Bank of America Corp (BAC) First Quarter 2019 Earnings Call Transcript – The Motley Fool

Bank of America Corp (NYSE: BAC)
Calling the results of the first quarter of 2019
April 16, 2019, 8:30 am ET

content:

• Prepared notes
• Questions and answers
• Call the participants

Prepared notes:

Operator

Hello everyone and welcome to the announcement of Bank of America results today. At this point, all participants are listening only. Later, you will have the opportunity to ask questions during the Q & A session. (Operator Instructions) Please note that this call is being recorded.

And it is now with pleasure that I give the lecture to Mr. Lee McEntire. Please go ahead.

Lee McEntire – Senior Vice President, Investor Relations

Hello. Thank you for joining this morning's call to review our first quarter results 19. I now hope everyone had the opportunity to view the release documents, available in the Relations section. with the investors of the bankofamerica.com website.

Before making the call to Executive Director Brian Moynihan, let me remind you that we could make forward-looking statements during this call. Following Brian's comments, our CFO, Paul Donofrio, will review the details of the first quarter results. After that, we will open it for all your questions.

For more information on forward-looking statements, please refer to our earnings release documents, website or SEC filings.

With that, take it off, Brian.

Brian Moynihan – President and CEO

Thank you, Lee, and good morning everyone. Thank you for joining us this morning to review our first quarter results of 2019. In the first quarter, we announced net income after tax of $ 7.3 billion, the best quarter in the company's history .

So let's start with slide 2. This slide shows the fundamentals of another record quarter. It also shows our commitment to responsible growth and how it drives our shareholder model. We reported diluted EPS of $ 0.70, up 13% from the first quarter of 2018. This reflects a fine combination of operational improvements and capital returns.

The pre-tax income of $ 8.8 billion, increased by 4%, you can see in the top right and we generated an operational leverage of more than 400 basis points, which you can see below at right. Asset quality remains strong, with net releases remaining around $ 1 billion, the same level for several quarters. Provision allocations are up from the previous year to align more closely with these net charges. We have a small reserve this quarter compared to the release of the net reserve last year.

Through a disciplined deployment of capital, having met all the requirements for lending to our clients and supporting their operations, we continue to reduce our number of shares. You can see this at the bottom left. Our objective is to mitigate the equity dilution caused by the capital increase accumulated after the crisis.

Thanks to share buybacks, our diluted shares are down 7% from the first quarter of 2018 and down by 1.5 billion shares in the last four years.

Let's move on to slide 3. Part of the reactive growth is producing sustainable results, including promoting operational excellence. We did it again this quarter. As you can see on slide 3, we have extended our series of positive debt levels to 17 consecutive quarters. As you have thought over the last four years or so, we have had many different markets, many different interest rate environments, many different changes and perceptions of the US economy and the global economy. All of these factors impact our business during a quarter, but our ability to generate operational leverage has remained constant. We realized it differently depending on the background, but as we see here, we have always done it.

When you think about our society, there are three major and different types of income, two of which have the characteristics of an annuity and the other is more sensitive to market conditions. The first segment consists of revenues from loans and deposits, and the second segment consists of recurring expenses, such as cash management fees from our business activities or expenses from our consumer or exchange account, etc. The third, more market-related revenue segment would be sales and trading revenues, investment banking fees and asset management brokerage revenues, both of which are dependent on market levels of one-to-one. given time and market activity, generating these levels.

So, if you think about this quarter compared to last year, our market-related revenue types have dropped 12%. The other two non-market sources of revenue increased by 7%. This shows you the diversity of this business. And overall, revenue growth has stabilized. However, our focus on expense management has emerged and resulted in a 4% year-over-year decrease in expenses, resulting in an operating leverage of 400 basis points. All you can see as you move to the right slide – right side of slide 3.

When you think about how we drive the company to spend, we continue to invest in the future. Our expenditures have gone from $ 57 billion to $ 53 billion and have changed over the last four years or so. And we generated operational leverage each quarter during this period, but we also continue to invest heavily in our franchise. And why are we doing this? Because it works. We are expanding our business with the addition of relationship management capabilities, enhanced marketing, and deeper penetration of US markets through comprehensive duty-free entry and growing markets in the United States. -United.

We also continue to invest in our staff with leading health and retirement benefit plans, as well as training and re-training capabilities and universities for our teammates. In addition to the recently announced compensation plan, we will increase our minimum wage. over the next 26 months, $ 15 / hour plus $ 20 / hour. We need to do this because we need the best teammates to make this great customer work: the company works and works for our customers.

Across the company, we recruited 500 new sales professionals this quarter, more consumer relations bankers, more wealth advisors, more commercial bankers and more bankers than ever before. business, more business bankers and more business bankers. And as we have discussed on many occasions, our initial expenditures for technology have been around $ 3 billion for many years, but the savings (ph) of tax reform are currently expected to increase by 10% in 2019.

We continue to enhance our physical network for the delivery of products and services to customers, as well as the facilities we operate in communities and countries around the world. Overall, Bank of America invests approximately $ 2 billion annually in capital expenditures for the construction, improvement of our buildings, facilities and infrastructure.

With regard to our financial centers, our ATMs and our other physical locations, the fact is that we have not just announced what we will do, we are at half of the set up widespread use of our consumer activities. We are executing the plan that we presented several years ago. But, important to you, the cost of completing the work is already part of all our cost estimates. It is actually integrated with our current rate of execution.

We therefore have operational leverage, we invest and we achieve returns on this investment. One way to make this investment profitable is to use our digital capabilities. Each quarter, we show you the charts in Slide 5 of our customer numeric statistics. Because when I discuss with many of you, we sometimes lack evidence. What's driving this trend? It's a change of behavior of our customers. We continue to serve our customers in every way possible.

The customer can have his cake and eat it too; take it out digital, physical 24 hours a day in cash and electronic payments, checks and wire transfers and ACH, a loan officer, an online application, the execution of their mortgage. It's their choice. 37 million digital users, including 27 million mobile. And we now have 27% of our sales digitally processed. 77% of our deposit transactions are now digital. This means that more of our financial centers and teammates and their time can be spent on important events in the client's financial life.

We welcome 800,000 customers a day in our financial centers and they remain very important to our capabilities. And we continue to invest in these financial centers to modernize and modernize them. And while the growth of consumer payments has slowed from 8% to 9% last year, to 3% in the first quarter of 2019, compared to the strong quarter of the first quarter of 2018, it still amounted to more than $ 700 billion payments in the quarter. For example, some of these payments that you can see among Zelle users have reached more than 5 million active users and we processed $ 16 billion in payments for them this quarter.

So if you look at the factors that determine our income, let's go to slide 6. We'll spend a few minutes on client activity on these issues. Average total deposits increased $ 63 billion year-over-year. This is our 14th consecutive quarter of organic growth of at least $ 40 billion organic deposits compared with the previous year. The global banking sector increased its deposits by 8%, as did Wealth Management. Personal banking deposits increased 3%. Basic consumer verification increased by 7% over last year, showing that more households are choosing to become their main bank.

Our pace of growth has consistently outpaced the growth rates of the industry. Customers appreciate the capabilities and benefits of their relationship and continue to see a lower attrition rate and a 90% senior bank status. In addition, Wealth Management also experienced strong deposit growth in their relationships. Our Global Banking team continues to benefit from strong customer demand as we continue to deploy bankers and treasury agents in our franchise.

In Global Banking, you will notice that business customers move non-interest bearing balances to interest bearers. As the Treasury credit rate we give them to pay for their services goes up, they play for less interest-free balances. However, this change stabilizes when the rate curve has stabilized.

Let's go to slide 7 and talk about medium loans. The good news is that the average growth impact at the end of the fourth quarter that we talked about in the last call was complemented by another good growth in the first quarter. The marked rebound of our mid-market clientele has been particularly promising, with growth and an increase in the use of the line. This means that middle market companies are developing their own business by drawing lines to finance raw material purchases, payroll and other investments. Overall, we increased lending by 1% of companies. However, in all of our business lines, core loans grew $ 33 billion, or 4%, from one year to the next. This corresponds to our model of responsible growth.

The chart at the bottom left shows that growth in core activities has been steady over the last five years or more. Constant growth includes reactive growth for several years and the growth rate improved this quarter. In fact, during this quarter, our financing balance in commercial banking recorded the highest growth rate of the related quarters of the last six years.

On slide 8, you can see the highlights of the quarter. I've covered a lot of essentials here, so I want to focus a little on the returns. Despite a slight increase in the average balance sheet, the company 's return on assets was 126 basis points and improved both from last year and last year. by quarter. Our return on tangible tangible equity was 16%. Our efficiency rate continues to drop to 57% from 59.5% last year.

Having said that, let me give Paul the floor to give you more details on our first quarter results. Paul?

Paul M. Donofrio – Financial director

Hello everyone. I'm starting on slide 10, since Brian has already covered the income statement. Overall, compared to the end of the fourth quarter, the balance sheet increased by $ 23 billion, driven by equity financing activities. Liquidity remained strong, with global sources of liquidity averaging $ 546 billion and all liquidity indicators remained well above requirements. Long-term debt increased $ 4 billion, common shareholders' equity increased $ 1.7 billion from the fourth quarter, as the value of our available-for-sale debt securities benefited from lower long-term interest rates, thereby increasing AOCI.

This increase was partially offset by the return of more capital than we earned this quarter. We generated $ 7.7 billion, or 112% of net income available to individuals, through a combination of dividends and share buybacks.

Let's move on to regulatory measures. The rules for total loss absorbency came into effect in January and by the end of March, our TLAC ratio was well in excess of our minimum requirements. Our CET1 standardized ratio remained stable at 11.6% compared to the fourth quarter and remained well above our regulatory requirements of 9.5%. The ratio remained unchanged as the previously mentioned increase in AOCI was offset by an increase in RWA, mainly in world markets.

With regard to slide 11, I would like to spend a few moments on the National Investment Initiative, given the changes in the environment of the rates. Non-FTE GAAP net interest income was $ 12.4 billion, or $ 12.5 billion on a FTE basis. Compared to Q1 18, NII GAAP increased $ 606 million, or 5%. This improvement is due to the value of our deposits, higher interest rates, as well as growth in loans and deposits, partially offset by lower loan spreads.

By related quarters, NII GAAP was down $ 128 million. In the first quarter, we benefited from higher yields on our floating rate assets due to higher short-term rates. We have also been disciplined in deposit pricing and have benefited from the growth of loans and deposits, especially commercial loans. However, the rise in short-term rates has also increased the cost of our long-term debt and other financing costs in global markets.

In addition, lower mortgage rates dampened the benefits of rising short-term rates. The net of all these things was always a benefit for the quarter. However, this net benefit only partially mitigated the seasonal impact of the first quarter of two days of reduced interest, which cost us approximately $ 180 million. The net interest yield of 2.51% improved 9 basis points over the previous year, but was down quarter over quarter.

Deposit rates in our wealth management and global banking businesses increased, but we saw only minimal movement in our consumer businesses. Overall, the average rate paid on interest-bearing deposits of 166 (ph) – excuse me – of 76 basis points, increased by 9 basis points over the fourth quarter and increased by 40 basis points over first quarter 18. This compares with an average increase in federal funds of 97 basis points over twelve months.

Regarding the sensitivity of the assets of our banking book, the decline in long-term rates has increased our sensitivity to assets compared to the end of the fiscal year. In addition, we now model slightly lower deposit transmission rates given our experience with this rate cycle. Given recent rate changes, I thought I could give you an idea of ​​the NII for the rest of the year.

On a full annual basis, INAs grew by 6% in 2018, in an environment of rising rates and a saving of around 3%. Economic growth is expected to be more moderate in 2019 and interest rate expectations have been lowered. In addition, we have seasonal headwinds in the second quarter. However, thanks to the growth in loans and deposits and the recovery of two days of additional interest over the next few quarters, we expect NII growth to be in line with or slightly better than that of the economy. in general. More specifically, in the second quarter, there is generally an increase in the financing of customer activity in global markets, linked to the dividend season in Europe, which contributes to trading revenue, but reduces the NRA. We also generally see less benefit from loan growth due to the impact on end-of-year credit card balances in Q2.

Finally, long-term rates fell in the first quarter and remain lower. This should lead to an increase in prepayment of mortgage-backed securities, which would result in the cancellation of bond premiums. These headwinds will be partially mitigated by an additional day of accruals accrued interest. In the second half of the year, we expect NII to benefit from loan and deposit growth as well as an additional interest day in the third quarter. In the end, we expect the NII for the year – for the full year of 2019 – to be an increase half as fast as 2018. This assumption is based on the growth of the curve. future rates and loans and deposits consistent with current economic conditions.

Moving on to spending on slide 12. We continued to improve our efficiency. At $ 13.2 billion, we recorded a decrease of $ 618 million, or 4%, compared to the first quarter of 18. This reflects the effectiveness of a full year of work in the region. 39; whole business to simplify and improve our processes, as well as lower IDE insurance costs. We have also reduced the number of managers and levels of management over the past year, reducing bureaucracy and complexity. By the way, in terms of numbers, we are replacing many of these managers with sales professionals. We also recognized and recorded intangible amortization in our Merrill business as part of the merger 10 years ago. Compared to the fourth quarter of 2014, expenses increased by $ 149 million, due to the seasonal increase in payroll taxes, partially offset by the timing of marketing plans and technology initiatives.

In addition, the mismatch between the recognition of certain deferred benefit plans and the recognition of related hedges detracted from 4Q4 as the overall market declined in the fourth quarter. This reversed in Q1 with the markets rebounding.

Our efficiency rate has improved to 57%. I also want to note that we filed an 8-K earlier this year in which we reclassified some charges in the products, which resulted in a reduction of approximately $ 200 million in charges. fiscal year 2018. With planned spending levels for the years 2019 and 2020, as you know, we have increased for 2019 the planned level of our initiative spending, in order to support both physical expansion and digital and we have announced additional investments in our population, such as our minimum wage. increase. Despite these increases, we continue to believe that we will achieve our expense reporting objective for the next two years, which is close to our reclassified levels of 2018. However, please note that the quarterly increase in expenditures in 2019 may seem slightly different from that of the last years, because it will be influenced by the schedule of planned technology and marketing expenses.

Transition to asset quality on slide 13. Asset quality continued to perform well, driven by long-term respect for responsible growth and a strong US economy. Net charges amounted to $ 991 million, $ 80 million higher than the first quarter of 2008 and $ 67 million higher than the fourth quarter. Compared to the fourth quarter, we found a typical seasonality in our credit card portfolio. Compared with the previous year, our credit card portfolio was moderately moderate. In the first quarter, there was also a charge related to a single utility customer, which resulted in an increase in losses of $ 84 million, which had an impact on comparisons with both periods.

The net charge ratio was 43 basis points. The loss ratio is now less than 50 basis points in total, with the exception of three quarters of the last five years. Expenses related to provisions amounted to just over $ 1 billion and corresponded to equivalent losses this quarter. The provision includes a modest net reserve of $ 22 million. Looking ahead, we expect net bookings to reach $ 1 billion this quarter for each of the remaining quarters in 2019, assuming economic conditions continue.

On slide 14, we present credit quality indicators for our Consumer and Commercial portfolios. Here you can see both the seasonal increase in consumption losses, as well as the impact of trade imputation, which I mentioned. In terms of consumption indicators, outstanding and non-performing loans have tended to decline, which we believe is a good indicator of the future quality of assets. In the commercial sector, we saw a slight increase in the number of non-performing loans and a writable criticizable exposure, but as a percentage of lending, the two indicators remain close to their historic lows.

On slide 15, starting with personal banking, revenues increased 25% to $ 3.2 billion. The first quarter reflects sustained momentum compared to 2018, with deposits increasing by $ 23 billion, or 3%, revenue by 7% and expenses down 4%, creating an operational leverage of 11%. Despite the increased physical footprint, the total cost of managing the deposit franchise decreased by 6 basis points from the previous year to 1.64%, which includes both the cost of deposits and the rates paid. The efficiency ratio has now decreased to 45%. The cost of credit remains low. The net charge ratio was 128 basis points, rising only 1 basis point from the previous year.

In terms of customer activity, we continued to increase the number of accounts while maintaining master account status above 90%. More customers have preferred rewards, more customers have used our digital channels for service and sales, and more customers have used our expanded and enhanced physical distribution network. While remaining healthy, growth in consumer spending slowed to 3%. This seems quite natural after two years of above-average spending growth, particularly in the context of an economy that has slowed slightly. And remember, the growth in spending in Q1-18 has been fueled by the confidence generated by the tax reform of late 2017.

Consumer loans were also strong, recording 5% growth from one year to the next. The recent decline in mortgage rates has improved the dynamism of the mortgage market, both in refinancing and in purchasing. Origins were up 22% from the fourth quarter. For small business owners, we have invested in our capabilities. For example, we streamlined the underwriting, improved credit card functionality, and added specialists.

Small business loans are fast approaching $ 20 billion, up 6% from the previous year. Strong business with consumers is also evident in the growth of our investment assets. Consumer investment assets ended the quarter up $ 29 billion from the first quarter of 2008, with strong inflows and a market rebound in the first quarter of the 19th. As a result, customer activity remained strong across all major product categories.

Let's turn to slide 16. Note the year-over-year improvement in personal banking NII, which led to our 7% growth, thanks to the enhancement of our deposits through the deepening of our relationships. Card income decreased 3% year-over-year, reflecting improved yields. Higher rewards have been affected by a number of factors. First, we have seen more customers sign up for favorite rewards. Second, as some clients deepened their relationship with us, the amount of their rewards increased. Finally, we added features that made it easier for customers to acquire and view rewards. While these types of enhancements increase the benefits, we believe that they also strengthen the relationships between multiple products, improving retention and profitability. Les frais de service ont diminué de 2% par rapport à l'exercice précédent, car nous continuons de modifier les politiques afin de réduire certains frais de découvert des clients. La baisse du volume ATM a également eu un impact.

Diapositive 17: Passage à Global Wealth and Investment Management. Les résultats de GWIM ont été impressionnants, notamment en raison de la baisse des revenus tirée de la chute des marchés à la fin du mois de décembre. Par rapport à 2018, l’activité a continué de gagner du terrain, générant un nombre croissant de nouveaux ménages, ce qui non seulement a contribué à la progression des flux de l’actif géré, mais a également généré un autre trimestre vigoureux en matière de flux de courtage.

Le bénéfice net, d'un peu plus d'un milliard de dollars, a progressé de 14% par rapport au premier trimestre 18. Les marges avant impôts restent élevées à 29%. L’entreprise a créé un effet de levier opérationnel de 360 ​​points de base par rapport à l’année précédente, les charges ayant diminué de 4%, tandis que les produits n’ont que faiblement diminué. Au sein du chiffre d’affaires, les impacts positifs des activités bancaires et des flux de l’actif géré ne suffisent pas pour faire face aux évaluations à la baisse du marché, au recul des revenus transactionnels et aux pressions générales sur les prix. La diminution de 4% des charges est imputable à la baisse des coûts d’assurance auprès de la FDIC, à la baisse des revenus liée aux incitations financières et aux actifs incorporels liés aux fusions, qui sont désormais entièrement amortis.

Passage à la diapositive 14. Les résultats du premier trimestre témoignent de la persistance d'une forte implication des clients, à la fois chez Merrill et chez la banque privée. La forte croissance du nombre de ménages dans les deux entreprises et le maintien du faible taux d'attrition de conseillers financiers expérimentés ont contribué aux 17 milliards de dollars de flux de clients.

Du côté des banques, les dépôts ont progressé de 20 milliards de dollars par rapport à l’année précédente, ce qui inclut environ 8 milliards de dollars de la conversion de certains fonds du marché monétaire en dépôts vers la fin de 2018. Nous avons également observé des sorties de fonds d’environ 8 milliards de dollars. le marché a récupéré. Les prêts ont augmenté de 3% d'une année sur l'autre, reflétant la forte croissance des prêts hypothécaires compte tenu de la baisse des taux. Nous avons également constaté une croissance des prêts sur mesure.

D'accord, avant de parler séparément du secteur bancaire mondial et des marchés mondiaux, je sais que vous êtes nombreux à examiner ces secteurs ensemble. Ainsi, à titre de comparaison, il convient de noter que sur une base combinée, ces deux secteurs ont généré des revenus de 9,3 milliards de dollars et généré un bénéfice de 3,1 milliards de dollars au premier trimestre, soit un rendement de 16% sur leur capital alloué combiné.

En les examinant séparément et en commençant par Global Banking à la diapositive 19, l'entreprise a gagné 2 milliards de dollars et généré un rendement de 20% sur le capital alloué. Le bénéfice est en hausse de 2% par rapport au premier trimestre '18, sous l'effet du levier d'exploitation. Les revenus ont augmenté de 3% par rapport à l'année précédente. Nous avons constaté des effets positifs de la croissance des prêts et des dépôts, ainsi que des taux d’intérêt plus élevés. Nous avons également constaté des revenus de location plus élevés. Ces augmentations ont plus que compensé la baisse de la banque d’investissement et la compression des spreads de crédit.

L’entreprise a créé un effet de levier opérationnel de plus de 400 points de base, la croissance du chiffre d’affaires étant accompagnée d’une baisse des dépenses de 1%. La baisse des coûts de l’assurance-dépôts a plus que compensé les investissements continus dans la technologie et les banques. Enfin, les dotations aux provisions ont augmenté d’un exercice à l’autre, sous l’effet de la réduction de débit pour un seul nom susmentionnée, ainsi que de l’absence de libération de la réserve énergétique de l’année précédente.

En regardant les tendances de la diapositive 20 et en comparant avec le premier trimestre de l’an dernier, concentrons-nous sur les frais d’IB. L'industrie et nous-mêmes avons ressenti les effets de la fermeture du gouvernement, la SEC ayant été fermée pendant un certain temps au cours du trimestre. Les frais d’IB de 1,3 milliard de dollars pour l’ensemble de l’entreprise ont diminué de 7% sur un an. Cela correspond à un pool de frais global qui aurait diminué de 14%. En glissement annuel, les honoraires de conseil ont affiché une bonne performance, en hausse de 16%. Cette baisse a été plus que compensée par la baisse des frais de souscription de créances et d’actions. Au sein de la souscription de dette, le financement par effet de levier a rebondi après une période difficile au T4. Toutefois, les émissions primaires sont restées lentes et, dans le segment investment grade, nous avons constaté des offres moins importantes que prévu pour financer les rachats d’actions. Les groupes de frais d’ECM ont également diminué par rapport à l’année précédente.

Passage aux marchés mondiaux sur la diapositive 21. Comme d'habitude, je parlerai des résultats hors DVA. Les marchés mondiaux ont généré des bénéfices de 1,1 milliard de dollars et généré un rendement du capital de 13%. Alors que le premier trimestre a connu un rebond saisonnier par rapport au quatrième trimestre, nous étions en baisse par rapport au premier trimestre de l’année dernière. Le premier trimestre de l'année 18 a été un record pour le marché des actions, alimenté par une activité plus intense des clients et une hausse de la volatilité des marchés. Et au T1 '18, le marché des actions incluait un dérivé de client important – une transaction de dérivé pilotée par le client.

Globalement, les revenus ont diminué de 10%, tandis que les dépenses ont diminué de 6%. Les ventes et les échanges ont diminué de 13% en glissement annuel pour s’établir à 3,6 milliards de dollars. FICC a diminué de 8%, tandis que les actions ont chuté de 22%. Le recul des actions a été plus modeste, ajusté pour le seul gros client enregistré au cours de la période de l’année précédente. La volatilité beaucoup plus faible du marché cette année a entraîné une activité moindre des clients et une performance plus faible des produits dérivés sur actions. La baisse des revenus de FICC s'explique par la baisse de l'activité des clients et des marchés moins favorables pour les produits tant macro-économiques que liés au crédit. Les investisseurs sont restés prudents tout au long du trimestre, compte tenu des préoccupations géopolitiques et de la faiblesse des volumes de marché, tant pour le négoce primaire que secondaire. Nous n'avons pas eu de jours avec des pertes commerciales au cours du trimestre. La diminution des charges d'un exercice à l'autre s'explique par la réduction des coûts liés aux revenus.

Sur la diapositive 22, vous pouvez voir que notre combinaison de produits des ventes et des revenus de négociation est restée pondérée par l’activité domestique, où les pools de frais sont concentrés. Au sein des FICC, nous restons plus orientés vers les produits de crédit que les macro-produits.

Enfin, à la diapositive 23, nous présentons All Other, qui a enregistré une perte nette de 48 millions de dollars, ce qui est relativement stable par rapport à la même période de l’année précédente. Étant donné les récents changements apportés à nos états financiers qui ont amélioré certaines méthodes d’allocation, nous pensons que la rentabilité ou la perte actuelle de cette unité ne devrait pas être très différente de celle du premier trimestre, à l’exception des éléments inhabituels. Ce trimestre, l’avantage fiscal saisonnier normal associé à la rémunération à base d’actions a été d’environ 200 millions de dollars. Cela a fait passer le taux d'imposition de 19% au cours du trimestre, passé de notre taux prévu de 19% pour l'ensemble de l'exercice, au taux déclaré de 17% enregistré au premier trimestre.

Bon, avec cela, ouvrons le débat aux questions.

Questions et réponses:

Opérateur

(Instructions de l’opérateur) Nous allons répondre à notre première question de John McDonald avec la recherche autonome. S'il vous plaît aller de l'avant.

John McDonald – Recherche autonome – Analyste

Salut bonne matinée. Paul, j'espérais simplement clarifier les perspectives du revenu net d'intérêts. Il semble que vous vous attendiez à ce que NII recule de manière séquentielle au cours du deuxième trimestre sur quelques-uns des points de pression que vous avez mentionnés, puis croisse légèrement dans la partie arrière, à mesure que la croissance des prêts et des dépôts et le nombre de jours deviennent plus favorables.

Paul M. Donofrio – Directeur financier

Yes it is true. Je veux dire, comme nous l'avons dit dans les remarques préparées, nous avons des vents contraires à court terme, dont certains sont saisonniers, d'autres sont récurrents depuis longtemps, lorsque les taux étaient à la baisse. Toutefois, à l'approche du second semestre, nous prévoyons de continuer à bénéficier de la croissance continue des prêts et des dépôts, ainsi que d'une autre journée d'intérêts au troisième trimestre. Nous pensons donc que la NII pour l’ensemble de l’année 2019 sera en hausse d’environ 3% par rapport à l’année précédente. En passant, lorsque j'ai présenté les remarques préparées, j'ai transposé les chiffres, j'ai dit 84 millions de dollars, soit 48 millions de dollars.

John McDonald – Recherche autonome – Analyste

D & # 39; agreement. Juste – et sur cette perspective de 3% de NII en 2019, est-ce que cela suppose aucune hausse de taux et toujours une courbe assez plate?

Paul M. Donofrio – Directeur financier

Oui, cela suppose la courbe telle qu’elle est aujourd’hui, qui est plate.

John McDonald – Recherche autonome – Analyste

D & # 39; agreement. Pas de randonnées?

Paul M. Donofrio – Directeur financier

Correct.

John McDonald – Recherche autonome – Analyste

Et puis, en ce qui concerne votre sensibilité au taux, vous avez mentionné qu’ils avaient augmenté. Que pensez-vous de la gestion de la sensibilité des taux à ce stade du cycle et des actions susceptibles de protéger NII dans un environnement de courbe d'aplatissement, ou d'un scénario de réduction des taux à partir d'ici? Comment pensez-vous à quel point vous voulez être sensible?

Paul M. Donofrio – Directeur financier

Well, look, we — we're not a hedge fund, we're a bank and so we are customer-driven, and our asset sensitivity is driven by our loans and our deposits and the activity that our customers do with us. Having said that, we have limits on how — how much asset sensitivity we want on the upside and the downside, we're within those limits. There may come a point in the future where we would do something to modify the asset sensitivity of the Company. But remember, when you're doing that you're basically replacing the (inaudible) on the future — future rate of — future change in interest rates, what if you're wrong? So, again, we're a bank, we're serving our customers. That's what creates the asset sensitivity in the Company. There may come a time we'll adjust that, but right now we feel comfortable.

John McDonald – Autonomous Research — Analyst

Got it. Okay, thanks.

Operator

We'll take our next question from Glenn Schorr with Evercore ISI. Please go ahead.

Glenn Schorr – Evercore ISI — Analyst

Thank you. Appreciate it. I know it's within the NII construct that you just gave. But I'm curious, you made a comment on — in the quarter, the non-interest bearing to interest bearing shift in deposits continued, but you thought it would stabilize as rates do. I'm just looking for some color on how real-time is that, in other words, if we get no hikes for this quarter, next quarter, do you think you see an almost immediate stop in that shift?

Brian Moynihan – Chairman and Chief Executive Officer

I think — Glenn, what I was saying was that the — you got to look at what drives the value of the consumer deposit franchise in the Company and that's the consumer side. And what you're seeing is consumer deposits grew $26 billion and checking grew $24 billion, OK. And so, between non-interest and variable interest checking. So, that's what drives our account. We have 0.5 million more checking accounts than we did a year ago, to give you a sense, in a book of 34.5 million, went to 35 million.

On the non-interest bearing side, the reference was in the commercial side, which, because the way cash management services are priced, when the rates rise, you people have to hold less balances to get the fees, hence (ph) credit rate goes up. When rates stop rising, which really has happened, that stabilizes and we have seen that and expected that to continue.

Glenn Schorr – Evercore ISI — Analyst

Okay. Maybe that ties into my follow-up on — maybe small, but the service charges, especially the deposit-related fees are down 4%, or 5% year-on-year. It seems like a steady trend down. Is that a customer behavior thing, or has Bank of America changed anything on how it charges fees?

Brian Moynihan – Chairman and Chief Executive Officer

We continue to think about and continue to change our policies on overdrafts, which has a downward effect on it. But the real driver of that is the fact that we have primary households. So, the people are above the limits of free checking, for lack of a better term, in that, if you get $250 a month in direct deposit and then you can get a free — the account is free. The fees are waived if you have $1,500 average balances, et-cetera, et cetera. And so, the profitability of consumer franchise is a combined profitability of the deposit value and the fee value. And together, you saw that revenue grow 7% year-over-year. So, it is not we price on a relationship basis. So, you have to be careful to look at this thing in parts.

Glenn Schorr – Evercore ISI — Analyst

Understood, thank you. Appreciate it.

Operator

We'll take our next question from Steven Chubak with Wolfe Research. Please go ahead.

Steven Chubak – Wolfe Research — Analyst

Hi, good morning. So, wanted to ask a question about some of the remarks in the context of an operating leverage line. So, a core tenet of the investment case has been your ability to deliver sustained positive operating leverage. I think Slide 3 actually showcases that quite well. Just given the current outlook for loan and deposit growth and expectations for expenses to increase year-on-year at least for the remainder of '19, are you still confident, given the NII guidance and your ability, to continue that momentum and deliver positive operating leverage even in the absence of higher rates?

Paul M. Donofrio – Chief Financial Officer

Yeah, I mean, look, the way I would think about it is, we've given you guidance on expenses, we've told you that in '19 and '20, we expect that our expenses will be approximately what they were for full year 2018 on an adjusted basis. And so, we're going to create operating leverage if we grow loans and grow deposits and grow revenue. I mean it's as simple as that, if we're holding expenses flat.

Steven Chubak – Wolfe Research — Analyst

Okay, fair enough. And just one follow-up for me on TLAC, Paul, since you gave some incremental color this quarter. I think I asked it on the last call, but I was wondering if you could provide some more detail, since you noted more explicitly that you're operating comfortably above the required levels. Given the much higher interest expense associated with long-term debt, I was hoping you could actually size that excess TLAC cushion, and whether there is any appetite to optimize your TLAC ratios to maybe help reduce that interest expense burden, especially given the tougher operating — rate backdrop that we're currently operating in?

Paul M. Donofrio – Chief Financial Officer

Sure. There's obviously appetite and interest in optimizing. We'll be disclosing in the Q a lot of detail around the TLAC, the different TLAC ratios. I guess a couple of things, as you see those. Remember, we received approval of $2.5 billion of additional buybacks in February. We've also been setting up a new bank entity and a new broker dealer for Brexit, plus we're creating a new broker dealer as part of resolution planning. So, our funding needs are a little bit elevated right now. We need to optimize that over the long term. And we'll sort all that out.

Steven Chubak – Wolfe Research — Analyst

All right. That's it for me. Thanks very much.

Operator

And our next question comes from Gerard Cassidy with RBC. Please go ahead.

Gerard Cassidy – RBC Capital Markets — Analyst

Thank you. Good morning. Paul can you give us some more color? If I heard you correctly, you mentioned that the equity business included a very large derivative client-driven transaction, Can you give some more color on what that was?

Paul M. Donofrio – Chief Financial Officer

I'm not sure I would give you more color on the specifics of the relationship or the client. We don't like to comment on individual clients. But, look, it impacted — I think, if you backed it out, equities would have been down, how much? 13%? 12% instead of the 22%. So, it was a meaningful transaction last year.

Gerard Cassidy – RBC Capital Markets — Analyst

Okay. And then second, you guys have done obviously a very good job in holding (ph) the line on expenses. Can you give us some color on where you think the efficiency ratio could eventually get to, and you can operate consistently at that level?

Brian Moynihan – Chairman and Chief Executive Officer

Well Gerard, I think it's just — as we said, it continues to drift down. Where stops we don't ever try to give people a number for free, it will stop there, and then not keep pushing. And so our job is to continue to drive it down. So, with flat expenses in a rising NII of — like Paul described, you're going to see that all just obviously falls to the bottom line. But remember, the NII component is really very marginal from the standpoint, 0.5 million checking accounts on 35 million of consumer, $20 billion more investment assets in Merrill Edge, the wealth management business grows on a very leveraged platform.

So, if you look across the efficiency ratio or the pre-tax margin, wealth manager, 29% efficiency ratios. You can — they'll continue to get better. All in, that will help in a quarter where markets are up. You'll see that number drop down quickly in a quarter where markets — market activity is less, which year-over-year that market activity was less than last year. So, we saw a little deterioration on that side, even though we made 250 basis points improvement overall. So, I don't — if I say to you guys on this call, or my team will say, oh, we made a goal, so the goals to continue to drive it.

Gerard Cassidy – RBC Capital Markets — Analyst

Very good, thank you.

Operator

Our next question comes from Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck – Morgan Stanley — Analyst

Hi, good morning. Couple of questions. Just on the expense question, one more for 1Q. I mean you came in with an extremely low expense ratio this quarter. Do you see that more as a one-off due to the fact that the revenues were a little lighter in the capital markets for the reasons you mentioned earlier? Or, is this a good number that as we look forward year-on-year to 1Q '20, you could improve on?

Paul M. Donofrio – Chief Financial Officer

Well, again, let me just take one step back. We've given our perspective on what we think 2019 and 2020 is going to be. We've said, with all the investments we're doing, the increase in technology, the merit, healthcare, everything we're doing, adding bankers, adding financial centers, we think because of digitization, because of all the efficiency, we think we can hold expenses at that 2018 level. So that's how I would think about it. If you just think about Q1 expenses, they were up approximately $150 million for Q4. Q1, obviously included the normal $400 million-ish of seasonality of elevated payroll expenses.

This was sort of partially offset by the timing of some tech initiative spend and marketing costs, which combined were kind of down about $200 million quarter-over-quarter. But we expect both of those to be up for the full year of 2018, as we continue to invest. We mentioned in the prepared remarks the deferred comp issue, which had a quarter-over-quarter effect. We mentioned the Merrill Lynch intangibles, which was about $75 million. But having said all that, for the year is what I would focus on, we think we're going to be at $53 billion and change.

Betsy Graseck – Morgan Stanley — Analyst

Ouais. Okay, that's helpful. And then can you speak a little bit to the loan growth side, because we got the NII overall and understand the NIM trajectory here, but can you just give us a sense as to what's in your outlook there for loan growth and if there's any variance between the different buckets that would be helpful to?

Brian Moynihan – Chairman and Chief Executive Officer

I think, Betsy just to give you — for our Company and for the U.S. economy, especially, where we saw some strong — strong, relatively strong performance was in our middle market business this quarter, in our small business. And those — that's good, because that means the core tens of thousands of customers in middle market and the millions of small businesses are using their lines and line usage went up by 1% in middle market, small business I think originations were up 7%, 8% year-over-year in the quarter.

So, I think, if you think about the thing overall, that's good news. And so as we think about it long term, the run-off, if you go back to that page and look at the non-core portfolio, it's gotten to a point now where it's small enough, the impact is muted. So, the 1% overall growth and 5% core growth, we'd say the 5% core growth is in line with our expectations. The 1% overall ought to, frankly, start to mitigate, because that number of non-core loans is really just down to a much smaller number. And frankly, we sold — this quarter we sold off some of the toughest loans, just to kind of get ourselves positioned in case, no matter what happens next. So, expect us to see the core loan growth in that mid-single digits and expect maybe a little bit more, but come through the bottom line as the non-core runs off.

Betsy, just to follow up on your question to Paul on expenses. We are driving the Company hard to continue to reengineer it on a consistent basis. So, the digitization that you saw in the consumer business, which we talked about a swing through the commercial businesses fairly consistently. The cash per product, the cash per mobile product and things like that are growing. And so that was a very digitized business from sending cash, it is a little different to consumer. But the activity between us and the customer, the paper to electronic — any — one form of electronic to another form of electronic frankly saves us expenses, but also put some pressure on revenues, even though the treasury services revenue, as you can see, are up nicely.

So, expect that — we're going to do everything we can on expenses, we're going to make the investments of $3 billion in technology, we're going to continue to drive the physical plan, the rejuvenation and continue to add people, because it's working. But don't — don't ever think that we're trying to — we're not overspending here. We're going to spend what we need to do to drive this Company for you.

Betsy Graseck – Morgan Stanley — Analyst

Got it. Yeah, I mean — and one point you mentioned something like $5 billion spent annually on storing and moving cash and check, is that still kind of the tag line for that?

Brian Moynihan – Chairman and Chief Executive Officer

We're chipping away, it's still high. Even check deposits continue to go down in a franchise. Year-over-year in the first quarter they went from about a $140-odd — $145 million (ph) in last year first quarter, $125 million to $127 million (ph) I think it was this quarter. But if you look at it, the — and just that changed, the mobile deposits were up $15 million — 15 million units in the same quarter, where the financial centers are down, excuse me — the mobile were up a 1 million units in the same quarter, but the financial centers were down about 1.5 million units or 1.25 million units.

So, each year, we are driving that incremental change. So, that's just checks deposit that's not even cash distributed and stuff. So, just that it is a big cost, a lot of it's on the commercial side too and when we continue to try to drive it down, collecting all that coin and currency to the small businesses and people and they collect cash as part of their operations. We continue to try to digitize that too.

Betsy Graseck – Morgan Stanley — Analyst

Okay, that's great. And just one last question from me. I know you've been planning on increasing hiring in the investment bank, especially around the middle market. And I'm wondering do you feel that you are fully baked there with your headcount, or is there still some more room to ramp that, and thinking about what the impact is going to be on the loan growth, as you indicated earlier?

Brian Moynihan – Chairman and Chief Executive Officer

So, if you look at it, think about this time last year and into the summer, we continue to look at our position, we've been adding people. We still have room to go and add people. It's all in the numbers you see. So as expenses came down, we added more people in that area, in both middle market bankers filling out the franchise in various areas and investment bankers dedicated to that area, the team has been building up. And then frankly rounding out our general teams in investment banking.

And so, Matthew Koder came in and picked it up. We're seeing market share sort of improvements in — even in markets, which are not as robust as we'd like from our standpoint. But we expect that the middle market one has been growing very fast. It's a matter of just getting more capacity, it's sometimes, — you look, some of those numbers were up 25% in fees over the last couple of years, we just got to keep driving.

Betsy Graseck – Morgan Stanley — Analyst

Okay. Thanks Brian.

Paul M. Donofrio – Chief Financial Officer

Just to give you a sense on progress, if you look at hiring year-to-date versus last year in investment banking and capital markets, commercial bankers, it's at three-times the pace as it was last year. And attrition is down. So, we're definitely making progress.

Betsy Graseck – Morgan Stanley — Analyst

Okay, thank you.

Operator

Our next question comes from Saul Martinez with UBS. Please go ahead.

Saul Martinez – UBS — Analyst

Hey, good morning guys. On the interest rate sensitivity, you gave the reasons for why the sensitivity moved up long-end rates and deposit assumptions. But at a point in time, what is the breakout of the $3.7 billion between short and long-end right now? Sorry, if I missed that, you broke it out.

Paul M. Donofrio – Chief Financial Officer

Yeah, it's 75% on the short end, 25% on the long end.

Saul Martinez – UBS — Analyst

75%, 25% still, OK. Also you have been under — you've had some pressure obviously with higher short-end rates on the sales and trading NII. I assume your 3% growth, does that assume some easing of pressure as rates stabilize here?

Paul M. Donofrio – Chief Financial Officer

Well, as rates stabilize, we shouldn't see much change in NII in that business.

Saul Martinez – UBS — Analyst

Okay. So, it's assuming no rebound, because as assets reprice and funding cost remain stable?

Brian Moynihan – Chairman and Chief Executive Officer

That's right. That moves pretty quickly through the system, but it — the 3% includes that as part of the balance.

Paul M. Donofrio – Chief Financial Officer

There just isn't a lot of asset sensitivity in Global Markets.

Saul Martinez – UBS — Analyst

Okay, fair enough. Just to change gears, on cards, income was down 2% year-on-year, volumes were up only 2% year-on-year. Can you just give a little bit of color what's going on there?

Paul M. Donofrio – Chief Financial Officer

Yeah, sure. Look, the first thing I would say is, again, Brian said it, but remember we're focused not on products, but on increasing and deepening relationships. And remember, consumers revenue was up 7% year-over-year and profits were up 25%. To your question, purchase volume growth has slowed, but it was still up 3% year-over-year. We've got high rewards also pressuring revenue, but again, higher rewards are also driving higher deposit balances, which help NII, as well as client retention. We continue to add more than 1 million new cards each quarter, although this is down moderately, as we focus on profitability and reevaluate applications that are looking to play the rewards game.

Saul Martinez – UBS — Analyst

Okay, got it. Then just one final thing. So, you saw — can you just give us an update where you are in the process and how you're thinking about, when you will give us a day one impact?

Paul M. Donofrio – Chief Financial Officer

Sure. So, we've made a lot of progress and our efforts are continuing. We did a parallel run in Q1, which we're still analyzing. But based upon the earlier estimates from that parallel run, we do expect CECL reserves to increase. I think it's important to point out there is still a lot more work to do, but we would currently estimate the impact to be an increase in our reserves of up to 20%. I want to emphasize that sort of any adjustment to reserves will be based upon the composition of our portfolio and the forecast of economic conditions at that time, which is going to be year-end.

In addition, we haven't finalized our methodologies. And, look, if you're thinking about drivers, it's obviously credit card is the primary driver. Relative to others, you got to look at commercial real estate. Those are the things that are affecting reserves.

Saul Martinez – UBS — Analyst

Got it. That's really helpful. Thank you.

Paul M. Donofrio – Chief Financial Officer

Just so you know, that equates to that 20% — that up to 20% equates to a reserve increase of about $2 billion.

Saul Martinez – UBS — Analyst

Got it. It's not material for your capital. I understood. Okay.

Paul M. Donofrio – Chief Financial Officer

Yeah, from a capital perspective, it's going to get phased in over three years.

Saul Martinez – UBS — Analyst

Yeah, understood.

Operator

And our next question is from Matt O'Connor with Deutsche Bank. Please go ahead.

Matthew D. O'Connor – Deutsche Bank — Analyst

Good morning. Any thoughts on the NIM percent going forward? Obviously, there could be some quarter-to-quarter volatility, but just as we think about the underlying direction on NIM, can you hold it stable, or might it bleed down a little bit?

Brian Moynihan – Chairman and Chief Executive Officer

Look, longer term I think NIM is going to depend on the forward curve. I mean that's the best answer I can give you. In Q2, I guess, I would expect NIM to decline a little bit because of all the items I mentioned earlier in those prepared remarks. It's up year-over-year nicely. I think if you look at the banking book, you can really see the power. It's up to sort of 3.03%, which is up 10 basis points year-over-year.

Matthew D. O'Connor – Deutsche Bank — Analyst

Okay. And if we just take the forward curve, which is what's in your net interest income dollar guidance, would that imply some underlying pressure beyond 2Q as well?

Brian Moynihan – Chairman and Chief Executive Officer

No. I think– again, I think, it's going to be — it would imply flat, I think, is what I would say.

Matthew D. O'Connor – Deutsche Bank — Analyst

Okay. And then just —

Brian Moynihan – Chairman and Chief Executive Officer

Over the whole year.

Matthew D. O'Connor – Deutsche Bank — Analyst

So, what do you mean by that? So down a little bit in 2Q and then up a little bit like last year (ph) to get back to 1Q? Got it.

Brian Moynihan – Chairman and Chief Executive Officer

That's right. That's right.

Matthew D. O'Connor – Deutsche Bank — Analyst

Okay. And then just bigger picture question. Obviously, not just a concern for Bank of America, but as we think about exiting this year and we just take everything at face value that rates stay here and all these other assumptions they will probably change. But let's just hold on that. It does seem like revenue growth is going to flatten out as we get into 2020.

And I'm just wondering like what you're thinking in terms of levers that can be pulled? You had a lot of discussion around expenses. Are there kind of new products or customer segments that you can go after? Essentially, are there revenue opportunities that you can control, independent of the macro, if the expenses are kind of lined up and flat and there is not too much more to do there?

Brian Moynihan – Chairman and Chief Executive Officer

I think if you think about a growth rate and economy of 2 percentage points or so and you think back about the last decade, we've been at that level more than we've been at any other level. And what did we do? We grew loans mid-single-digit, we grew deposits 3%, 4%, 5% faster. It's now kind of growing at that rate. That adds basically a very advantaged cost of funds and loans that are well priced to our core clients in both the consumer and commercial side and that then grows the net interest margin.

A lot of talk about, over the last few years about what was the contribution rates, half of it came more less from rates and half of it came from hard work and we expect the half that came from hard work to keep coming. And that's — that leverage in a platform with expenses being flat is pretty good leverage. And then the markets will be what they are. But as I said earlier, remember that the revenue from those two activities year-over-year is up 7%.

Paul gave you the — an eye view of that. The fees side of that revenue was down deeply. But even with what's happened during the quarter, to think about the wealth management business from the way they're pulling prices off of December into January and things like that, think about the recovery, the fee income, even if it stays flat from here, it will be substantial in wealth management business. So, we feel good just grinding out more customer relationships and more loans and deposits and more wealth management business from them and that will give us a pre-tax — ability to grow pre-tax in the mid- to upper single digits and then the share count through the capital management.

So, that's the model of the 2% growth economy. If you tell me you are predicting a recession, we'd handle the Company differently as what everybody else, but that's not what we think. And then, as I think about it overall, we just — this is a great franchise and we're just grinding out the growth that's embedded in it and that will produce, as we've said, mid single-digit, mid upper single-digit operating earnings increase, combined with share count will get you in double digits and that's pretty good.

Matthew D. O'Connor – Deutsche Bank — Analyst

Okay. All right that was clear. Thank you.

Operator

Our next question comes from Nancy Bush with NAB Research. Please go ahead.

Nancy Bush – NAB Research — Analyst

Good morning. Brian, this is a question about your program to lift the minimum wage from $15 to $20 over the next 20 months. And I can see how this is necessary, as you said "to get the best people in an economy that has the unemployment rates that we do right now". But can you just kind of generally flesh out what kind of productivity improvements you're seeing in the workforce, and whether this $5 raise will be paid for by productivity?

Brian Moynihan – Chairman and Chief Executive Officer

Yes, it's going to be — well, it has been, I think, in the last several years, we've gone from probably sub $10 and now to over $15 and it's been paid for every year. So, I think our ability to continue to drive productivity is really driven by the change in customer behavior and the digital capabilities we have. So, more of the activity that would have been done a decade ago or two decades ago, a person handing a check for deposit at the branches would have gone through a person's hands and now goes through a mobile bank deposit — mobile check deposit and the cost of that is tenfold (ph) different. And yeah, we still have in this quarter alone, $50 million-odd deposits at the financial centers to work on.

So, yeah, the productivity will increase. We've been able to pay for those kinds of increases. We've been able to keep the healthcare costs for the lower compensated teammates flat since 2011, after we cut it in half. And this is all to really have great teammates working with our core customer base and that's where we are focused on. And our average compensation of our Company is 90-odd (ph) — $120,000 or something like that. So, this is not — this is to really help drive in the branch and the call centers and the operations groups to continue the efficiency, but overall we continue to manage headcount down to make it happen.

Nancy Bush – NAB Research — Analyst

Okay. Also have a quick question about the credit cycle. Marianne Lake said on Friday that I think there were sort of five loans that came on non-accrual — five material loans that came on non-accrual at JPMorgan Chase and that was the second quarter that it happened. And she characterized these credits as quote idiosyncratic, not belonging to any particular industry, et cetera. I guess my question is this, has the nature of credit cycles really changed due to the low rate environment? And how will you know if we are entering a "new credit cycle"?

Brian Moynihan – Chairman and Chief Executive Officer

Well, we continue to — those are great questions, Nancy, when you think about it in a broader context. But I think the major differences with our Company is that the geographic distribution in the United States, means that we're not susceptible to any regional issues dominating our discussion, as it would have been 20, 30 years ago, even a decade plus ago. I think that the balance in the Company from consumer and commercial has come down has changed substantially. So, we're 50%-50%, I think the secured portion of consumers, the dominant part as opposed to going in the last crisis, so all that sort of gives us a different feel for what we think the credit cycle will be like.

When you go to the commercial side, the underwriting capabilities, the team has then proven through cycles as being very strong, the ratings integrity is strong, when we go through with all the reviews, whether it's SNC or whether it's internal reviews. And so, yes, a Company, like the charge-off, we had in the fourth quarter, can have an idiosyncratic event that causes some damage. But will it be wholly different, it will really depend. If the economy stays bumping along that goes into slight degradation, you're going to see some across the board distress.

But I think so far, as we've seen pieces pop up, oil and gas a few years ago, we put up reserves, and we took most of them back in. The retailing business, we were a major lender in it. We've been able to work through the credits there, because of the nature of the collateral and stuff like that. The consumer side, the charge-off rate stays low. We've worked through, as you know, a lot of mortgage credit that was just — is still with us and we have been getting that down and that's brought our charge-offs or mortgage back to where we thought they'd be.

So, I'm not sure I would ever say you have to take any credits that happen and say, there's no — to say it's completely isolated one-off events, because you got to be careful not to fool yourself, but on the other hand, what we see is right now, the fundamentals of the economy in the U.S., on a global basis and the fundamentals of consumers and unemployment being low, as you mentioned, means that credits in good shape and we just don't see that changing a lot.

Nancy Bush – NAB Research — Analyst

All right.

Paul M. Donofrio – Chief Financial Officer

I'll just point out, I know, you're asking how will we know, but the one thing I do want to stress is, how much we've transformed the Company over the last 10 years by sticking to responsible growth, by changing the mix between consumer and commercial, by focusing on prime and super-prime. And again, the best place to see that is in the fed stress test results, where you can see that our loss rate over multiple years and we'll see what it is year, has been lower than all peers. And almost 50% lower than the worst nine quarters we experienced during the financial crisis. So, the Company is just fundamentally different.

Nancy Bush – NAB Research — Analyst

Okay, all right. Thank you.

Operator

Your next question comes from Al Alevizakos with HSBC. Please go ahead.

Al Alevizakos – HSBC — Analyst

Hi. Thank you for taking my question. You already mentioned about GWIM that it was a really impressive performance. When I'm looking at the numbers, clearly the outperformance, except for the solid revenues just coming from the expense line. And you mentioned a couple of factors during your prepared remarks, including the FDIC and the lower intangible amortization cost.

I was wondering as a first question, whether you would be able to quantify like, what was the lower expense coming from the intangible amortization costs, and then from FDIC, especially in that division? Thank you.

Paul M. Donofrio – Chief Financial Officer

So, there was (ph) lower intangibles about $75 million per quarter. And FDIC, I think is a little over $100 millioin (ph) per quarter — for the whole Company, yeah.

Al Alevizakos – HSBC — Analyst

So, not only for the wealth management, just it's for generally all the Company?

Paul M. Donofrio – Chief Financial Officer

Yeah, that's — Merrill's intangibles is $75 million. FDIC for the whole Company is sort of like $150-ish million (ph) . So, Merrill (inaudible) they obviously don't get the whole thing.

Al Alevizakos – HSBC — Analyst

Ouais. And as a second question, I think, I missed you at the end, when you were talking about the All Other segment. You guided basically that the Q1 is actually a good indicator for the future, but you also mentioned that there was this tax benefit of $200 million. So, what is actually the run rate? Is it the $50 million loss or the $250 million?

Paul M. Donofrio – Chief Financial Officer

Ouais. Yeah, there was a sort of normal seasonal kind of tax favorability that I expect most people had in their models.

Al Alevizakos – HSBC — Analyst

Ouais.

Paul M. Donofrio – Chief Financial Officer

So, if you adjust for that, you know, a good — for modeling purposes, I would suggest you use around a loss of around $200 million per quarter. That's a good base.

Al Alevizakos – HSBC — Analyst

Okay. Thank you so much.

Operator

Our next question is from Vivek Juneja with JPMorgan. Please go ahead.

Vivek Juneja – JPMorgan — Analyst

Hi, thanks for taking my questions. Couple of questions. I hear you on the card purchase volumes and the rewards expense, your card outstanding growth has also slowed substantially. It's gone from up 5% year-on-year last year in the first quarter, then it was in the 4-ish-percent over the course of the year, and it was flat year-on-year in this quarter. Can you talk about — I heard you say that you are trying to avoid customers giving the rewards side. What about the card outstanding growth? Why has that slowed so much?

Paul M. Donofrio – Chief Financial Officer

You're talking about card balances?

Vivek Juneja – JPMorgan — Analyst

Yes, card balances Paul, that slowed to flat year-on-year. And if you look over the course of the last five quarters, that's a slowdown from where you have been coming over the last year?

Paul M. Donofrio – Chief Financial Officer

Yeah, look, we're — look I would expect low single-digit year-over-year growth to sort of continue. Right now we are experiencing a little bit of an uptick in the portfolio payment rate that's affecting growth.

Vivek Juneja – JPMorgan — Analyst

Okay. And that's just — you think just temporary that — what's driving that, that it would only be temporary?

Paul M. Donofrio – Chief Financial Officer

Look, I just think it's good economy and we have high-quality customers in our card portfolio and they're taking some of their excess deposits and paying off their balances.

Vivek Juneja – JPMorgan — Analyst

Okay. Shifting gears, Brian, a question for you, investment banking. If I look at your — I hear you on the fact that you've been hiring more bankers, Paul mentioned that too. When I look at your IB fees this quarter, at least based on the results, you have better come out thus far. It seems like you have slipped now to number 5. Any color on why? You used to number 2 a few years ago and it's gone. It's slipped further and further. Is it a risk issue? Is it an expense issue? What is the issue? And what should we expect as we look out, Brian?

Brian Moynihan – Chairman and Chief Executive Officer

My guess is, we'll end up 4 — 4, 5 on fees paid, depending on what is going on at the time, It will ebb or flow. If it's more debt capital markets driven, typically we do better. If it's more equity capital markets, we do a little bit differently and if it's advisory we sort of — depends on sort of what the deals are.

At the end of the day, the team is continuing to work on driving it. We feel good at the progress is being made, and we'll continue to make that progress in the future. But I always tell people to keep in mind, in the Global Banking segment, our Company earned $2 billion, $700 million of which was investment banking fees. So, the key for serving corporate clients is to have a full robust broad relationship and drive the cash management and drive the lending and the investment banking, and not get overly focused on to get 2% of our revenues.

Vivek Juneja – JPMorgan — Analyst

Okay, thanks.

Operator

We will take today's last question from Brian Kleinhanzl with KBW. Please go ahead.

Brian Kleinhanzl – Keefe, Bruyette & Woods, Inc. — Analyst

Yeah, thanks. So, one quick question on the commercial. I guess, you're still kind of constructive on commercial growth. But can you point anything specifically, I think (ph) you're actually seeing an improvement on the commercial side, like line utilization up year-on-year, are you seeing more CapEx spending?

Brian Moynihan – Chairman and Chief Executive Officer

Yeah, there has been a lot of talk, if you think about the last couple of years, of the economy — the last year and a half on economy, and commercial loan growth. And I don't get the fantods all over that. In a sense it's a — things ebb and flow by what's going on. So, I think what you saw this quarter, really a combination of probably three things for us in the core commercial business — yeah, commercial loans across the board.

One is in terms of the business banking segment, which is a smaller and we've hit sort of an inflection point. We were managing some of the credit risk in that portfolio, that's kind of hit the base and that's a smaller book, but it does impact year-over-year. That was down like over $1 billion and that's now flattened out in terms of core linked quarter impact.

Second thing is as the small business continues to grow, it does a good job in that and you can see that separately. The third most important thing is, we deployed more middle market bankers, they continue to deepen relationships and as we did it, we basically not only did we — we took down the number of accounts per person, so that they could deepen the relationship to spend the time, that's why you're seeing the treasury service and other revenue grow. But importantly also, even pushing harder on the loan growth side and that's benefited us.

And then, frankly, for years we were kind of running down a little bit of our commercial real estate. On a relative basis, you would have seen other people grow faster. As the market settled in and we liked the credit risk better, we've actually seen a little better growth in the commercial real estate segment, very high and very capable, very strong quality, that's helped us a little bit too.

And then the last thing, which I think is good news, the economy overall, is the line usage went up about a point in middle market, which is — which means that — that's across a lot of lines, obviously. But what that really means is that people are using the credits, is the right word. So, the arduous task of doing — driving commercial loan growth is really down to literally thousands of people out there every day doing the job that Matthew and Alastair and Acer (ph) and Sharon Miller and the team push them to do and we're seeing the benefits of that and that ought to be compounding in the future.

Brian Kleinhanzl – Keefe, Bruyette & Woods, Inc. — Analyst

And then just a separate question on the card income. I know it has been asked a couple of different ways. But typically, there is some seasonality in the first quarter. Was the seasonality impacts greater than the rewards impact in that linked quarter decline in card income and consumer banking?

Brian Moynihan – Chairman and Chief Executive Officer

The impact of — if charges were up and fees were down, obviously, the impact of the rewards, credits and other credits, both to the merchant and everything else exceeded the growth in the revenue. And so, I think that's a given. So, we are up 3% in charged volume, something like that. And then it overall declined slightly.

You remember that we are running our credit card relationship management business different than a lot of people. We run it as an integrated business. And so when you see that $26 billion in deposits growth in consumer, remember a lot of it's coming in large deposit relationships in the context of general consumers and not wealth — affluent wealth management people customers, is coming because they're bringing to us $10,000 or $20,000 in balances too, that is helping drive our deposit balances and the relationship size, in order to get the reward system.

And so when you look at that, you got to be careful about looking any one line item that we have and look at it in total growth and that's a 7% consumer overall, and the risk-adjusted margin on the card product, I think we show is over 8%. So, it's very high credit quality and the fee is included in that. So, I think it's one of the differences. We're going to look a little different and so, yes, the amount we rewarded our customers to do business with us exceeded the rate of growth and they are charged a little bit. But combined with their deposit balances and how they get the rewards, you saw a consumer deposit level growth of mid-single digits, you saw $26 billion, which is the size of a good bank right there, just in consumer and it was all in checking.

The total other growth, other than checking was like a couple of billion dollars. So, it's all checking growth and all really what we do for people in the card is part of that payments, debit card, credit card and checking are really linked accounts now.

Brian Kleinhanzl – Keefe, Bruyette & Woods, Inc. — Analyst

Okay, thanks.

Brian Moynihan – Chairman and Chief Executive Officer

All right. Well, thank you everyone for joining us again. We appreciate your interest. Another quarter, record earnings, strong client activity. We continue to see a good strong solid U.S. economy. We deepened those relationships. We had strong asset quality, and again, at the end of the day, we delivered a 16% return on tangible common equity, 126 basis points return on assets and we did that by driving operating leverage of 400 basis points. So, thank you. Look forward to talking to you in next quarter.

Operator

And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.

Duration: 75 minutes

Call participants:

Lee McEntire – Senior Vice President, Investor Relations

Brian Moynihan – Chairman and Chief Executive Officer

Paul M. Donofrio – Chief Financial Officer

John McDonald – Autonomous Research — Analyst

Glenn Schorr – Evercore ISI — Analyst

Steven Chubak – Wolfe Research — Analyst

Gerard Cassidy – RBC Capital Markets — Analyst

Betsy Graseck – Morgan Stanley — Analyst

Saul Martinez – UBS — Analyst

Matthew D. O'Connor – Deutsche Bank — Analyst

Nancy Bush – NAB Research — Analyst

Al Alevizakos – HSBC — Analyst

Vivek Juneja – JPMorgan — Analyst

Brian Kleinhanzl – Keefe, Bruyette & Woods, Inc. — Analyst

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