Bank of America : Webcast Transcript Q4 2024

Published: 2025-01-17 09:00:11 ET BAC

Bank of America

Fourth Quarter 2024 Earnings Announcement January 16, 2025

Fourth Quarter 2024 Earnings Announcement

January 16, 2025

Participants

Presenters

Brian Moynihan - Bank of America, Chair and CEO Alastair Borthwick - Bank of America, CFO

Lee McEntire - Bank of America, Investor Relations & Local Markets Organization Executive

Participants

Steven Chubak - Wolfe Research

John McDonald - Truist Securities

Glenn Schorr - Evercore

Erika Najarian - UBS

Mike Mayo - Wells Fargo

Jim Mitchell - Seaport Global

Vivek Juneja - JP Morgan

Matt O'Connor - Deutsche Bank

Gerard Cassidy - RBC Capital Markets

Betsy Graseck - Morgan Stanley

Presentation

Lee McEntire

Good morning. Thank you. Welcome. Thank you for coming to the call to discuss our fourth quarter results. Our earnings release documents are available on the Investor Relations section of the bankofamerica.com website and they include the earnings presentation that we'll make reference to during this call. I hope everyone had a chance to review the documents.

Our CEO, Brian Moynihan, will make some opening comments before Alastair Borthwick, our CFO, discusses the details of the quarter.

Let me just remind you before we start that we may make forward-looking statements and refer to non- GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and the assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in the earnings materials and the SEC filings available on our website. Information about our non-GAAP financial measures including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website.

So with that, I'm happy to turn the call over to Brian.

Brian Moynihan

So good morning, everyone, and thank you for joining us. Before we begin today, I just want to express our deep concern for our communities, clients, and teammates impacted by the California wildfires. Our top priority, of course, is ensuring the safety and welfare of our team and helping our clients and customers. Our imperturbable Market President, Raul Anaya, is leading our team out there. We have teams on the ground assisting in any way we can and are monitoring the situation to extend support and resources. So far, we have activated our client assistance program, donated $1 million in disaster relief to the American Red Cross, additional contributions to the L.A. Food Bank and the L.A. Chamber Commerce small business efforts.

With that, let's turn to earnings, starting on Page 2 of the presentation. This morning, we reported $6.7 billion in net income. That is $0.82 in EPS for the fourth quarter. That was a solid finish to another good

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year at Bank of America. We grew revenue on a year-over-year basis in every category in quarter 4. We saw good loan and deposit growth. And Alastair is going to walk you through some of the details of the quarter in a moment, but I want to thank our team for another great year.

For the full year of 2024, we generated $102 billion of revenue and reported net income of $27 billion -- $27.1 billion, or EPS of $3.21. We produced 83 basis points return on assets and 13% return on tangible common equity. We generated these results working from a strong balance sheet that allowed us to support clients in an economy that's continued to grow. It kind of appears to be now settled into a 2% to 3% GDP type growth environment. It has healthy employment levels in the resilient consumer.

The emacity of the American consumer can be seen in our data. So far in the first 2 weeks in January, they're spending money at 4% to 5% clip over last year, similar to what they did in the fourth quarter. And on our business side, the clients are profitable, they're liquid and seeing good productivity. We ended the year with $953 billion of liquidity. We also ended with $201 billion of regulatory CET1 capital and a CET1 ratio of 11.9%, leaving us nearly 115 basis points of excess capital as we begin 2025.

For Bank of America, the year was characterized by a few important highlights that played out as expected and were consistent with our communications to you throughout the year.

First, we saw net interest income bottom out at $13.9 billion on an FTE basis in the second quarter of 2024. We ended the year with the fourth quarter on the same FTE basis at $14.5 billion, and that was a bit better than we expected. This obviously provides a great starting point for 2025. And based on the assumptions Alastair is going to discuss a little later, we should report record NII in 2025. So how did we do that?

We drove organic growth in all the businesses, and that we have highlighted on Slide 3. We saw continued growth in net new checking new households, new companies in Commercial Banking, growth in our institutional markets business. This organic activity enabled us to grow loans and deposits at a pace we believe is to be ahead of our industry average and our peers. A key for us, obviously, is the growth in our deposit franchise.

If you look at Slide 4, you can see we've now grown deposits for 6 consecutive quarters. In the most recent quarter, we saw growth in Consumer balances and stability around noninterest-bearing balances across all the businesses. We continue to price in a disciplined manner, and rates paid moved lower this quarter across the board. Overall rate paid on deposits moved from 210 basis points in the third quarter to 194 basis points this quarter, and were lower -- in the fourth quarter were lower in every business segment.

On the loan side, consumer loans grew in every category linked quarter. Commercial loan demand continued to build off the strengths we saw in third quarter of 2024, and commercial loans grew 5% year-over-year for the fourth quarter and a much faster annualized pace when comparing the third quarter to the fourth quarter of 2024.

So back to Slide 3. In our Wealth Management business, we added 24,000 new households in 2024. We ended the year with $6 trillion in total client balances that we manage for people in America across our Global Wealth and Consumer businesses. Our consumer investments team, what we call Merrill Edge, crossed a new milestone this quarter and now sits in excess of $518 billion in balances. Investment Banking gained share of industry revenue in 2024. Our sales and trading team put up the 11th straight quarter of year-over-year revenue growth and achieved a new full year record of nearly $19 billion in revenue.

Asset quality stabilized and remained strong with net charge-offs declining modestly from third quarter. Earlier in the year, we highlighted that our expectation on consumer credit is that they would stabilize to normal level. And on commercial office losses, they would trend down during the year. We saw both those trends continue in the quarter 4.

On the expense side, we continue to invest in our franchise. And even though spending increases in brand, people, and technology and strong fee growth, which drove incentive and transaction processing costs higher. We managed to create operating leverage in the fourth quarter. Our digitalization and engagement

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expanded across all our businesses. We saw more than 14 billion logins to our digital platforms in 2024. Our Erica capability surpassed 2.5 billion interactions from its inception, and our CashPro app surpassed $1 trillion in payments made through the app in 2024.

It's also worth noting that digital sales in our consumer product areas crossed 60% in the fourth quarter again. You can see all these trends in our industry-leading digital disclosure on Slides 26, 28 and 30 in the appendix. All of the success and balance sheet strength allowed us to deliver more capital back to our shareholders. We returned $21 billion of capital to shareholders in 2024, which was 75% more than 2023 and included an 8% increase in the common dividend.

So in summary, for both the fourth quarter and for the year, we enjoyed good profitability. We drove healthy returns. We saw good organic client activity across all the businesses. We continue to manage the risk well and increase the capital delivered back to our shareholders. And we positioned ourselves well for growth in 2025. I want to again thank my team for continuing to drive another year of Responsible Growth.

And with that, I'll turn it over to Alastair.

Alastair Borthwick

Thank you, Brian. And I'm going to start on Slide 5 of the earnings presentation because it will provide just a little more context on the quarter.

For the fourth quarter, as Brian noted, we reported $6.7 billion in net income, or $0.82 per share. And before we talk about comparisons between periods, I just need to remind you that our fourth quarter 2023 GAAP net income number included two notable items.

In the fourth quarter of '23, first, we recorded $2.1 billion of pretax expense for the special assessment by the FDIC to the industry to recover losses from the failures of Silicon Valley Bank and Signature Bank, and that reduced EPS last year by $0.20.

Second, we recorded a negative pretax impact to our market-making revenue of approximately $1.6 billion related to the cessation of BSBY as an alternative rate, and that reduced earnings per share last year by $0.15. So when you adjust for the large FDIC assessment and the BSBY cessation charge, fourth quarter '23 net income was $5.9 billion or $0.70 per share.

On Slide 6, we note some of the highlights of the quarter. And we reported revenue of $25.5 billion on a fully taxable-equivalent basis, up 15% from the fourth quarter of '23. And if you exclude the fourth quarter '23 BSBY cessation charge, our revenues grew 8% year-over-year. As Brian said, all the revenue items are showing improvement year-over-year. NII grew 3%; investment banking grew 44%. This quarter, our $4 billion of sales and trading revenue marked a fourth quarter record, and it grew 10% from the year ago period. And investment and brokerage fees rose 21%, with both assets under management flows and market levels contributing nicely to the growth. Our card income and service charges grew 7%.

Noninterest expense was $16.8 billion and was up when adjusted for the FDIC special assessment, driven by incentives paid for the strong revenue growth, as Brian noted, and the related activity cost that comes with that. Expense also included additional investments in people, technology, and brand with some major partnerships announced recently. And it included what we expect to be the peak in quarterly costs associated with enhancing our compliance costs and controls.

The good news is we created operating leverage in the quarter. Provision expense for the quarter was $1.5 billion and was consistent with the previous two quarters. And lastly, returns in the fourth quarter were 80 basis points of ROA and 13% return on tangible common equity.

Turning to the balance sheet on Slide 7. We ended the quarter at 3.6 -- sorry, $3.26 trillion of total assets, down $63 billion from the third quarter, driven by seasonally lower levels of client activity in Global Markets, while loans across the businesses grew $20 billion in the quarter. Otherwise, in the quarter, the investments of our excess liquidity saw a $9 billion reduction in hold-to-maturity securities, and at the same time, the

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combination of shorter-term liquidity investments of cash and available-for-sale securities increased $28 billion.

On the funding side, total deposits grew $35 billion, on an ending basis, as both interest-bearing and noninterest-bearing grew. Long-term debt fell $14 billion, driven by net redemptions and valuations, and Global Markets funding declined in line with assets. Liquidity remains strong with $953 billion of Global Liquidity Sources. That is up modestly compared to the third quarter even as we paid down some debt and retired some preferreds. Shareholders' equity was flat at around $295 billion, and within all of that, we returned $5.5 billion of capital back to shareholders, with $2 billion in common dividends paid and the repurchase of $3.5 billion in shares this quarter. Tangible book value per share of $26.58 rose 9% from the fourth quarter last year.

Turning to regulatory capital. Our CET1 level improved to $201 billion, and the CET1 ratio rose to 11.9%, remaining well above our new 10.7% requirement. Risk-weighted assets increased modestly, as increases in loans were mostly offset by lower RWA supporting our Global Markets client activity. Our supplementary leverage ratio was 5.9%, versus a minimum requirement of 5%, which leaves some capacity for balance sheet growth, and our $460 billion of total loss absorbing capital, means our TLAC ratio remains comfortably above our requirements.

Let's turn to Slide 8. We can go a little deeper on loans by looking at average balances. And loans in the fourth quarter of $1.08 trillion improved 3% year-over-year driven by solid commercial loan growth. Overall, commercial loans grew 5% year-over-year. And importantly, this included an 8% drop in commercial real estate loans. Commercial loans, excluding commercial real estate, grew 7% year-over-year, and the consumer loans grew modestly both linked quarter and year-over-year. As Brian said, on a linked quarter basis, every category of consumer lending grew, and you can see that at the bottom of Slide 8.

If we turn our focus to NII performance and use Slide 9. Regarding NII on a GAAP, non-fully taxable equivalent basis, NII in Q4 was $14.4 billion. And on a fully taxable equivalent basis, NII was $14.5 billion. Several quarters ago, we signaled our expectation that NII would trough in the second quarter of 2024 and begin to grow from there. And this represents now our second quarter of NII growth. And we expect that growth to continue in 2025. In fact, if you look at the 2 quarters after the inflection point, NII is already growing at a 5% rate.

Fourth quarter NII on a fully taxable equivalent basis increased by $399 million from the third quarter, driven by a number of factors. First, it was led by improvement in deposits across the businesses. And even as deposit balances increased linked quarter, our interest expense on those deposits declined by $600 million. Loan growth and fixed-rate asset repricing also benefited us again this quarter.

With regard to a forward view, interest rate expectations continue to drive volatility and predictability, but we'll provide some thoughts for future NII. We expect to start the year in the first quarter with NII modestly higher than the fourth. Remember that the first quarter has 2 fewer days of interest and that's roughly the equivalent of about $250 million of NII equivalent. So even with that, we expect to grow modestly. Then we expect that growth to increase through the year to the point where it could be 6% to 7% higher in 2025 than 2024. We expect to exit the year at least $1 billion higher in the fourth quarter and that would put us in a range of $15.5 billion to $15.7 billion on a fully taxable equivalent basis, and that's obviously significantly higher than the Q2 '24 trough of $13.9 billion.

I have to note the following assumptions. First, we assume that the current forward curve materializes. And while the interest rate curve has changed significantly over a fairly short period of time, as of the 10th of January, the curve was expecting only one rate cut in 2025 that may come in May or June.

Based on our more recent growth experienced, we're assuming loan and deposit growth in 2025 that's higher than 2024, and more consistent with growth in a 2% to 3% GDP environment. The other elements of anticipated growth in NII expected are the benefits of asset repricing as fixed-rate securities and loans and

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swaps roll off and those get repriced at higher rates. And those themes all remain consistent with our prior conversations with you in the last several earnings calls.

With regard to interest rate sensitivity, on a dynamic deposit basis, we provide a 12-month change in NII for an instantaneous shift in the curve, above or below the forward curve. And on that basis, a 100-basis point increase would benefit NII by roughly $1 billion, while a decrease of 100 basis points would decrease NII over the next 12 months by $2.3 billion.

Lastly, note that our slide showing the trended investment of excess deposits is in our appendix. It's on Page 21. Deposit levels grew to $870 billion over loans at the end of Q4, and that's an incredible source of value for shareholders. And $649 billion, or 54% of our excess liquidity, is now in short-dated cash and available-for-sale securities. The longer-dated, lower-yielding hold-to-maturity book continues to roll off, and we continue to reinvest in higher-yielding assets.

Okay. Let's now turn to expense, and we'll use Slide 10 for the discussion. We reported $16.8 billion in expense this quarter. And the fourth quarter of '23 included the large FDIC special assessment charge, and excluding that, expense increased. The increased expense from prior periods was driven by a number of factors and was partially offset by a roughly $300 million release of prior period accruals for the FDIC special assessment.

Let's talk about the drivers of the expense. First, in regard to revenue, our markets-related businesses of investment banking, investment and brokerage, and sales & trading, those were up 20% year-over-year. Incentives for the firm were up 15% versus the fourth quarter of '23 and were in large part related to these market-related revenue streams.

On investments that we made, we added bankers and advisers across most of our businesses in 2024, and we also increased investments in our brand with significant sponsorships like the Masters and FIFA, to name a few. And we increased our investments around technology, as well as financial centers. This quarter alone, we added 17 financial centers with 9 of those in our new expansion markets. We're a growth company, and we continue to invest in our future.

As far as head count goes, we've managed our head count carefully, and we've held it fairly flat through the 4 quarters of 2024 at around 213,000 people.

Lastly, we incurred additional costs to accelerate work on compliance and controls. As you likely saw in late December, the OCC issued a compliance consent order to Bank of America, and that's a result of exams done more than a year ago. This order is about correcting or enhancing certain deficiencies in some aspects of our processes that existed at the time. The order doesn't limit any of our growth plans and the order acknowledges we began taking corrective before the order was announced. And as a result of the work in process, we increased our resources substantially in the second half of 2024, and those costs are already embedded in our quarterly run rate.

Okay. Let's go back to expense and how to think about a forward view. First, most importantly, we remain focused on growing the company and driving operating leverage. Second, we expect the first quarter to include some normal seasonal elevation, and we believe this amount will be roughly $600 million to $700 million, primarily for payroll tax expense. So we think $17.6 billion is a good number to expect for Q1, before seasonally declining in Q2. And that's all part of our expectation that expense should be roughly 2% to 3% higher in 2025 compared to 2024.

Let's now move to credit and turn to Slide 11, where you can see net charge-offs of a little less than $1.5 billion, improving modestly compared to Q3. That's the fourth quarter now that net charge-offs are around $1.5 billion. We've seen consumer losses in a pretty stable range of $1.0 billion to $1.1 billion over those past few quarters. And on the commercial side, we saw losses of $359 million, which is down from the third quarter, driven by the continued decline in commercial real estate office losses. Net charge-off ratio this quarter was 54 basis points, down 4 basis points from the third quarter.

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We don't see overall net charge-offs or the related ratio changing much in 2025, without much change in current GDP or the employment environment, we expect the net charge-off ratio to be in the range of 50 to 60 basis points of loans for 2025. Q4 provision expense was $90 million lower than Q3 at $1.5 billion as reserve levels remain constant. And as it relates to reserve levels, on a weighted basis, we're reserved for an unemployment rate a little below 5% by the end of 2025, and that compares to the most recent 4.1% rate reported. On Slide 12, we highlight the credit quality metrics for both consumer and commercial portfolios. And there's nothing really noteworthy here that I want to highlight on this page.

So let's move to the various lines of business starting on Slide 13 with Consumer Banking. That business made nearly $11 billion or 40% of the company's earnings in 2024. In the fourth quarter, Consumer Banking generated $10.6 billion in revenue and $2.8 billion in net income. Both grew modestly from the fourth quarter of '23, as fee improvement for card and service charges is now being complemented by the growth in NII. Consumer Banking continued to deliver strong organic growth with high-quality accounts and engaged clients, and they achieved a new record of client experience scores in December. The organic growth activity noted on Slide 3 includes more than 200,000 net new checking accounts, which now takes us to 6 years' worth of quarter-after-quarter growth. And we showed another strong period of card openings and investment account growth. Investment balances grew 22% to $518 billion with full year flows of $25 billion and market improvement throughout the year. Expense rose 8% as we continued investments in our business.

The biggest story in Consumer this quarter is deposits, because these are the most valuable deposits in the franchise. And in the last 6 months, we believe we've seen the floor begin to form after several periods of slowing decline. Consumer Banking deposits appear to have bottomed in mid-August at around $928 billion and ended the year at $952 billion on an ending basis. Looking at averages, you can see then the deposits grew $4 billion from the third quarter to $942 billion, all while our rate paid declined to 64 basis points. Finally, as you can see in the appendix, Page 26, digital adoption and engagement continued to improve and customer satisfaction scores rose to record levels, illustrating our clients' appreciation of enhanced capabilities from these investments.

On Slide 14, we move to Wealth Management, where the business had a very profitable year, generating $4.2 billion in earnings from nearly $23 billion in revenue. In 2024, our Merrill Lynch and Private Bank advisers added another 24,000 net new relationships. And the professionalism of these teams earned them numerous best-in-class industry rankings as you can see on Slide 27 in the appendix. With a continued increase in banking product usage from our investing clients, the diversity of revenue in the Wealth business continues to improve. The number of GWIM clients that now have banking products with us continues to grow. And at this point, it represents more than 60% of our clients. Importantly, about 30% of our revenue remains in net interest income, which complements the fees earned in our advice model and those have also grown. Net income rose 15% from the fourth quarter of '23 to nearly $1.2 billion.

In the fourth quarter, we reported revenue of $6 billion, growing 15% over the prior year and led by 23% growth in asset management fees. While expenses were up year-over-year, they grew slower than revenue, creating the operating leverage in the business. Business had a 26% pretax margin and generated a strong return on capital of 25%. Average loans were up 4%, driven by growth in custom lending, securities-based lending, and a pickup in mortgage lending. Deposits grew 2% from the third quarter, and the teams were quite disciplined on pricing of those deposits. Both Merrill and the Private Bank continued to see strong organic growth. And that helped to produce excellent asset under management flows of $79 billion this year, reflecting a good mix of new client money as well as existing clients putting money to work. We also want to draw your attention to the continued digital momentum that you'll find on Slide 28. Because, for example, 3 quarters of Merrill bank and brokerage accounts were opened digitally this quarter.

Slide 15 shows the Global Banking results and this business generating $8.1 billion or 30% of the company's earnings in 2024, and it continues to be the most efficient business in the company at less than 50% efficiency ratio. The business saw a nice rebound in investment banking fees in 2024, which we expect to continue in 2025.

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In Q4, Global Banking produced earnings of $2.1 billion. Pretax pre-provision results were flat year-over-year as improved investment banking fees offset lower NII and higher expense. The total earnings were down 13% year over year, driven by higher provision expense that came as a result of prior period reserve release. Investment banking fees were $1.7 billion in Q4, growing 44% year-over-year. This was led by mergers and acquisitions. We also saw strength across debt capital markets fees, mostly in leveraged finance, and in equity capital markets fees. And we finished the year strong, maintaining our #3 investment banking fee position.

The fourth quarter saw strong momentum, as the election results provided a lift to sentiment for a more pro-business climate and expectations for more deals to be completed. Expense in this business increased 6% year-over-year, driven by the 13% growth in noninterest income and continued investments in people and technology.

The balance sheet saw good client activity, and it was muted somewhat by the strength of the U.S. dollar. Year-over-year flatness in Global Banking loans includes this foreign exchange impact and a $6 billion decline in commercial real estate from paydowns. Otherwise, loans in Global Banking were up 2%. Deposits have been growing for many quarters now with our commercial and corporate clients. And total Global Banking deposits are now up 10% year-over-year, reaching a new record. So we're seeing strong growth across all the categories from our corporate and commercial clients all the way from the larger end to Business Banking on the lower end. And we also saw a 10% growth in our international deposits.

Turning to Global Markets on Slide 16, I want to focus my comments on results excluding DVA as we normally do. Our team continued their impressive streak of strong revenue and earnings performance. They achieved operating leverage, and they continue to deliver a good return on capital. For the year, record sales and trading results of nearly $19 billion grew 7% from 2023, and they've been growing consistently now on a year-over-year basis for almost 3 years. This led to $5.7 billion in full year profits and represents more than 20% of the company's full year results.

In the fourth quarter, earnings of $955 million grew 30% year-over-year. Revenue, and again this is ex DVA, improved 15% from the fourth quarter of '23, as both Sales & Trading and Investment Banking fees improved nicely year-over-year. Focusing on sales and trading ex DVA, revenue improved 10% year-over- year to $4.1 billion. This is the first time we've recorded more than $4 billion in our Q4 results, and it included Q4 records for both FICC and Equities. FICC grew 13%, while equities improved 6% compared to the fourth quarter '23. FICC benefited from tighter credit spreads as well as increased volatility in interest rates, while equities benefited from increased activity around the U.S. election. Year-over-year expenses were up 7% on revenue improvement and our continued investment in the business.

And then on Slide 17, you can see All Other with a loss of $407 million in the fourth quarter. We spoke earlier about the fourth quarter '23 charges for BSBY and the FDIC special assessment charge. Their reversal impacts the comparisons on revenue, expense, and net income in this segment. Otherwise, there really isn't anything significant to report here. Our effective tax rate for the quarter was 6%, and excluding discrete items and the tax credits related to investments in renewable energy and affordable housing, the effective tax rate would have been approximately 26%.

Looking forward, we expect the tax rate for 2025 to be in a range of 11% to 13%. And this just includes our expectation for higher expected earnings in 2025 and relatively stable tax credits.

Finally, this quarter, on Page 18, we thought it was important to summarize some of the guidance points we talked through this morning, and we hope you'll find this page helpful. So in summary, we're looking for a strong growth in NII, and we'll look to both continue important investments in the franchise and drive operating leverage as we grow throughout the year. We aren't expecting much movement around credit based on a pretty solid economic outlook. And we remain with a very strong balance sheet with excess capital that we can deploy to grow the business and deliver back to shareholders as appropriate.

So with that, I'll stop there. I thank everybody, and we'll open it up for Q&A.

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Q&A

Operator

And we'll take our first question from Steven Chubak with Wolfe Research.

Steven Chubak

So wanted to start off, Alastair, with maybe unpacking some of the drivers of the NII growth in '25. How much of the build that you're guiding to is attributable to loan growth versus some rate or repricing tailwinds, runoff of legacy swaps, what have you? And does that acceleration in NII you cited for the second half continue into '26 given some of those tailwinds should remain in place beyond '25?

Alastair Borthwick

Well, first of all, I admire you asking about '26. I'm always reluctant to talk about the back half of '25. So I'll leave '26 for another time. But we don't have a whole lot of news, Steven, relative to what we talked about in the prior quarters. We're obviously pointing right now to deposit growth in particular because it's beginning to get back to something more normal. There was a period there where deposit balances were declining as people got back to something more normal in their accounts. But we're highlighting here: Consumer found its floor in August, Wealth found its floor in July. And that's giving some support then as we grow deposits. That's helping us with the NII growth. So that hasn't changed. It's just that now we've got successive quarters of growth that we can actually point to.

The loan growth that you asked about is interesting in that -- there were several quarters there where we were bouncing around flattish on loans. In Q2, we added $9 billion of loans. In Q3, we added $19 billion. In Q4, we added $20 billion. So the loan growth has picked up a little bit. We can sort of see a little more optimism with clients, a little more activity, a little more demand from clients for loan growth.

So those two things, a little more confidence around deposit growth, a little more confidence around loan growth, those obviously compound through the course of the year. So that will help us in the back half of '25. And then as you pointed out, we're still a beneficiary of the fixed-asset repricing. That comes from some of the old loans that are on our books that come off in 2025 and we reprice. And then we've got some cash flow swaps that also will mature through the course of the year. So that's what leads us to this idea of we think the NII growth will accelerate to 6% to 7% -- for the full year.

So a little bit of it -- a little bit faster in the back half of the year, we kind of just see that, but that's what gives us the confidence on NII.

Steven Chubak

That's great, Alastair. And maybe a follow-up for Brian. Just at a recent conference, you spoke about the expectation of delivering 200 bps of sustainable operating leverage, laying out an algorithm where revenues grow 4% to 5%, expenses grow 2% to 3%. What gives you confidence in that ability to deliver that level of top-line growth on a sustainable basis? Just want to unpack that a little bit further.

Brian Moynihan

So I think what gives us confidence, we have periods with stable rate environments, a stable economy, growing at a slower rate than it is now. And having produced that for 5 years in a row, I think it was by quarters or something like that. And so it's not something we haven't done. But if you think about the current environment, what's driving is different. Our revenue growth is growing at twice that rate plus and the expense growth is growing close to that number. But when you get to higher growth rates, especially where it's coming from Wealth Management business, market-based business, businesses in investment banking, it attaches a higher sort of instantaneous expense. And yet it still produces even a little bit of operating leverage at a higher growth rate, a good after-tax, a good EPS result, a good net operating income results. So there's different times, different models. This is a model where revenue is growing faster than it might grow all the time in more normalized environments, but the business is coming from are those businesses which have the quickest move relative to expense. Giving you an example of that of the

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normalized last year's expense -- last year's expense and think about our expectations from '23 to '24 and you look at the growth rate, a big part of the growth rate in expense, about 45% to 50% of it, is the incentives to the wealth management teammates, which is a good thing. And so that means revenue is growing, and we're taking about half of that in.

And if you look at the other pieces added to that. So Steven, simply put: we did it before. We know we can do it. You can see underlying setup. And as you see NII kick in the Consumer business, which is more incrementally profitable because of NII, you see that kick in and you see the expense base there flattening out. And you see the revenue base of the company broaden out, you'll see that we'll get back to the operating leverage that we expected, albeit it may be a little slower year-over-year growth rate, unless you're going to tell the market, it's going to go up 25%, 30% every year and drive the wealth management. When that slows down to a more normal growth rate that will slow down its expense growth rate also, therefore, you'll see the opening up at that level.

So it's not something we make up. It's something we put in our operating principles and it's something we have done a lot of quarters, but we have to sort of get the stability in the relative business position.

Steven Chubak

That's great color.

Brian Moynihan

And Steve, the easiest thing to think about is headcount. At the end of the day, our costs are all people, and that's been relatively stable, and that will start to flow through because during the course of last year, we basically kept the headcount relatively stable. We had some offbeat expenses that we had to deal with, but now we're sort of settling into that 213,000 level of people with the takeout on stuff through operating excellence and putting in on stuff into quiet coverage, expanding our pipes to draw more marketing, more client coverage, more technology investment. So we always are shifting expenses, and that's how we make that operating leverage happen.

Operator

We'll move next to John McDonald with Truist Securities.

John McDonald

Wanted to ask as a first question, just a follow-up to Steve's NII questioning. Alastair, is the deposit growth in the model that you've laid out for the year being used to pay down more expensive funding? You've talked about the ability to kind of self-fund balance sheet growth. And then also, is there any sense of the yield pickup you get on the swap roll off and replacement that you could give us kind of ballpark on?

Brian Moynihan

John, before Alastair starts, welcome back from the cold to be able to be back in coverage and covering our company, and it's always good to know that you're going to consistently ask about NII, but I'll turn it to Alastair to give you that.

John McDonald

Thanks, Brian. You got to be typecast.

Alastair Borthwick

There you go. So I think your first question was if we get the deposit growth we anticipate, do we think we'll use some of that to pay off some of the higher cost liabilities on the balance sheet?

The answer is yes. That's consistent with what we said in prior calls. We've done that. If you look at the other institutional CDs, you'll see they came down by another $7 billion this quarter. So as we grow the really high-quality parts of the deposit franchise that allows us to take those down. And that's one of the things that's going to help grow net interest yield on an ongoing basis. It's not NII accretive necessarily, but it helps us with net interest yield. So that remains a part of the strategy, John, you'll see that continue.

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Bank of America Corporation published this content on January 17, 2025, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on January 17, 2025 at 13:59:02.841.