When you look at it and you mentioned, how you guys were thinking the economy troughs in the middle of next year do you think you could hold that for.

Send consumers spend do you think your consumers will hold that 4% spending number or could it actually deteriorate from here.

Alistair Borthwick: Let's now focus on loans by looking average balances on slide 12, and loan growth slowed this quarter as a decline in demand for commercial borrowing, more than offset our credit card growth. So we saw that lower commercial demand in lower revolver utilization among higher funding costs, and commercial balances were also impacted by term loan repayments due to borrowers accessing other capital market solutions. Focusing for a moment on average deposits and using slide 13, given Brian's earlier comments, I just note the comparisons, relative to pre-pandemic fourth quarter 19, average deposits are up 33%, consumer is up 36%, with consumer checking up 45%, and you can see the other segment comparisons on the page.

Well I think couple.

A couple of things one is the there's obviously external events, which could change the situation in the globe and.

Yep.

Dramatically and so but given just a pathway that those that doesn't that kind of event doesn't take place you do you think that the.

They are spending out now is consistent with a lower inflation. So embedded in our teams are cash bearing platinum teams economic projections as a return to inflation to try to get the 2% target at the end of 'twenty five at the rate structures that it comes down beginning in the middle of next year, but still stays around 4%.

At the end of 'twenty, five and so given that the economy. The inflation is coming down economies. It would still be growing that and bake getting back towards trying growth I think it would hold steady and so it's been pretty steady the month of August into September and October at this for four 5% level and that's kind of just you know you'll get paid more they spend a little.

Alistair Borthwick: Turning to slide 14, let's extend the conversation we've been having over the course of the past couple quarters around management of our excess liquidity. This slide serves as a reminder of the size of our high quality deposit book, the magnitude of deposits we have in excess of those needed to fund loans, and the way we've extracted the value of that excess to deliver value back to our shareholders. The excess of deposits needed to fund loans increased from 420 billion pre-pandemic to a peak of 1.1 trillion in the fall of 2021, and as you can see it remains high at 835 billion today.

But more pricing goes up and then you have the ebbs and flows within it what they spend on it right now you've kind of seen all the adjustments that came through the pandemic into the last couple of years sort of adjust out of the system and what I mean by that is you had a lot of goods purchased then you had a lot of travel and you had a lot of it turned office spending we can track that you know people buying stuff all of that has kind of leveled out.

Our system, including a drop in fuel prices and an increase in basically its relatively a bounce around about the same and they're spending about the same amount of money on gas.

Guess, what they spent last year, so all that being said and the big aggregate numbers I think yes. It could keep bumping along at that level, which is consistent with low inflation low growth economy and effectively shows that consumers have been brought more in line with the scenario of the fed reaching your target that that's what we see now will take some time for all that to work through the cyst.

Alistair Borthwick: That 1.1 trillion of excess liquidity has always included a balanced mix of cash, available for sale securities, and securities we hold to maturity. In late 2020 and into 2021, we concluded that additional stimulus was going to remain inclined accounts for an extended period, and we increased the hold to maturity securities portion, so we could lock in value from those deposits, and we made these investments given the core nature of our customers deposits.

And you know the retail sales numbers seems to be stronger today, but that that all shakes out, but just what they're doing at the moment.

Very good and then as a follow up question you guys gave us good detail on slide eight about the potential changes coming from Basel III and game and you show was obviously the organic capital generation can you share with us, possibly some of the mitigation strategies you might use and specifically if you could touch upon.

Alistair Borthwick: Note the split of the shorter term investments in cash and available for sale securities, and then the longer term hold to maturity securities, and I just draw your attention to just how much cash we have above the actual level we need to run the company. On the available for sale, we would just note the duration is less than six months as it's mostly all short-term treasuries, and the combination of the cash and available for sale securities represents about 47 percent of the total noted on this page in the third quarter of 23 to give us the balance we're looking for.

These changes for the equity investments, particularly you know in the alternative energy space I guess, they're going up from 100 per cent RTW as to 400% would that change your thinking in that line of business as we go forward should they stay in the final rules.

So I think number one I think the first thing is you know they'll be at the end of November the comments are due there'll be comments by our company by all the other companies by industry participants and then.

The staff at the fed will have to sort through all that and think through what they all mean and it'll be very.

Alistair Borthwick: And if we look at the whole maturity book, it had grown from 190 billion pre-pandemic, peaking two years ago, and now falling to just over 600 billion currently. That 600 billion consists of about 122 billion in treasuries, those will mature in a little more than six years, and about 474 billion in mortgage back securities, and a few billion other. The ultimate maturity securities peaked at 683 billion, and we're now down 80 billion from the peak, and 11 billion in the last quarter.

Rigorous points about.

Our views of the wisdom of the changes they need that changes the balance of the change is the double counting all the things that you've heard much about that.

That being said it it is a little puzzling that you see some of the <unk> increases for mortgage loans or for these types of investments in tech in the environmental and housing other spaces, which sort of counter to the policy that we want to do it now what would happen is we'd have to just the pricing and it would become more expensive it's been a great business.

Fourth we continue to drive it but we'd ultimately I'd have to go through the market. If you have the equity.

Alistair Borthwick: At 80 billion declined from peak was all driven by the reduction of mortgages from 555 to 474 billion. With less loan funding needs over the past several quarters, the proceeds from security pay downs have been deployed into higher yielding cash, and this makes shift has been happening at about a 300 basis point spread benefit for these assets. Davis. Given the increased cash rates, the combined cash and security yield has risen now to more than 3%.

Costs go up by a four fold increase to get the returns and so think about our pricing model just increase the amount of equity we have to dedicate therefore, we have to get returns on that and so that would happen. It just seems a little counterintuitive that people would be doing that on a on a set of rules that basically after the financial crisis Dodd Frank put instead.

The rules and said here's how you count the IWA without much evidence that this is an issue for companies because of the volcker rule and all their stuff that are having issues or write downs or changes here and so the idea of going up four times seems odd tests from a public policy standpoint also absent any evidence that this is an issue for the banking system.

Alistair Borthwick: It's up more than 200 basis points since the peak size of the portfolio in the third quarter of 21. And it's risen faster than the rate paid on deposits. In fact today it's 178 basis points above what we pay for deposits. And remember also we have a trillion of loans that are largely in floating rate in addition. From a valuation perspective, we did experience a decline in the valuation of the whole to maturity book this quarter.

Very good thank you very much Greg.

We'll take our next question from Jim Mitchell with Seaport Global. Please go ahead. Your line is open.

Hey, great. Good morning, Alistair at a conference a month ago. You noted that you know if the fed is done.

Alistair Borthwick: And that's in the context of mortgage rates reaching a two decade high, comparing the valuation change to the year ago period, it worsened 15 billion. And over that same time period we grew regulatory capital by 19 billion and hold global liquidity sources in excess of 850 billion dollars.

Deposit pricing is close to its peak and I think you kind of.

Talked us through that a little bit today some of your peers have been.

More fearful of a potential future material repricing of consumer savings for example from greater competition or further outflows, so and to be fair you know they worried about that for a while and you've been more right. But can you just kind of discuss your thoughts on that and perhaps the outlook on deposit pricing in general.

Alistair Borthwick: And importantly, as we move to slide 15, I'll make one final comment here, which is the improved NII over this investment period. The net interest income, excluding global markets, which we disclose each quarter troughed in Q320 at 9.1 billion. That compares to 13.9 billion in the third quarter of 23 or 4.7 billion higher every quarter on a quarterly basis. And that gives a sense of the entire balance sheet working together.

Yeah, I mean, Jim one of the things that I think gives us some confidence around NII trough thing and then growing in the back half of next year as you know.

If you think we've seen the last fed hike or your belief that the last fed hike as you know a month from now or two months from now.

And at some point deposit pricing is going to stop going up.

And there'll be a natural lag to that that's pretty normal.

And then what you see if you look forward into the forward curve is we've actually got.

Alistair Borthwick: Okay, let's now turn our focus to NII performance over the past quarter and we'll talk about the path forward and I'm going to use slide 15 for that. On last quarter's call we guided to expect Q3 NII to be about 14.2 to 14.3 billion on an FTE basis. Our third quarter performance turned out to be better than our guidance. And on an FTE basis, NII was 14.5 billion in this quarter. We expect Q4 will be around 14 billion fully taxable equivalent.

Fed cuts three of them and the forward curve for next year. So yes, we anticipate there'll be some lag I don't think were any different than anyone else in that regard, but we're just pointing out that as we get towards peak rates. We're getting closer now. So we can begin to see the end of that in terms of the the later innings at this point.

Thing just just we always have to remind everyone. This is.

The deposits that we have are very relationship based.

There are lot of them are core operating deposits, where we've got the checking.

Alistair Borthwick: And that increases our full year guidance for NII in 2023 versus 2022 to 9% growth figure. We believe NII will hover around this expected fourth quarter 14 billion level plus or minus in the first half of next year. And then we anticipate modest growth in the second half of 2024. By the time we get to the fourth quarter of 2024, we believe we can see NII up low single digits compared to the fourth quarter of 2023.

They're thinking about the way we serve them in terms of digital we've got preferred rewards program.

And then on the commercial side very similar we've got a lot of operating deposits all around the world.

And they're using our world class cash pro products. So there's a lot of relationship value here as well that we need to take into account, but fundamentally we're just making a judgment.

That we're getting towards the top of the rate cycle here for fed funds and the.

Then deposit pricing will sort out in the courts or two following.

Alistair Borthwick: The good news is we believe NII will likely trough around the fourth quarter level of 14 billion and begin to grow again in the middle of next year. I know a few caveats around that forward view. I just provided it includes an assumption that interest rates in the forward curve materialize and it includes rate cuts for the second half of 2024. It also includes an expectation of modest loan and deposit growth as we move into the second half of 2024.

Alright.

Fair, maybe given the thoughts that theres three rate cuts in and the forward curve and you are asset sensitive.

But yet you still expect growth or.

Improving growth in NII in the back half what is that just sort of the lagged.

Or lag effect, there too or is there something else going on in terms of a rate cuts and the impact.

I think that the other things that we've got going on especially as we get into the back half of the year.

Alistair Borthwick: Focusing again on this quarter 14.5 billion NII was an increase of nearly 700 million from the third quarter of 22 or 4%. While our net interest yield improved five basis points to 2.11%. Senate. The year-over-year improvement was driven by higher interest rates and partially offset by lower deposit balances. On a link quarter comparison, NII improved 239 million from Q2. That comes from the benefit of an extra day of interest, a rate hike, and higher global markets, NII, partially offset by increased deposit pricing. And then that interest yield improved five basis points.

Consumer balances are going to find a floor at some point. They again are in the late innings of.

Returning to sort of more normal pre pandemic balances per account, so they're going to find a floor in at that point theyre going to start growing in the same way that wealth is found a floor.

And in the same way that global banking found a floor a while ago and is now beginning to grow. So we have a point of view that the consumer side is going to find a floor. So that's one.

Two is you know at that point, you're placed for deposit growth, but we're also going to see loan growth through the course of the year, it's been slower this quarter.

But at some point you returned to a more normal economy as Brian pointed out we're going to see the loan growth and so we're thinking that's going to start to evidence itself in the back half and then the final thing I'd. Just say is we have securities reinvestment every month.

Alistair Borthwick: Turning to asset sensitivity and focused on a forward yield curve basis, the plus 100 basis point parallel shift at September 30, was 3.1 billion of expected NII benefit over the next 12 months from our banking book. And that expects, or that assumes, no expected change in balance sheet levels or mix relative to our baseline forecast. And 95% of the sensitivity is driven by short rates. The 100 basis point down rate scenario was 3.3 billion.

And that's going to support and grow NII and I think it gives us a sense that we've got a more durable NII stream underneath.

Great. That's all very helpful. Thanks.

And we'll take our next question from Erika Najarian with UBS. Please go ahead. Your line is open.

Hi.

I have my first question.

Alistair Borthwick: Okay, let's turn to expense and we'll use slide 16 for the discussion. We previously highlighted that we guided you to a trend of sequential declines in our expense each quarter this year. And we achieved that in Q3 with our expense down 200 million to 15.8 billion. Additionally, we expect the fourth quarter to go down another couple hundred million to 15.6 billion, excluding any FDIC special assessment. That would mean our fourth quarter expense of 15.6 billion compared to the fourth quarter of 22 would be up by only 100 million or less than 1%.

No.

On the balance sheet.

Alastair.

Tell us how.

How much.

Yeah.

Book.

Well.

24.

Moving pieces underneath your NII outlook.

And for Brian .

Clearly this held to maturity portfolio.

Yeah.

And the side of the stock.

And no matter what.

You know the investment community.

Alistair Borthwick: And we're proud of that work by the team, especially considering our regular FDIC insurance expense alone increased by 125 million quarterly starting in the first quarter of this year. So without that, we would be flat year over year in Q4. The decline this quarter from the second was driven by the reduction and litigation expense and lower headcount offset somewhat by investments and inflationary costs. Our headcount is down nearly 2,800 from the second quarter to 213,000.

And I'm wondering as you think.

The statistics that you share with us every quarter like net new checking.

Maybe give us a little more statistics in terms of the strength of that growth.

And the strength of that retention.

You know no matter what.

You know.

Hum.

At the end of the quarter, there's always sort of pushback. So long as the market is not yet confident that we've hit peak rates.

Alistair Borthwick: And that includes the addition of 2,500 or so full-time campus hires we brought into the company. So that's good work by the team after we peaked at 218,000 in January month end. And you can see the movement here across the past year at the bottom left of this light. As we look forward to next quarter, we'd add 1.9 billion of expense for the proposed notice of special assessment from the FDIC as a possibility. Absent that we'd expect our fourth quarter, 15.6 billion expense target to more fully benefit from the third quarter headcount reductions. And that will allow expense to continue the decline experience throughout the year so far.

Two part first question.

Alright, so I'll answer the first part Erica.

I think if you look back through the course of the.

Last couple of years that portfolio, you know paydowns in terms of maturities or or pay downs sort of averaging 10 billion a quarter.

So I think you could probably use that as a good starting point for the reinvestment of horizon. In 2024, that's that's what I would use and then I'll, let Brian answer the second part of your question.

So you know Erika we drive up.

Organic growth machine based on a responsible set across all the company all the different operating businesses. So.

As you noted if you look at what's driving our deposit base.

Alistair Borthwick: All of that is going to set us up well for next year. Let's now turn to credit and we'll turn to slide 17 that charge offs of 931 million increased 62 million from the second quarter. The increase is driven by credit card losses as higher late stage delinquencies flow through to charge offs. For context, the credit card net charge off rate rose 12 basis points to 2 point suit. 72 in Q3, and it remains below the 3.03 pre-pandemic rate in the fourth quarter of 19.

To be larger than the industry I outperforming the industry is if you take from you know every compares against 19 to now rub $250 billion in.

Consumer deposit alone. We also are up probably 10% of and checking accounts net checking accounts those are 92% or.

The attrition rate and where all the deposit balances on a preferred part of that segment is 99%.

The retention rates, 99% plus long term customers of preferred rewards program drives a basis on cards. We're now getting the bounces back up to where they were people endemic with even better credit quality than we had then we got you know home equities have hit a trough and we're starting to work the way out auto loans or start you'll continue to produce a lot doesn't isn't it mark.

Alistair Borthwick: Provision expense was 1.2 billion in Q3, and that included a 303 million reserve build. It reflects a macroeconomic outlook that on a weighted basis continues to include an unemployment rate that rises to north of 5% during 2024.

It's not real strongly continue to produce several day in a quarter. So all the organic growth engine in the consumer business are very strong when you go to the wealth management. We're now producing net household growth at a faster rate than we produced in the prior years to go to the commercial.

Alistair Borthwick: On slide 18, we highlight the credit quality metrics for both our consumer and our commercial portfolios. And on consumer, we just note that we continue to see the asset quality metrics come off the bottom, and for the most part, they remain below historical averages. 30 and 90-day consumer delinquencies still remain below the fourth quarter of 2019 as an example. Commercial net charge-offs declined from the second quarter to have been mostly by a reduction in office write-downs.

Commercial banking businesses in the U S. We noted that we produce more customers this year and that deposit base.

And the business banking and middle market segments that does come with a big deposit franchise and you see that those deposits are actually been stable and growing less sick.

Six months. So you again a growth engine is in is in fine shape and just power through all this and as the strength of the three trillion dollar plus balance sheet in effect is the reason that we have a trillion dollars of $900 billion on a given day that we'd have to put to work because you're just having this great engine go on and so whether it's investment accounts and consumer.

Alistair Borthwick: And as a reminder, our CRE credit exposure represents 7% of total loans, and that includes office exposure, which represents less than 2% of our loans. We've been very intentional around client selection and portfolio concentration and deal structure over many years, and that's helped us to mitigate risk in this portfolio. We continue to believe that the portfolio is well positioned, and adequately reserved against the current conditions.

Checking accounts and consumer cards in consumer.

Equity all that has grown organically dramatically over the last four or 510 years in and frankly, the loan growth will continue to follow that as conditions improve and then on the commercial side as people go back to regular line usage. We saw deteriorate. This quarter is largely due to the.

Alistair Borthwick: And in the appendix, we've included a current view of our commercial real estate and office portfolio stats we provided last quarter. We've also included the historical perspective of our loan book de-resking and our net charge-offs, and you can see all of those on slide 36, 37, 38, and 39.

You know demand side and so we feel very good and then you talked about the market's business gave you detail there in the investment banking team is gaining market share and actually.

To maintain relatively flat fees in a market that was down 20% or something so we feel very good about the organic growth engine that is what powers, our company and that delivered $7 billion plus in after tax income for another quarter and 15% return on tangible common equity.

Alistair Borthwick: Okay, let's move on to the various lines of business and their results, and I'm going to start on slide 19 with consumer banking. For the quarter, consumer earned 2.9 billion on good organic revenue growth, and delivered its 10th consecutive quarter of operating leverage while we continue to invest for the future. Note that the top line revenue grew 6% while expense rose 3%. Reported earnings declined 7% year over year, given credit costs continue to return to pre-pandemic level.

Got it and my second question.

And do you have any.

Visa class B shares remaining our understanding is until the litigation was settled.

Aren't allowed to sell.

Other than to other banks in the initial consortium, but I'm wondering.

Yeah.

Are you now.

Is it on the books, because we haven't seen any disclosures on that recently.

Alistair Borthwick: And we believe this understates the underlying success of the business in driving revenue and managing costs, because PPNR grew 9% year over year. Much of this success is driven by the pace of organic growth of checking and card accounts, as well as investment accounts and balances as Brian noted earlier. And expense reflects the continued investments by the business for their future growth.

Well I mean, we essentially sold and urged our views would be positioned years ago.

And then in our markets business. We've we've financed the sale of visa by other banks you can think about that as a hedge thing that's just about a financing.

So depending on how that all develops from what other banks choose to do we may end up having some art W. E are some liquidity that we can reap cycle for other clients benefit in our markets business.

Alistair Borthwick: Moving to wealth management on slide 20, we produced good results, and we earned a little more than a billion dollars. These results are down from last year, due to a decline in NII from higher deposit costs, which more than offset higher fees from asset management. While lower this quarter, NII of a billion 8, derives from a world-class banking offering, and it provides good balance in our revenue stream and a competitive advantage in the business for us.

But we don't have any meaningful economic stake in visa b.

Got it thank you.

Well take our next question from Mike Mayo with Wells Fargo. Please go ahead. Your line is open.

Hi, do you expect the efficiency ratio of expenses to revenues to improve from 63% and when I guess, it's a two part question. One is expenses as you said, it's down every quarter this year and you're guiding for the fourth quarter slide five the Gainesville adult.

Alistair Borthwick: As Brian noted, both Merrill and the private bank continued to see strong organic growth, and they produced solid assets under management flows of $44 billion since the third quarter of last year, reflecting good mix of new client money, as well as our existing clients putting their money to work. Expense reflects continued investments in the business as we add financial advisors and capabilities from technology investments.

And it's about three fourths for your clients across the firm so the sustainability of those digital trends to help.

Lower expenses or a control expenses, given some of the headwinds and especially given the threat of big Tech and Fintech.

Alistair Borthwick: On slide 21, you see the global banking results. And this business produced very strong results with earnings of 2.6 billion, driven by 11% year over year growth and revenue to 6.2 billion. Coupled with good expense management, the business has produced solid operating leverage. Our GTS or global treasury services business has been robust. We've also seen a steady volume of solar and wind investment projects this quarter and our investment banking business is performing well in this luggage environment.

Sustainability of the digital trends and why do you think you have an advantage when so many others.

Had the advantage and the second part of that question is revenues. Your NIM is a bit over 2% went up a little quarter over quarter, but it was closer to two and a half or is that going back five years, and maybe long term it should be 3% I'm not sure what what do you think it's a normalized NIM because that would help the efficiency ratio in the trend for expenses and ultimately the efficiency.

Ratio thanks.

Sure. So Mike I think the expenses come down revenue grows the efficiency ratio continues to improve you one of the big differences between us and other companies you can compare it to is the size of our wealth management business relative to the size of the company as large and as you know that's a business, which we continue to work to make more efficient but it is.

Alistair Borthwick: Year over year revenue growth also benefited from the absence of marks taken on leverage loans in the prior year ago period. The company's overall investment banking fees were 1.2 billion in Q3, growing modestly over the prior year despite a pool that was down nearly 20%. And we held on to number three position given our performance. Provision expense reflected reserve release of 139 million as certain troubled industries and credits outside of commercial real estate continue to have improved outlooks. Expense increased 6% year over year reflecting our continued investments in this business.

Is that at least efficient business and a platform so.

And Eric continue to drive the efficiency. There. So yes, we expect the efficiency ratio continue to improve and part of that will be as the Edison margin normalize if we normalize the size of the balance sheet. You know given it's grossed up a lot of reasons through the pandemic and stuff and you kind of fine tune it you'll get a little more effectiveness, there and you know in the past.

Alistair Borthwick: Switching to global markets on slide 22, the team had another strong quarter with earnings growing to 1.3 billion, driven by revenue growth of 10%. And I'm referring to results excluding DVA as we normally do. The continued themes of inflation, geopolitical tensions and central banks changing monetary policies around the globe have continued to impact both bond and equity markets. And as a result, it was a quarter where we saw strong performance in our thick trading businesses as well as a record third quarter in equities.

We ran up to 230 in our NIM and its sort of a normalized sort of environments and you'd expect us to keep moving up from there and it'll be it'll be bouncing around here as you know as we work through the trough and I that we described which is we're sort of in the middle of starting this quarter into the first half of next year. So yeah, Mike and as you know, it's all about managing heads in that.

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You know last year at this time, we all talked about the great resignation or last year last summer and we had to hire people and we over hired because she.

Alistair Borthwick: Focusing on sales and trading X DVA revenue improved a percent year over year to 4.4 billion. Fake improves 6% and equities improve 10% compared to the third quarter of last year. And at 1.7 billion, that's a record third quarter for our equities teammates. Year over year, expense increased 7%, primarily driven by investments for people and technology.

She was could you hire fast enough to get what you needed. This year, we're able to bring that excess back out of the system and ended up kind of where we wanted to be at.

212000, as we think forward you know we continue to reposition people around the company, who are freed up because of that digital application to other things. So in the broad sense of our consumer business is down from 100000 people to 60000 people and continues to drift down as we continue to use the.

Yeah, that's the place of the mess, most leveraging and digital.

Alistair Borthwick: And finally on slide 13, all other shows a profit of 89 million. So revenue improved from the second quarter driven by the absence of prior period debt security sale losses and available for sale securities. And partially offset by higher operating losses on tax credit investments in wind, solar and affordable housing. As I mentioned earlier, our effective tax rate in the quarter was 4% and that reflects a higher than expected volume of investment tax credits in which the value of the deals are recognized upfront.

Across the board you continue to get less branches less Atms you can see the statistics as chart more customer interactions and more customers. That's a pretty good trade in and we continue to drive that including sales and digital and we disclosed in the back of things you're running nearly half the sales and frankly with improvements on that.

Checking account opening we can drive another round of growth there so.

So that's what we're gonna do continue to drive the efficiency ratio to a level and we'll see where we can get it.

And then just on that Big picture question I'm, even basket for over a decade.

And your your data and tech stack and digital engagement and now we have AI engine AI.

Alistair Borthwick: We also had a small discrete benefit to tax expense from a state tax law change, excluding renewable investments and any other discrete tax benefits our tax rate would have been 25%. And as we wrap up 2023, we expect our full year tax rate, excluding discrete and special items such as the FDIC special assessment. We expect that full-year tax rate should end up in the 9% to 10% range.

As a news opportunity than a threat.

Why do you think are maybe down why do you think that you have an advantage versus say smaller banks pentax or big Tech.

But we have an advantage.

And that we've been applying it for a number of years now so effectively Eric is a.

Form of that and now has you know.

17 million customers working on it every thing and sort of think about that this quarter. I think there was 178 million interactions or whatever the number is $180 million interaction something like that if you think about that Mike and a days gone by every one of those would have been at an email.

Alistair Borthwick: So to summarize, we grew our earnings double digit year over year. We reported NII that was above our expectations and we increased our full-year expectations. We've managed costs aligned with our guidance and brought expenses down in every quarter so far this year. And we expect to do that again in the fourth quarter. We earned more than 15% return on tangible common equity. We return 2.9 billion in capital back to shareholders, including a 9% dividend increase. And we built 30 basis points of CET1 positioning us well for the proposed capital rules. So all in all, it was a strong quarter. It was one where our teams executed well against responsible growth.

A text or a phone call and so it's obviously tremendously more efficient and we're continuing to prove we brought it out to the cash pro side, which is the commercial side. So that helps if you think about yep.

And in the $3 $8 billion, we'll spend in 'twenty four on technology initiative spending.

In addition, the team continue to use the techniques that you read about in the paper to increase the efficiencies of that development effort and it's probably.

10, 15% in the short term building up higher and higher as people get more and more used to it.

David Wright: And with that, David, I think we'll open it up for the Q&A session.

And that that will allow those dollars to be stretched even further so we think that's a near term application that we're already doing and has high probability and then you know frankly.

Operator: At this time, if you'd like to ask a question, please press the star and one key on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing the pound key.

If you think about.

Our RF capabilities. If you look we have nearly 7000 patents out there 600 on a I already a related machine learning related activities sitting the application of <unk>.

Gerard Cassidy: And we will take our first question from Gerard Cassidy with RBC. Please go ahead. Your line is open. Thank you. I'm Brian. I know Alastair. Hey, Gerard. Brian, can you come back to your thoughts? You were talking about the consumer spending holding at 4% right now, obviously down from the very strong levels of a year, two years ago. When you look out and you mentioned how you guys are thinking the economy drops in the middle of next year.

You know, we got a lot of inventors in this company and so we feel good about our ability to compete against the types of people you said, but by the way we use some of those competitor at some of those people who might compete to actually be providers to help us do this stuff and some of the big Tech companies are you know.

Gerard Cassidy: Do you think you could hold that 4% consumer spending? You think your consumers will hold that 4% spending number? Or could it actually deteriorate from here? I think a couple of things Gerard. One is the, there's obviously external events which could change the situation in the globe and thematically. But given just a pathway that doesn't take place, you'd think that the rate they're spending out now is consistent with a lower inflation.

As you listen to them they have it as a business for them to sell that AI capabilities to companies like ours to make us more efficiently so near term customer help near term.

Employee effectiveness near term.

Coating enhancements.

Et cetera, et cetera, but one thing as you mentioned as we have invested heavily to have the data in a tech stack ready to go and Yep three point whatever billion dollars a billion interactions. This quarter digital show that are that people are ready to use the services we provide.

Okay. Thank you.

We will take our next question from Steven Chu Bank with Wolfe Research. Please go ahead. Your line is open.

Gerard Cassidy: So embedded in our teams, Kenneth Brown and platinum teams, economic projections is a return to inflation to, you know, the 2% target at the end of 25. The rate structure, it comes down beginning the middle of next year, but still stays around 4% at the end of 25. And so given that the economy, the inflation is coming down, the economy is, will still be growing then and getting back towards trend growth.

Hey, good morning, Brian Good morning Alastair.

Morning, So wanted to start off with a question on expense you sided head count actions that should provide relief in four Q and positive flow through into next year I was hoping you could either help size the benefit from expense actions or just frame, how we should be thinking about expense growth as we look out to next year.

Gerard Cassidy: I think it would hold steady. And so it's been pretty steady the month of August and September and October at this 4% or 5% level. And that's kind of just, you know, people get paid more, they spend a little bit more, pricing goes up. And then you have the abs and flows within it, what they spend on. And right now, you've kind of seen all the adjustments that came through the pandemic into the last couple of years sort of adjust out of the system.

Well I think what we've tried to do this year, Steve is communicate pretty clearly what our plan was.

As Brian said, we overachieve last year on hiring.

So you know we started the year with 218000 in expenses 16, two and we've really been working on the trajectory over the course of this year. So this this point of getting the head count and to a place where we're comfortable 16 two turns into 16 turns into 15 eight we're now determined to deliver on the 15 six.

Gerard Cassidy: And what I mean by that is you had a lot of goods purchase, then you had a lot of travel, you had a lot of return to office spending. We can track that, you know, people buy and stuff. All that's kind of leveled out of the system, including a drop in fuel prices and an increase and basically it's relatively bouncing around about the same amount of money on gas that they spent last year.

And I think that's going to set us up really well. So our plan is to finalize our strategic planning over the course of the next few weeks and I think we'll give you more guidance next quarter.

Gerard Cassidy: So all that being said, in the big aggregate numbers, I think, yes, it could keep pumping along at that level, which is consistent with low inflation low growth economy. And effectively shows the consumer has been brought more in line with the scenario of the Fed reaching their target. That's what we see. Now, we'll take some time for all that to work through the system and, you know, retail sales numbers seems to be stronger today. But that all shakes through, but this is what they're doing at the moment.

Great and just two clarifying questions or clean up questions at my end.

On the NII remarks, you talked about deposits I was hoping you could help frame Alistair what are the assumptions, you're making in terms of reinvestment yields and loan growth that are underpinning that higher NII exit rate for next year.

Brian Moynihan: Very good. And then as a follow-up question, you guys give us good detail and slide aid about the potential changes coming from Basel 3N game, and you show us obviously the organic capital generation. Can you sample this possibly some of the mitigation strategies you might use, and specifically if you could touch upon these changes for the equity investments, particularly in the alternative energy space, I guess they're going up from 100% RWAs to 400% would that change your thinking in that line of business as we go forward, should they have to stay in the final rules?

Yeah, So I'd say reinvestment just assuming the forward curve.

And with respect to loan growth I'd use low single digits consistent with a slow growth economy.

Okay, and just one quick one here on the on the tax advantage investments I just wanted to confirm given the long duration. The Forex increase in capital are you still planning to find tax advantage investments on the platform before the rules are finalized or are you going to take a wait and see approach.

Well I mean this remains something that is important for our clients, we've yet to see a final rule, so we'll be supporting transactions, but obviously.

Brian Moynihan: So I think number one, I think the first thing is, they'll be at the end of November, the comments are due, they'll be comments by our company, by all the other companies, by industry participants, and then the staff at the Fed will have to sort through all that and think to what they all mean. And they'll be very rigorous points about our views of the wisdom of the changes, the needs of changes, the balance of the changes, the double counting, all the things that you've heard much about.

As Brian said, it is informing us with respect to pricing and it's informing us with respect to appetite, but no until as it until there's a change we'll continue to support the clients in that regard.

Understood. Thanks, so much for taking my questions.

We will take our next question from Matt O'connor with Deutsche Bank. Please go ahead. Your line is open.

Hi, good morning.

First just to clarify what's driving the drop in non interest income from Q4, two is that a core noninterest income was out on the market side.

Brian Moynihan: That being said, it is a little puzzling that you see some of the RWA increases for mortgage loans or for these types of investments in the environmental and housing other spaces, which sort of counter the policy that we want to do it. Now, what would happen is we'd have to adjust the pricing, and it would become more expensive. It's been a great business force. We continue to drive it, but ultimately, it'd have to go through the market if you have the equity costs go up by a four-fold increase to get the returns.

Yeah.

Well, you're you're talking about the fact that we think that we're going to be around 14, or so billion in Q4.

Because I'd say the first one is you've got a little bit of deposit pricing lag. There. So we got to keep thinking about that.

And as we're sort of baking into it some continued normalization of consumer balances. So that's just continued to to drift slowly lower.

Brian Moynihan: And so think about a pricing model, just increasing the amount of equity we have to dedicate, therefore we have to get returns on that. And so that would happen. It just seems a little counterintuitive that people would be doing that on a set of rules. Basically, after the financial crisis, Dodd-Frank put in a set of rules and said, here's how you count the RWA without much evidence that this is an issue for companies because of all the rule and all their stuff that are having issues of right-downs or changes here. And so the idea going up four times seems odd to us from a public policy standpoint. Also, absent any evidence that this is an issue for the banking system.

I think third you know if we had hoped for loan growth in Q3, we just didn't see that so that's that's going to flow through with lower loan growth balances in Q4, and then the only final thing I'd just say is.

Brian Moynihan: Very good. Thank you very much, Brian.

You know the the global markets NII may not repeat in quite the same way some of that depends on client behavior.

And they benefited this particular quarter by just rate long term rates going up so significantly and that helped them to carry sites. So it's all of those things and probably a little bit of.

Great hike probability or timing delayed, but it's it's it's all of those sorts of things.

Jim Mitchell: We'll take our next question from Jim Mitchell with Seaport Global. Please go ahead. Your line is open. Great. Good morning. Alistair, at a conference a month ago, you noted that, you know, if the Fed is done, you think deposit pricing is close to its peak. And I think you kind of talked us through that a little bit today. Some of your peers have been more fearful of the potential future material repricing and consumer savings, for example, from greater competition or further outflow.

It hasn't.

Isn't changed is it hasn't changed from our expectation a quarter ago.

And anyway.

Yeah. Okay. That's helpful. And then just conceptually as we think about your net interest income guidance for next year, you know, what if we get higher for longer rates does not cut.

Jim Mitchell: So, and to be fair, you know, they've worried about that for a while and you've been more right. But can you just kind of discuss your thoughts on that and perhaps the outlook on deposit pricing in general? Yeah. I mean, Jim, one of the things that I think gives us some confidence around NII troughing and then growing in the back half the next year is, you know, if you think we've seen the last Fed hike or you believe that the last Fed hike is, you know, a month from now or two months from now, then at some point deposit pricing is going to stop going up.

Is that good or bad versus the guidance that you gave earlier, obviously, you've got puts and takes there some reinvestment on the outside.

But again coming back to the deposit pricing issue.

Yeah that are higher for longer eventually drags up their consumer right. So what would be the amount of their tier and the higher for longer.

Well higher for longer is going to be better.

So you're right we've got the forward curve and our expectations that that doesn't turn out to be the case, we would expect NII would be higher.

And that's simply the assets, we're probably seeing more of the deposits are you still thinking there's minimal consumer deposit pricing even in the higher for longer.

Jim Mitchell: And there'll be a natural leg to that. That's pretty normal. And then what you see, if you look forward into the forward curve is we've actually got Fed cuts three of them in the forward curve for next year. So, yes, we anticipate there'll be some lag. I don't think we're going to need different than anyone else in that regard. But we're just pointing out, but as we get towards peak rates, we're getting closer now so we can begin to see the end of that in terms of, you know, the later innings at this point.

It'll be both I mean, there'll be the repricing for sure.

And in addition, you know we'd expect to capture a little bit of margin from any short term rate hike.

Yeah, Okay I understand thank you.

Well take our next question from John Mcdonald with Autonomous Research. Please go ahead. Your line is open.

Yeah, I was hoping you could give a little color on what youre seeing on credit your outlook as you look at roll rates and migrations. How are you thinking about the trajectory of charge offs in the near term.

Jim Mitchell: And the other thing just, we always have to remind everyone of this is the deposits that we have are very relationship-based. There are a lot of them are poor operating deposits where we've got the checking. They're thinking about the way we serve them in terms of digital. We've got preferred rewards program. And then on the commercial side, very similar. We've got a lot of operating deposits all around the world. And they're using our world class cash pro product.

Well, John I'll, just point out as you can see that the trajectory we've laid it out on the slide.

Most all of the net charge off increase overtime has been.

Really due to card.

And consumer card.

And the charge offs at this point is still lower than they were in the fourth quarter of 19, which was a stellar period.

Jim Mitchell: So, there's a lot of relationship value here as well that we need to take into account. But fundamentally, we're just making a judgment that we're getting towards the top of the rate cycle here for Fed funds. And then deposit price will sort out in the quarter to fall in. All right. That's fair. Maybe given the thoughts that there's three rate cuts in the forward curve. And you are as attentive. But yet you still expect growth and improving growth in the back half.

And you know I am.

Anticipating the short term that you'd see things begin to just continue that trend because it normally follows 90 days past you delinquencies and those are up ever so slightly again this quarter. So we're inching closer to the fourth quarter of 19 and at some point that's going to begin to stabilize.

From there. It's just a question of what does the economy too.

So right now as Brian pointed out we've got a slow growth economy in the plan. So I would anticipate as we get back towards that kind of fourth COVID-19 number it's going to normalize in there.

Jim Mitchell: Is that just sort of the lagged effect there too, or is there something else going on in terms of a rate cuts and the impact? Yeah, I think the other things that we've got going on, especially as we get into the back half of the year, consumer balances are going to flame the floor at some point. They again are in the late innings of returning to sort of more normal pre-pandemic balances per account.

But from that point it wont be very economic dependent on the commercial side the asset quality has been excellent.

Jim Mitchell: So, they're going to find a floor and at that point, they're going to start growing in the same way that wealth has found a floor. And in the same way that global banking found a floor a while ago and is now beginning to grow. So, with a point of view that the consumer side is going to find a floor. So, that's one. Two is, you know, at that point you're priced for deposit growth.

And the only place where we've got.

No particular elevated concern as office, which is a very small part of our portfolio.

It's less than 2% of our loans are.

On the commercial side has been terrific and again that will depend on how the economy plays.

Plays out and whether we're talking about a soft landing, whether we're talking about a recession or whether we're talking about robust growth. So all of that's going to.

I have to play itself out with the commercial numbers being so low.

Jim Mitchell: But we're also going to see loan growth through the course of the year. It's been slower this quarter. But at some point, you return to a more normal economy as Ryan's pointed out, we're going to see the loan growth. And so, we're thinking that's going to start to evidence itself in the back half. And then the final thing I just say is, we have securities reinvestment every month. And that's going to support and grow NII. And I think it gives us a sense that we've got a more durable NII stream underneath. Great. That's all very helpful. Thanks.

So that that one could bounce around a little bit, but its only because its coming off a base. That's that's so low at this point.

Just one thing on the as you think about it.

The commercial credit remember we have a.

Strong discipline ratings change yep ratings capabilities company and so we are.

Pushing through the reviews of the commercial real.

Estate portfolio et cetera, we put them on you have criticized quickly. We did you have to deal with the charge offs and that's why you've seen it come back down already in Europe .

Aaron Condizharian: We'll take our next question from Aaron Condizharian with UPS. Please go ahead. Your line is open. Hi. Good morning. I have my first question is sort of, you know, too proud on the balance sheet. If you could tell us sort of how much in cash flow do you forecast your HM book will have in 2024, you know, as you think about, you know, the moving pieces underneath your NII outlook. And for Brian, you know, clearly this health and maturity portfolio has been a thorn in the side of the stock.

And we're just seeing those those activities as we show in the slides and the part of the deck you have to current appraisals.

Under current market conditions under current rent.

Rolls et cetera, and so even though it's a very small part of our portfolio frankly, a lot of the issues are through the system for us because they are the <unk>.

Hi.

Ratings integrity and ratings.

Conservatives, we had conservatism we've had in this company for many many years and that that holds as well and if I always had my take back like in the oil and gas thing than a 15 at end of 15 and 16, we put up all of this reserve that was pre Cecil and ended up bringing it back in because the charge offs were very modest. So I think we feel very good about the original underwriting but you also.

Aaron Condizharian: And no matter what we say to, you know, the investment community, the stock hasn't quite caught up. And I'm wondering, as you think about the statistics that you share with us every quarter, like net new checking ads, you know, maybe give us a little more statistics in terms of, you know, the strength of that growth and the strength of that retention. Because I think that, you know, no matter what sort of, you know, print that you have on total deposit at the end of the quarter, there's always sort of pushback so long as the market is not yet confident, and that we've hit peak rates. The third, a two-part first question.

Because of our ratings integrity on the on the office part of the portfolio you pushed a fairly significant amount through yep reappraisal and re look and we have to see some reserves, but importantly, the charge offs you know are falling already.

Got it and then one bigger picture question as you think about the Basel III and the opportunity to mitigate and optimize their is at 15% R. O T. C E feel like a good aspiration for the company over time, Brian through the cycle I mean, recognizing that as where you are already today, but as you factor in the potential for new rules.

Anything about that yeah. So I think we're doing on a I think a simple way to think about is if we're doing it on $194 billion of capital, which we did it this quarter.

Aaron Condizharian: All right, so I'll answer the first part, Erika. I think if you look back through the course of the last couple of years, that portfolio paydowns in terms of maturities or paydowns, it's sort of averaging 10 billion a quarter. So I think you could probably use that as a good starting point for the re-investment horizon in 2024. That's what I would use. And I'll let Brian answer the second part of your question.

And that is you need about another say $10 billion to put a buffer on the end state need you know $10 billion to $11 billion 195, plus you know have a half a percent, which is I know a buffer without any mitigation you.

That would be.

A very modest increase of yep.

Aaron Condizharian: So, Erika, we drive an organic growth machine based on a responsible set across all the different operating businesses. So as you've noted, if you look at what's driving our deposit base to be larger than the industry, our performing industry is, if you pick from every compares against 19 to now, we're up $250 billion in consumer deposit alone. We also are probably 10% in checking accounts, net checking accounts. Those are 92% core.

Turn over 200 lets make it simple.

And that would hit the R. A T C a bit and we I'm sure. We can figure out ways to price to get that back, but remember that we're different than everybody else John because we are actually sitting on this amount of capital today and so we are getting a 15% return on it so I don't want to.

I don't take that as saying I agree with the rules, but saying we got to deal with the cards that are dealt to us. The rules say you have to have a 195 billion plus a about $10 billion.

You know cushion for and you know, maybe a little bit more of a cushion, but depending on if we're 50 basis points or so but yeah. We're doing 15% today its that'd be a slight dilution to that number but not something we could make up and that's before any mitigation honestly and theres always mitigation you know that you've been around this industry for a long time. So there's always mitigation, how you construct things what you'll do about.

Aaron Condizharian: The attrition rate and we're all the deposit balances are in the preferred part of that segment is 99%. If the retention rate is 99% plus, long-term customers in the preferred rewards program drive the basis on cards. We're now getting the balances back up to where they were pre-pandemic with even better credit quality than we had done. We got home equities, hit a trough and start to work the way out auto loans or start.

You're not too and it's and I fully expect there'll be modifications and rules, which which ought to help also but I think the simple point is we earn on it that amount of capital a day. So it's not like some calculation I have to think through its right there today.

Aaron Condizharian: It would continue to produce a lot. The market's not real strong. We continue to produce several billion a quarter. So all the organic growth engines in the consumer business are very strong. When you go to the wealth management, we're now producing that household growth at a faster rate than we produced in the prior years. To go to the commercial banking businesses in the US, we noted that we produce more customers this year.

Yeah, that's a good perspective, thanks, Brian .

We will take our next question from Vivek to nature with J P. Morgan. Please go ahead. Your line is open.

Thanks.

Alastair.

Question, just wanted to clarify and I comment so.

Aaron Condizharian: In the business banking and middle market segments, those come with a big deposit franchise and you see that those deposits have actually been stable and growing for less, you have six months. So organic growth engine is in fine shape and just powers through all this and is the strength of the $3 trillion plus balance sheet. In fact, is the reason that we have a trillion dollars or $900 billion on a given day that we have to put to work because you're just having this great engine go on.

Right.

A higher a better are you implying that rate cuts would therefore be negative for you from an NII standpoint.

Yeah, I'm, saying right now Vivek, if you think about what rate rate cuts it looked like in the back half of next year.

And the absence of that we might get NII higher yes, that's that's what I'm trying to communicate.

Aaron Condizharian: And so whether it's investment accounts and consumer checking accounts and consumer cards and consumer, you know, equity, all that has grown organically, dramatically over the last four or five, 10 years. And frankly, the long growth will continue to follow that as conditions improve. And then on a commercial side, as people go back to regular line usage, we saw deteriorate this quarter largely due to the demand side. And so we feel very good.

And is that because.

Your assets.

Many floating rate assets that would reprice faster than you can cut our funding costs.

Yeah on the way down I'd anticipate that was rates are going down it's going to cut into our margin on our deposit spreads. So.

That's essentially what we're talking about.

Yeah, Vivek I think.

I'm just.

Listen to you and also I think I remember the forward curve has multiple cuts in it next year and I think the question earlier was if those didn't occur what would happen and I think Alastair said and I would be higher if those cuts it didn't occur.

Aaron Condizharian: And then he talked about the markets business, gave you detail there and the investment banking team is gaining market share and actually, you know, fought to maintain relatively flat fees in a market that was down 20% or something. So we feel very good about the organic growth engine. That's what powers our company and that delivered $7 billion plus an after tax income for another quarter and 15% return in terms of common equity. Got it.

Right Yeah. It's.

It's that just mathematically that 75 basis points in the second half of next year of not being cut with a hold is higher because of all the.

Deposits are being worth more than that and our floating rate assets holding pricing up there.

Alistair Borthwick: And my second question is for you, Alice there. Do you have any economic ownership of visa class B shares remaining? Our understanding is until the litigation was settled, you weren't allowed to sell it other than to other banks in the initial consortium, but I'm wondering. You've sold any economic ownership through swap or, you know, if you still haven't on the books, because we haven't seen any disclosures on that recently. Well, I mean, we essentially sold and edged our visa fee position years ago.

Which is the dominant part of our balance sheet.

I just sense that you were talking about each other but maybe not.

Yeah.

Okay. Thanks.

Yeah.

We'll take our next question from Ken Houston with Jefferies. Please go ahead. Your line is open.

Thank you Stefan.

A follow up on the securities portfolio on the <unk> side Alastair.

Alistair Borthwick: And then in our markets business, we've financed the sale of visa by other banks. You can think about that as a hedge thing that's just about a financing. So depending on how that all develops and what other banks choose to do, we may end up having some RWA or some liquidity that we can recycle for other clients benefit in our markets business, but we don't have any meaningful economic stake in visa fee. Got it.

Much of the 180 billion is still swapped and can you kind of help us understand like you know what that kind of all in yield is on that book and if you would still also have repricing help going forward on that book as well as you had mentioned earlier on the H T. M maturities yeah. So so most of the book we swap it to.

Floating with we've tried to establish that over the course of time.

So you can almost think about most all of the available for sale securities repricing kind of everyday every every week every two weeks or whatever it maybe so that tends to look a little bit more like the cash type moves overtime.

Mike Mayo: Thank you. We'll take our next question from Mike Mayo with Wells Fargo. Please go ahead. Your line is open. Hi, do you expect the efficiency ratio expenses to revenues to improve from 63% and when? I guess this is a two-part question. One is expenses. As he said, it's down every quarter of this year and you're guiding for the fourth quarter. Slide five, the digital adoption. It's about three-fourths for your clients across the firm.

There's there's a few securities in there that are fixed rate, but very very little in terms of.

Total complexion Ken.

Okay that helps thank you.

Just wanted to also say.

On the on the fee side.

Honestly, another really good job both on the investment bank and the trading businesses.

So in an uncertain environment just wanted to get your thoughts you're able to hold the IV fees flat sequentially, which was I think better than you had indicated just your thoughts on reopening here in the markets and how you're kind of expecting the business to you Hopefully act, albeit you know understanding it's still an uncertain environment.

Mike Mayo: So the sustainability of those digital trends to help lower expenses or control expenses given us some of the headwinds and especially given the threat of big tech and thin tech. The sustainability of the digital trends and why you think you have an advantage with so many others think they have the advantage. And the second part of that question is revenues. Your name is a bit over 2%, went up a little quarter or quarter, but it was closer to 2.5%.

Yeah. So.

This is this is.

I suppose unusual and no unusual investment banking, obviously has.

The potential for swings in fees.

And what's interesting about this one is what I've been bouncing around this sort of 1.1 billion per quarter.

Mike Mayo: Going back five years and maybe long-term it should be 3%. I'm not sure. So what do you think is a normalized name because that would help the efficiency ratio and the trend for expenses and ultimately the efficiency ratio. Thanks. So Mike, I think the expenses come down. Revenue grows. The efficiency ratio continues to improve. One of the big differences between us and your other companies you can compare us to is the size of our wealth management business relative to the size of the company is large.

1.2 billion per quarter, and you know normally investment banking you could expect to return within a year or so and we're now seven quarters into this.

So we've got a good pipeline.

And mostly what I think corporate America and around the World C. Suite executives are looking for is the confidence that comes from.

Macroeconomic certainty geopolitical certainty so for as long as we've got the volatility it's gonna stay in this kind of a range.

Mike Mayo: And as you know, that's the business which we continue to work to make more efficient, but is the least efficient business in the platform. So Lindsay and Eric continue to drive the efficiency there. So, yes, we expect efficiency ratio to continue to improve. And part of that will be as the medicine margin normalize that we normalize the size of the balance sheet given it's grossed up for a lot of reasons through the pandemic and stuff.

But if you were to look back in periods plastic investment banking can come back very very quickly too.

Our more historical range of kind of.

<unk> 3 billion 4 billion five per quarter.

It's just that we've grown tired of predicting when that might be Ken.

Yeah Ken.

Mike Mayo: And you kind of fine tune it. You'll get a little more effectiveness there. And you know, in the past we ran up to 230 in a name and it's sort of a normalized sort of environments. And you'd expect us to keep moving up from there. It'll be bouncing around here as we work through the trough. And then I describe which is we're sort of in the middle of starting this quarter into the first half and next year.

Give it to other pieces one the pipeline still is.

Wrong.

But more importantly, a man.

Matthew and her team have done a good job of building out our capabilities to serve our huge yeah middle market client base, our global commercial banking client base.

Under <unk> leadership, and and you know that number is growing quickly and that's a market which is we're relatively underpenetrated in we we had good market share with our clients.

Mike Mayo: So Mike, as you know, it's all about mansion heads and that's your last year at this time. We all talked about the great resignation or last year last summer and how we had to hire people when we over hired because the issue was, could you hire fast enough to get what you needed this year? We were able to bring that excess back out the system and ended up kind of where we wanted to be at the $212,000.

That we did business with what we can do.

Doesn't banking business with and so that's generating a probably better performance for us and others in terms of holding our position flat relative up a little bit year over year flat year over year versus a down market. So we ended up basically double the size of that team we will double it again.

Mike Mayo: As we think forward, you know, we continue to reposition people around the company who are freed up because of that digital application to other things. So in broad sense our consumer business is down, you know, from 100,000 people to 60,000 people and continues to drift down as we continue to use the, you know, that's the place of the most leverage and digital, across the board, you continue to get less branches, less ATMs, you can see the statistics chart, more customer interactions and more customers, that's a pretty good trade and we continue to drive that including sales and digital, we disclose in the back of things, you run a nearly half the sales and frankly with improvements on the checking account opening we can drive another round of growth there.

It's that kind of opportunity for us.

Got it great. Thank you for the color.

Yeah.

We'll take our next question from that on the Sarnia with Morgan Stanley . Please go ahead. Your line is open.

Hi, good morning.

My question was around our deposit girl and saying what level of deposit growth do you think you need from me or.

Should it be in line with loan growth or are you happy to let some of the more maybe non transaction deposits run off and the reason I ask is it because yeah. You know as you noted in some of the prior questions as some of your peers are saying that there's more room for consumer deposits to reprice higher, especially our core checking.

Mike Mayo: So that's what we're going to do, continue to drive the efficiency ratio to level and we'll see where we can get it to. And then just on that big picture question, I'm even invested per over a decade in your data and tech stack and digital engagement and now we have AI and Gen AI as a new opportunity and a threat, why do you think or maybe don't, why do you think that you have an advantage versus say smaller banks, then techs or big tech.

Gosh I hate to owner sounds like you disagree with that so wanted to just ask how much you might need to respond to its competitors Act differently.

So a couple of things one yep, just broad base, we have a 1.9 trillion dollars deposits a trillion dollars alone. So we have a tremendously high.

Deposit base, but also you know if you think about if you look at the slide five or whatever it is we show the deposits by business in the in the banking business Global banking you know I think six quarters, we've been relatively flat, so and starting to grow off of that that is fully priced it it's not like corporate treasures wait around to.

Mike Mayo: But we have an advantage in that we've been applying it for a number of years now, so effectively Erika is a form of that and now has 70 million customers working on it, everything. And so think about that, this quarter I think there's 170 million interactions or what other numbers 180 million interactions, something like that. If you think about that, Mike in a days gone by, every one of those would have been an email, a text or a phone call.

Talk to you about what you're paying and in a noninterest bearing percentage that has drifted down the amount they hold in excess of that.

A part of that to pay fees has been relatively stable and so yeah. We feel very good about that look at wealth management basically all the movement was made.

It's been made pretty much to the higher rate environment are you buying treasury securities directly if you look in our our wealth management business the amount of <unk>.

Mike Mayo: And so it's obviously tremendously more efficient and we're continuing to prove we brought it out to the cash pros side which is a commercial side. So that helps. If you think about, you know, in the $3.8 billion will spend in 24 on technology initiative spending, you know, a ditch in the team, continue to use the techniques that you read about in the paper to increase the efficiency of that development effort. And it's probably, you know, 10, 15% in the short term building up higher and higher as people get more and more used to it.

Short term cash oriented type of investments money market funds and et cetera that treasuries et cetera has gone from like 500 billion to seven or 800 billion of Alaska. Several last couple of years. So that move has taken place and then and so the rest of it is now in a relatively stable base and you can see those numbers flat. If you go to the <unk>.

<unk> is basically.

Two or three things one is you know in the.

Mike Mayo: And that that will allow the dollars to be stretched even further. So we think that's in your term application that we're already doing and has high probability. And then, you know, frankly, if you think about our capabilities, if you look, we have nearly, I don't six, 7,000 patents out there, 600 on AI already related machine learning related activities, sitting the application of file, you know, we got a lot of inventors in this company.

More media income households, plus or minus you're seeing the slow spend down even though you have still have multiples of what they had pre pandemic and accounts and even though that's a small part of the overall deposit base, there's still a slow trend that way that's drifting down as all the things you've read about go on in the higher end part of that base.

And our broad consumer base, they're actually below the pandemic by about 20% and that's because they moved the money into the market and you can see that in some of the preferred category pricing. So.

Mike Mayo: And so we feel good about our ability to compete against the types of people you said. But by the way, we use some of those, some of those people who might compete to actually be providers to help us do this stuff. And some of the main tech companies are, you know, as you listen to them, they have, it's a business for them to sell that AI capabilities to companies like ours to make us more efficiently.

Where people think about checking and money markets and as we think I always have thought about it a little more straightforward, which is transactional cash and investment cash investment cash is largely been re suited across the businesses. The transactional cash holds because there's money in motion moving every day and for our consumer business you know that.

Mike Mayo: So near-term customer help, near-term employee effectiveness, near-term coding enhancements, et cetera, et cetera. But one thing she mentioned is we have invested heavily to have the data at a tech stack ready to go. And, you know, three point, whatever billion dollars, a billion interactions this quarter digital show that the people are ready to use this, we provide them. Okay, thank you.

Represented by the half a.

Trillion dollars of of of checking account balances you can see on the page with some modest.

And money markets and stuff that are carried as the Cushing people have and you know if they move the money market they've moved it and so we're we're watching consumer because theres a lot more drifting there and it's up $250 billion since pre pandemic and you're saying you have the dynamics alone.

Student loan repayments, starting that two 1 million of our customers pay student loans, you have the dynamics of our interest rate impacts on cash carry.

Stephen Chubak: We'll take our next question from Stephen Chupac with Wolf Research. Please go ahead. Your line is open. Hey, good morning, Brian. Good morning, Alistair. So, um, wanted to start off with a question on expense. You cited headcount actions. It should provide relief in 4Q and positive flow through into next year.

Loan balance of that is higher and that will sort out but it just takes a lot longer that's across 37 million people. So it's a you know the impact takes a while to sort through and so we feel good about it but I think people look by category and this and that you have to think about more how a customer, but it's a business a consumer behaves and what we've seen them as adjust their behavior based.

Alistair Borthwick: We're hoping you could either help size the benefit from expense actions or just frame how we should be thinking about expense growth as we look out to next year. Well, I think what we've tried to do this year, Steve, is communicate pretty clearly what our plan was. As Brian said, we overachieved last year on hiring. So, you know, we started the year with 218,000 and expenses, 162. And we've really been working on the trajectory over the course of this year.

They're household circumstances and largely through the system and most of it coming a little bit slower in consumer just because of the natural question. If there. If there were a lot of stimulus went in as accounts you know what do I do with it over time.

And yep.

And now they're doing something.

Got it that's that's helpful details. So I guess, just sometimes just deposit growth from here what do you what would you still prefer to to grow deposits in line with launch or is there a little bit more room for that to come down.

Alistair Borthwick: So, this point of getting the head count into a place where we're comfortable, 162 turns into 16 turns into 158. We're now determined to deliver on the 156. And I think that's going to set us up really well. So, our plan is to finalize our strategic planning over the course of the next few weeks.

We prefer to grow deposits in line with customer growth and activity. So.

And the last four quarters and consumer I think we're up another 900000, net new checking accounts, not which average balances of around 11000 Bucks.

Alistair Borthwick: And I think we'll give you more guidance next quarter. Great.

They come in at lower than that mature up to that if we grow we have a.

Alistair Borthwick: And just two clarifying questions or cleanup questions at my end. On the NII remarks, you talked about deposits. I was hoping you could help frame Alastair. What are the assumptions you're making in terms of reinvestment yields and loan growth that are underpinning that higher NII exit rate for next year? Yeah. So, I'd say reinvestment just assume the forward curve. And with respect to loan growth, I'd use low single digits consistent with a slow growth economy. Okay.

Transactional banking business for all types of customers and and we grow it irrespective of that produces two trillion you long as you have a loan business to customers that produces a trillion and that different centers is a wonderful thing to have everyday.

I appreciate it thank you.

We'll take our next question from Chris Kotowski with Oppenheimer. Please go ahead. Your line is open.

Yeah.

Thanks Ivy.

I mean looking at your average balance sheet on paid at page eight of the supplement and I noticed that in this quarter. Our overall yield on earning assets was up 20 basis points and Lo and behold the yield on interest bearing liabilities was also up 20 basis points.

Alistair Borthwick: And just one quick one here on the tax advantage investments. I just wanted to confirm, given the long duration, the Forex increase in capital, are you still planning to fund tax advantage investments on the platform before the rules are finalized? Or are you going to take away and see a approach? Well, I mean, this remains something that's important for our clients. We've yet to see a final rule. So, we'll be supporting transactions.

You know and I'm curious was there some benefit unusual you know the lower amortization or something like that or is it just.

A function of that.

Behind all the all the moving parts of balances better than you thought.

Alistair Borthwick: But obviously, as Brian said, it is informing us with respect to pricing. And it's informing us with respect to appetite. But, no, until is it, until is a change, we'll continue to support the clients in that regard.

Well I don't think it was an amortization issue I think it was just the way the entire balance sheet works across.

Alistair Borthwick: I just did. Thanks so much for taking my questions.

Assets liabilities, when you think about all the various moving pieces so I.

I don't think there's anything particularly notable there.

Matt O'connor: We'll take our next question from Matt O'Connor with Deutsche Bank. Please go ahead. Your line is open. All right. Good morning. So, just to clarify, what's rising the drop in the interest income from 3Q to 4Q? Is that core interest income or is that on the market side? Well, you're talking about the fact that we think that we're going to be around 14 or so billion in Q4. Did I say first one is you've got a little bit of deposit pricing lag there.

No. It was it's just of a stunning with all the moving pieces, how how the earning asset yield and the liability yields really moved in tandem.

So alright, that's it for me thank you.

For our final question today, we have a follow up from its infection danger with J P. Morgan. Please go ahead. Your line is open.

Thanks.

Brian trading is growing nicely and equities you've had a you said it was led by financing is there room in their balance sheet from a capital standpoint to keep growing that and a second question related to trading would be annual guidance on NII for next year, what are you assuming for <unk>.

Matt O'connor: So, we've got to keep thinking about that. Second is we're sort of baking into it some continued normalization of consumer balances. So, that's just continued to drift slowly lower. I think third, you know, if we had hoped for long growth in Q3, we just didn't see that. So, that's that's going to flow through with lower long growth balances in Q4. And then the only final thing I just say is, you know, the global markets and AI may not repeat in quite the same way.

NII in there.

Let me just hit the first one out of a stroke at the second one.

The you.

You have the capacity if you think about the constraint on our W. A you know as you know if I can are you experiencing a business that you know that.

Matt O'connor: Some of that depends on client behavior. And they benefited this particular quarter by just rate long term rates going up so significantly in that help on the carry side. So, it's all those things and probably a little bit of rate high probability or timing delayed, but it's all those sorts of things.

Equity financing is not R. W. A intense so but it is asset outsize intense now when you look at us with our supplementary leverage ratio of 100 plus basis points over the requirements. We have lots of room on the asset sensitive asset size, if we want and the return on equity and return on the risk in that business.

Matt O'connor: Thanks. It hasn't, what it probably hasn't changed is hasn't changed from our expectation a quarter ago in any way. Yeah, I got a couple and then just conceptually as we think about your interesting from guidance for next year, you know, what if we get higher for longer rates, does not cut, you know, is that good or bad versus the guidance that you gave earlier, obviously you've got books and takes to some reinvestment on the acid side.

Very strong so.

Jim and the team have done a good job in and soup in the equities are aside and you know we continue to experience. So there's plenty of room and in fact, we have brought the balance sheet up over 200 billion largely due to the financing side a lot of that due to equities and we can continue to do that if the clients are a.

Neither neither capabilities in our products. So that that's the simple answer yes, there's a lot of capacity and largely driven by our huge capital base and affect our <unk>.

Matt O'connor: But again, come back to the deposit pricing issue, you know, I think there's a view that you have higher for longer eventually drags up those consumer rates. So what would be the meta there's given the higher for longer?

Now the size measures we're way over.

Their requirements are.

Matt O'connor: Thank you. Well, higher for longer is going to be better. So you're right, we've got the forward curve in our expectations, if that doesn't turn out to be the case, we'd expect NII would be higher. And that's simply the assets for pricing more than the deposit, or you're still thinking there's minimal consumer deposit repricing even higher for longer. It'll be both, I mean, they'll be the repricing for sure. And in addition, you know, we'd expect to capture a little bit of margin from any short term rate hike. Yeah, okay, I understand.

100 basis points on that is probably almost $50 billion of overage. So you have a lot of room to go.

And then Vivek in terms of the NII guidance. We include global markets in there. So it's just part of a big diversified portfolio.

I think you know we would we would point to global markets remains liability sensitive you can see that in the way in.

He has come down in 'twenty, one 'twenty, two and into 'twenty three with the rates going up so it'll perform according to the rate curve and then we may put a little bit of modest balance sheet growth in there as Brian pointed out just to continue investing in the business but.

It's in the NII guide and it'll.

John Mcdonald: Thank you. We'll take our next question from John McDonald with autonomous research. Please go ahead. Your line is open. Yeah, it's open. You could give a little color on what you're seeing on credit, your outlook as you look at role rates and migrations. How are you thinking about the trajectory of chargeoffs in the near term? Well, John, I'll just point out, as you can see, the trajectory, we've laid it out on the slide.

Follow the forward curve.

Yeah.

Thank you.

So thank you for joining us just in closing I'd go back to the key points are strong.

John Mcdonald: Most all of the net chargeoff increase over time has been really due to card and consumer card. And the chargeoffs at this point are still lower than they were in the fourth quarter of 19, which was a stellar period. And, you know, I'd anticipate in the short term that you'd see things begin to just continue that trend because it normally follows 90 days past you delinquencies. And those are up ever so slightly again, this quarter.

Strong earnings for the company earnings growth year over year for the three months and nine months are in double digit.

The returns of 15% return on tangible common equity.

Our very strong we have the capital to meet the new capital rules as proposed before any mitigation before any changes in those rules.

And that and we're returning 15% on that capital today. So we feel good about the path ahead for the company.

We continue to do it the old fashion way growing our clients growing our revenues from those clients in driving responsible growth. Thank you.

This does conclude today's program. Thank you for your participation and you may now disconnect.

John Mcdonald: So we're inching closer to the fourth quarter of 19. And at some point, that's going to begin to stabilize from there, it's just a question of what does the economy do. So right now, as Brian's pointed out, we've got a slow growth economy in the plan. So I'd anticipate as we get back towards that kind of fourth quarter 19 number, it's going to normalize in there. But from that point, it will be very economic dependent on the commercial side, the asset quality has been excellent.

Yeah.

Yeah.

Yeah.

Yeah.

Yeah.

Yeah.

Uh huh.

John Mcdonald: And the only place where we've got, you know, particular elevated concern is office, which is a very small part of our portfolio. It's less than 2% of our loans. But the commercial side has been terrific. And again, that will depend on how the economy plays out, and whether we're talking about a soft landing, whether we're talking about a recession, or whether we're talking about robust growth. So all of that's going to have to play itself out with the commercial numbers being so low.

Yeah.

Okay.

Yeah.

Uh huh.

Okay.

Okay.

Uh huh.

Okay.

John Mcdonald: You know, that one could bounce around a little bit, but it's only because it's coming off a base that's so low. John, just one thing as you think about the commercial credit. Remember, we have a strong discipline ratings change, you know, ratings capability company. And so, you know, we are pushing through the reviews of the commercial real estate portfolio, et cetera. We put them on, you know, criticized quickly. We did deal with the charge-offs, and that's why you see them come back down already.

Oh.

Yeah.

Okay.

Uh huh.

Yeah.

Yeah.

Right.

[music].

John Mcdonald: And, you know, and we're just seeing those activities as we show in the slides in the part of the deck, you have to current appraisals, you know, under current market conditions, under current rent roles, et cetera. And so, even though it's a very small part of our portfolio, frankly, a lot of the issues are through the system for us because the high, you know, ratings integrity and ratings conservatives, and we have conservatives and we've had in this company for many, many, many years.

Okay.

Yeah.

[music].

John Mcdonald: And that holds as well. And I always remind you, if you think back like a new oil gas thing in the 15 and the 1516, we put up all of this reserve, that was pre-ceasal, and then end up bringing it back in because the charge-offs were very modest. So, I think we feel very good about the original underwriting, but you also have, because of our ratings integrity on the office, part of the portfolio, we pushed a fairly significant amount through, you know, re-appraisal and re-look, and we have the fees and reserves, but importantly, the charge-offs, you know, are falling already.

Uh huh.

Yeah.

Yes.

Okay.

Yeah.

Yeah.

Hum.

Uh huh.

Brian Moynihan: Got it. And one bigger picture question, as you think about the Basel III and the opportunity to mitigate or optimize, there's a 15 percent ROTCE, feel like a good aspiration for the company over time, Brian, through the cycle. I mean, recognizing that's where you are already today, based on factor in, you know, the potential for new rules, anything about that. Yeah, so I think we're doing on a, I think a simple way to think about is, if we're doing on $194 billion a capital, which we did at this quarter, and that is, you need about another, say, 10 billion to put a buffer on the end state need, you know, $11 billion, $195 plus, you know, half a percent, which is our normal buffer, without any mitigation.

Yeah.

Yeah.

Hum.

Yeah.

Yeah.

Okay.

Yeah.

Okay.

Yeah.

Uh huh.

Yeah.

Yeah.

Okay.

Brian Moynihan: You know, that would be, you know, a very modest increase of, you know, 10 over 200. Let's make it simple. And that would hit the ROTCE a bit, and we, I'm sure we can figure out ways to price to get that back. Remember that, we're different than everybody else, John, because we're actually sitting on this amount of capital today. And so we are getting a 15 percent return on it. So I don't want to, don't take that as saying, I agree with the rules, but saying, we got to deal with the cards that are dealt to us, the rules say you have to have $195 billion plus a, about $10 billion, you know, cushion for, and, you know, maybe a little bit more of cushion, but depending on, you know, for 50 basis points or so.

Uh huh.

[music].

Yeah.

Yes.

Brian Moynihan: But, you know, we're doing 15 percent today. So that'd be a slight delusion to that number, but not something we could make up. And that's before any mitigation on it. And there's always mitigation. You know that, you've been around this industry for a long time. So there's always mitigation, how you construct things, what you'll do, what you'll not do. And I fully expect there'll be modifications and rules which are to help also. But any of the simple point is, we earned it on that amount of capital today. So it's not like some calculation I have to think through. It's right there to this.

Yeah.

[music].

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[music].

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Brian Moynihan: Yeah, that's a good perspective. Thanks, Brian.

Hum.

Hum.

Vivek Juneja: We'll take our next question from this act to nation with JP Morgan. Please go ahead. Your line is open. Thanks, Alistair. Question, just want to clarify your N.I, comment. So if rates, let's say higher, are better, are you implying that rate cuts will therefore be negative for you from an N.I, standpoint? Yeah, I'm saying right now, Vivek, that if you think about what rate cuts look like in the back half and next year, in the absence of that, we might guide N.I, higher.

[music].

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[music].

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Hum.

Yeah.

Vivek Juneja: Yes, that's what I'm trying to communicate. And is that because your assets, you have that many floating rate assets that will be priced faster than you can cut funding costs? Yeah, on the way down, I'd anticipate that as rates are going down, it's going to cut into our margin on our deposit spreads. So that's essentially what we're talking about. Vivek, I think I just listened to UN Alastair. I think remember the four curve has multiple cuts in it next year.

[music].

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Vivek Juneja: And I think the question was if those didn't occur, what would happen? And I think Alastair said N.I, would be higher if those cuts didn't occur. It's not a rate, you know, it's that just mathematically at 75 basis points in the second half of next year of not being cut would hold us higher because of all the deposits of being worth more in the floating rate assets, holding pricing up better. Which is dominant part of our balance. I just sense that you're talking about each other, but maybe not.

[music].

Ken Euston: Okay, thanks.

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Ken Euston: We'll take our next question from Ken Euston with Jeffries. Please go ahead. Your line is open. Thank you. It's just a follow up on the securities portfolio on the AFS side. Alastair, how much of that 180 billion is still swapped? And can you kind of help us understand like, you know, what that kind of all in yield is on that book? And if you would still also have repricing help going forward on that book, as well as you mentioned earlier on the H.T.M, maturities?

Hum.

Yeah.

Yeah.

Yeah.

Hum.

Ken Euston: Yeah, so most of the book we swap to floating. We've tried to establish that over the course of time. So you can almost think about most all of the available for sale securities, repricing kind of every day, every week, every two weeks, whatever it may be. So that tends to look a little bit more like the cash type moves over time. There's a few securities in there that are fixed rate, but very, very little in terms of the total complexion, Ken.

Yeah.

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Ken Euston: Okay, that helped. Thank you. And then I just wanted to also say, on the FESIDE, obviously another really good job, both on the investment bank and the trading businesses. Spilling in certain environments just wanted to get your thoughts. You were able to hold the IVFES flat sequentially, which was I think better than you would indicate it. Just your thoughts on reopening here in the markets and how you're kind of expecting the business to hopefully have to all be, you know, understanding it's still an uncertain environment.

Yeah.

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Yeah.

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Yeah.

[music].

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[music].

Ken Euston: Yeah, so, you know, this is, I suppose, unusual and not unusual. Investment banking obviously has the potential for swings and fees. And what's interesting about this one is we would now be bouncing around this sort of 1.1 billion per quarter, 1.2 billion per quarter, and, you know, normally, investment banking you'd expect to return within a year or so, and we're seven quarters into this. So we've got a good pipeline, and mostly what I think corporate America and around the world, C-suite executives are looking for is the confidence that comes from macroeconomic certainty, geopolitical certainty.

Yeah.

Okay.

Hum.

Hum.

Ken Euston: So for as long as we've got the volatility, it's going to stay in this kind of a range. But if you were to look back in periods past, investment banking can come back very, very quickly to a, you know, a more historical range of kind of a billion, three billion, four billion, five per quarter, it's just that we've grown tired of predicting when that might be, Ken. Yeah, Ken, let me give it two other pieces.

Mhm.

Yeah.

Okay.

Yeah.

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Ken Euston: One, the pipeline's built as strong, but more importantly, Matthew and a team have done a good job of building out our capabilities to serve our huge, middle market client base, our global commercial banking client base under Wendy's leadership, and, you know, that number is growing quickly, and that's a market which is, we're relatively unpenetrated in. We had good market share with our clients, but that we did business with, but we can, you know, invest in banking business with, and so that's generating probably better performance for us than others in terms of holding our position flat up a little bit year-to-year, flat year-to-year versus the down market. So we had it out, we basically doubled the size of that team and we'll double it again. It's that kind of opportunity for us. Right, great.

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[music].

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Ken Euston: Thank you for the car.

[music].

Chris Kotowski: We'll take our next question from the Nun of the Salia with Morgan Stanley. Please go ahead, your line is open. Hi, good morning. My question was around deposit growth and what level of deposit growth do you think you need from here? Should it be in line with loan growth, or are you happy to let some of the more, maybe non-transaction deposits run off? And the reason I ask is because, you know, it's noted in some of the prior questions, some of your peers are saying that there's more room for consumer deposits to reprise higher, especially core checking accounts.

Okay.

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Chris Kotowski: It sort of sounds like you might need to respond if competitors act differently. So a couple of things. One, you know, just brought base. We have a $1.9 trillion deposit and $2 trillion a loan, so we have a tremendously high deposit base. But also, you know, if you think about, if you look at the slide, five or whatever we show the deposits by business, in the banking business, global banking, you know, I think six quarters we've been relatively flat, so and starting to grow off of that.

Yeah.

Okay.

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Chris Kotowski: That is fully priced. There's not like corporate treasures way around this, you know, to talk to you about what you're paying. And in a non-transparent percentage that has drifted down, the amount they hold and access to that, part of that to pay fees has been relatively stable. And so, you know, we feel very good about that. Look at bulk management. Basically, all the movement was made, it's been made pretty much to the higher rate environment.

Chris Kotowski: Buying treasure securities directly, if you look in our, our wealth management business, the amount of Short-term cash, oriented type investments, money market funds, et cetera, et cetera, et cetera, it's gone from like 500 billion to 7 or 800 billion of the last couple years. So that move has taken place. And then, and so the rest of it is now in a relatively stable basin, you can see those numbers flat. If you go to the consumer side, there's basically two or three things.

Chris Kotowski: One is, you know, in the more medium-come households plus or minus you're seeing the slow spend down, even though they still have multiples of what they had pre-pandemic in their accounts, and even though that's a small part of the overall deposit base, there's still the slow trend that what that's drifting down is all the things you read about go on and the higher end part of that base in a broad consumer base, they're actually below the pandemic by about 20%. And that's because they move the money into the market.

Chris Kotowski: And you can see that in some of the preferred category pricing. So, you know, where people think about, you know, checking and money markets in this, we think I always have thought about it a little more straightforward, which is transactional cash and investment cash. The investment cash, as long as you've been resuited across the businesses, the transactional cash holds because it's money in motion moving every day. And for our consumer business, you know, that's represented by the half a trillion dollars of checking account balance, so you can see on the page, with some modest amounts and money markets and stuff that are carried as the cushion people have.

Chris Kotowski: And, you know, if they move the money market, they've moved it. And so, we're watching consumer because there's a little more drifting there, and it's up $250 billion since pre-pandemic. And you're saying you have the dynamics of loans, student loan repayments, starting at the million dollar customers pay student loans, you have the dynamics of interest rate impacts on cash carry of loan balance of that's higher. And that'll sort out, but just takes a lot longer.

Chris Kotowski: That's across 37 million people, so it's a, you know, the impact takes a while to sort through. And so, we feel good about that. But I think people look at, by category and this and that, you have to think about it more how a customer or just a business or consumer behaves. And what we've seen them as adjust their behavior based on their household circumstances. And largely through the system, in most of it, coming a little bit slower and consumer, just because the natural question is there, if there are a lot of stimulus when it is accounts, you know, what do I do with it over time?

Chris Kotowski: And now they're doing something. Got it, that's the helpful detail. So I guess just in terms of deposit growth from here, would you still prefer to grow deposits in line with loans, or is there a little bit more room for that to come down? We prefer to grow deposits in line with customer growth and activity. So, you know, in the last four quarters, consumer I think we're up another $900,000, you know, new checking accounts, not which average balance is around $11,000.

Chris Kotowski: They come in at, you know, lower than that, mature up to that, you know, we grow, we have a transactional banking business for all types of customers and we grow it irrespective of it. That produces two trillion. You have a loan business to customers, that produces a trillion, and that difference then is a wonderful thing to have every day. I appreciate it. Thank you. We'll take our next question from Chris Kotowsky with Oppenheimer.

Chris Kotowski: Please go ahead. Your line is open. Yeah, good morning. Thanks. I've been looking at your average balance sheet on page eight of the supplement and I noticed that in this quarter, you know, your overall yield on earning assets was up 20 basis points and loan behold the yield on interest bearing liabilities was also up 20 basis points. A function of that behind all the all the moving parts of balances better than you thought.

Chris Kotowski: Well, I don't think it was an amortization issue. I think it was just the way the entire balance sheet works across assets, liabilities when you think about all the various moving pieces. So I don't think there's anything particularly notable there. Okay, now it's just a stunning with all the moving pieces, how how the earning asset yield and the liability yields really moved in tandem. So all right, that's it for me. Thank you.

Chris Kotowski: For our final question today, we have a follow up from this extra ninja with JP Morgan. Please go ahead. Your line is open. Thanks Brian, trading has grown nicely in and equities you've had that you said is led by financing. Is there room in your balance sheet from the capital standpoint to keep growing that and second question related trading would be in your guidance on NII for next year. What are you assuming for trading and I in there?

Chris Kotowski: Let me just hit the first one, Alistair could hit the second one. The capacity, if you think about the constraint on RWA, you know, as you know, the vacant your experience in business that equity financing is not RWA intense. So, but it is asset at size and tense now when you look at us with our step monitor leverage ratio 100 plus basis points over the requirements. We have lots of room on the asset assets size if we want in the return on equity, in return on the risk of that business is very strong.

Chris Kotowski: So Tim and the team have done a good job and and sooth and the equities side and you know, we continue to experience those plenty of room. And in fact, we have brought the balance sheet up by over 200 billion largely due to the financing side. A lot of that due to equities and we can continue to do that if the clients need to need the capabilities and products. So that that's a simple answer.

Chris Kotowski: Yes, there's a lot of capacity and largely during our huge capital base and our effect are on all the size measures were way over the requirements. I think 100 basis points on that is probably almost 50 billion dollars of over over so you have a lot of room to go. And then Vivek in terms of the NII guidance, we include global markets in there. So, you know, it's just part of a big diversified portfolio.

Chris Kotowski: I think you know, we would point to global markets remains liability sensitive. You can see that in the way NII has come down in 21 and 22 and into 23. It will be with rates going up so it will perform according to the rate curve and then you know, we may put a little bit of modest balance sheet within there as Brian pointed out just to continue investing in the business, but it's in the NII guide and it will follow follow the forward curve.

Brian Moynihan: So, thank you for joining us, just in closing, go back to the key points of strong earnings to the company, earnings growth here every year for the three months and nine months in double digit, the returns of 15% or 10% of a common equity are very strong. We have the capital to meet the new capital rules as proposed before any mitigation, before any changes in those rules and we're returning 15% on that capital today so we feel good about the path ahead to the company.

Brian Moynihan: We continue to do it the old fashioned way, growing our clients, growing our revenues from those clients and drive response or growth, thank you. This does conclude today's program, thank you for your participation and you may know[inaudible] . .