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Bank of America (BAC) Q4 2017 Earnings Conference Call Transcript

Motley Fool Staff, The Motley Fool
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Bank of America (NYSE: BAC)
Q4 2017 Earnings Conference Call
Jan. 17, 2018 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Bank of America Fourth-Quarter 2017 Earnings Announcement. Currently, all phone lines are in a listen-only mode. Later there'll be an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the *, then 1 on your touchtone phone.

Please be advised today's program may be recorded. It is now my pleasure to turn the program over to Mr. Lee McEntire. You may begin, sir.

Lee McEntire -- Senior Vice President of Investor Relations

Good morning. Thanks to everyone for joining this morning's call to review our 4Q '17 results. Hopefully, everyone's had a chance to review the earnings release documents on the Investor Relations section of ourbankofamerica.com website. I'll just remind you we may make some forward-looking statements in the discussion today.

For further information on those, please refer to either our earnings release documents, our website, or our SEC filings. Brian Moynihan, our chairman and CEO, will make some opening comments. Paul Donofrio, our CFO, will review the 4Q results. And then we'll turn it back over to Brian for just a few thoughts from the company as we head into 2018 before we open up for questions.Brian, take it away.

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Brian Moynihan -- Chairman and Chief Executive Officer

Surely. Thank you and thanks, everyone, for joining us today. Good morning. This was another strong quarter and year for our company across the board.

We drove positive operating leverage consistently through the year. In fact, this is the 12th straight quarter where we have reported a positive operating leverage on a year-over-year basis. You can see that on Slide 3. And we did it the right way.

We achieved it through fundamental operating excellence, driving revenue, and controlling expenses, combined with strong relationship in sales and production. Full-year revenue was up 5%, excluding the tax act impact, while expenses declined 1%. Our business generated 6% loan growth for the year. We grew and remained true to our responsible growth operating model where there's a clear recognition throughout the company of who our targeted customers are and how we manage risk and our desired outcomes.

So, let me highlight a little our progress.For the year we reported $18 billion in after-tax net income. Excluding the tax act impact of $2.9 billion, we would have reported net income of $21 billion which is up 18% over [Inaudible] 2016. This represents the highest earnings run rate for the company in its history. Paul will discuss the tax act impact in a little more detail later.

Our company remains balanced, with earnings coming relatively evenly from our consumer and our commercial institutional segment businesses. On a more businesses for people, our consumer businesses and our wealth-management businesses, together they earned more than $11 billion and grew 14% while our global banking and global markets business together generated about $10 billion, and they're up 7%. Excluding the tax act impact, our return on tangible common equity was 11% and our return on assets was 93 basis points, pushing closer to our long-term target. Across the board in our businesses, our brand improved in every area recognized by many outside parties.

And through our higher stock price and improved credit ratings, we saw tangible benefits of our progress. Shareholders not only saw share price improvement but we increased our dividend by 60% and reduced our fully diluted share count during the year by 3.4%. Average diluted shares were down 370 million from this time last year and down nearly 1 billion from the peak. With an approved CCAR plus our additional 5 billion, we'll continue to make progress in this area.At the core of our model is a talented group of teammates, our best assets.

Therefore, we continue to invest heavily in making our company the best place for our teammates to work. Not only do we continue to rank high in overall list of best companies to work for, we rank in the top 50 list of the best workplaces for diversity, for parents, for working mothers, and Hispanics, among others. You can see some of these accolades in a couple of the appendix slides we've added to the package this time. This year we also invested heavily in our teammates' [Inaudible] improvements and starting minimum wages, where we put them at $15 this time last year.

We introduced sabbaticals, family leave increases, bereavement leave policy extensions, and wellness initiatives. This latest example is our announcement at the year-end we were able to provide nearly 70% of our teammates with a bonus to share in our future success of the expected benefits of the tax savings. As Paul will explain, this added $145 million in expenses in the fourth quarter. We did all this while investing to continue to lower cost me so we can make more money in our franchise.

We also lowered costs while we continued our investment in digital capabilities for security protection for our customers, which drove our online and mobile banking leadership rankings. We also rolled out digital shopping capabilities in auto and in home. We are also heavily investing in capabilities for our investment clients across the wealth-management spectrum through our award-winning digital brokerage capabilities as well as our treasury capabilities for our commercial clients. Our consumer mobile banking app became the first app in the Apple App Store to be certified by JD Power.

We know there's much more to do to continue to drive this positive change in our company and for the benefit of our customers and clients. So we as a team are proud of the outcome today for sure, but even more proud that we're proving that we can win and do it the right way to drive responsible growth, and we plan to do that in the future.With that, let me turn over to Paul to give you comments on the quarter.

Paul Donofrio -- Chief Financial Officer

Thank you, Brian. I want to go back to Slide 2 to start. We reported net income up $2.4 billion, or $0.20 per diluted share, in Q4. Late in the quarter, we informed investors through our 8K filing that we expect an impact of approximately $3 billion from the tax act.

Our estimated impact came in just shy of $2.9, lowering EPS by $0.27. Remember, the tax act is complex, with several novel provisions. Any clarifying guidance or new information could affect our estimated impact and, as noted in our materials, the impact was recorded in two places. First, in other income, there was a charge of approximately $950 million to revalue certain renewable-energy investments.

With the new income tax line, this pre-tax charge was offset by the tax benefit of this $950 million charge plus the revalue of certain deferred-tax liabilities associated with these renewable-energy investments. In total, the tax line includes $1.9 billion aggregated expense, with a multiple impact of the tax act including the tax benefit of the charge for new energy investments that I just mentioned as well as the revaluation of our deferred-tax assets and deferred-tax liabilities. In our material, we provided a chart reflecting results on a basis that excludes the tax act impact. We believe this provides a more clear comparison to Q4 '16.

On that basis, net income was $5.3 billion with EPS of $0.47 per share, growing 20% year over year. Return on tangible common equity was 11%. Return on assets was 90 basis points. Operating leverage year over year was a strong 8%.

Revenue was $21 billion, improving 7%. An 11% improvement in net-interest income drove revenue growth. Expenses declined 1%, which included roughly $200 million with the shared success bonuses in late December that Brian mentioned plus an acceleration of planned charitable contributions in late December as we looked to share some of the future tax savings with our teams and the communities we serve.Provision expense was $1 billion, up $227 million, driven by a $333-million impact from the charge-off and reserve bill for a single commercial exposure. Negative news reports on that company caused significant market concerns, which affected the credit spreads and stock price of this formally investment-grade credit.

Despite downgrades of this credit, both non-performing loans and criticized commercial exposures declined from Q3 and, excluding this specific loss, net charge-off remains very low turning. Turning to the balance sheet on Slide 4. Overall compared to September 30, end-of-period assets of $2.3 trillion were mostly unchanged. Loans grew $10 billion but were offset by a $14 billion decrease in cash.

On the funding side, strong deposit growth from Q3 of $25 billion was offset by reductions in market funding and lower equity. Debt levels were stable with prior period. however, we did complete an $11 billion debt exchange offer in the quarter, which extended maturities and improved the structure of this debt from a [Inaudible] perspective. Liquidity remained strong, with average global liquidity sources of $522 billion, and we ended the quarter with a liquidity coverage ratio of 125%.

Equity decreased $4.8 billion from Q3. This quarter, through both the purchase of common shares and common dividends, we returned more than $6.1 billion to shareholders. That was $4 billion more than the $2.1 billion in income available to common, which included the $2.9-billion tax act charge. The remaining decline in equity was mostly a result of the decline in OCI as increases in long-end rates decreased the value of our debt securities portfolio.

We purchased 174 million shares in Q4 and have repurchased 509 million shares in the past 12 months. Remember, this quarter we received approval for $5 billion in share repurchases in addition to our previously announced $12.9 billion following CCAR. Tangible book value per share of $16.96 was modestly above Q4 '16, as earnings over the year including the tax act impact offset share repurchases and dividends, as well as the conversion of Berkshire preferred stock to common shares. Turning to regulatory metrics and focusing on the fully phased-in impacts, our CET1 ratio declined this quarter.

The primary cause of the decline was a return of capital to shareholders in excess of earnings, which obviously included the tax act impact. Focusing on risk-weighted assets and starting with the advanced approach, RWA was flat from Q3 at $1.46 trillion as DTA reductions and the run-off of legacy loans with high risk weights offset general loan growth. Under the standardized approach where risk sensitivity is less, funded and unfunded loan growth across the businesses drove a $22 billion increase in RWA. The CET1 ratio under advanced declined 34 basis points to 11.5%, under standardized, the ratio declined 53 basis points to 11.7%.

Both ratios remain well above our 9.5 requirement and supplemental leverage ratios continue to exceed U.S. regulatory minimums. Turning to Slide 5. On an average basis, total loans increased to $928 billion.

Note that the Q2 sale of UK Card, which was recorded in all other impacted the year-over-year comparisons of average loans by $9 billion. In Q4, we also sold our remaining student loan and manufactured-housing loans, totaling approximately $800 million. Adjusting for these sales, average loans were up $29 billion, or 3% year over year. Loan growth continued to be dampened by the run-off of non-core consumer real-estate loans in all other.

Year-over-year loans in all other were down $29 billion, inclusive of the loan sales. On the other hand, loans in our business segments were up $49 billion, or 6%. Consumer banking led with a 9% increase, with solid growth across mortgage, credit card, and vehicle loans. Wealth management's strong growth of 7% was driven by mortgages and structured lending.

Origination of new home equity loans continued to be outpaced by pay-downs. Growth in global banking loans and leases remained solid, up 4% year over year. Switching to average deposits and looking at the bottom right, the growth was $43 billion or nearly 3.5% year over year. This growth was driven by consumer banking, which increased by $48 billion, or nearly 8% year over year.

Average deposits declined year over year on wealth-management as clients moved cash to other alternatives within brokerage or AUM. This decline was mostly offset by solid growth in global banking.Turning to asset quality on Slide 6. Total net charge-offs were $1.2 billion, or 50 basis points of average loans. As mentioned, the quarter was impacted by the one large single commercial charge-off.

Excluding the single loss, net charge-offs and the net charge-off ratio were consistent with Q3. Also, due largely to this commercial loss, provision of $1 billion was up $167 million Q3 '17 and $227 million dollars in Q4 '16. Provision expense included a $236 million net reserve release. The net reserve release reflects continued improvement in our legacy consumer, real-estate, and energy portfolio.

Our reserve coverage remains strong with allowance of loan coverage ratio of 112 basis points and a coverage level 2.6 times our full-year net charge-offs.On Slide 7, we break out credit quality metrics for both consumer and commercial portfolios. With respect to consumer, net charge-offs of $769 million were up $38 million in Q3. The modest uptick in net losses is negatively impacted by the absence of some prior-period recoveries, the Q3 '17 storm-related payment deferrals, and seasonality. The consumer credit card net charge-off ratio increased to 2.78% as the portfolio continues its expected seasoning.

Consumer MPL of $5.2 billion declined from Q3 and are at the lowest they've been since Q2 '08 and 45% of our consumer MPLs are current on their payments. Commercial losses, excluding the one large credit already discussed, were stable. Reservable criticized utliized exposure was down more than $1 billion from Q3.Turning to Slide 8, net-interest income on a GAAP non-FTE basis was $11.5 billion, $11.7 billion on an FTE basis. Compared to Q4 '16, GAAP NII is up $1.2 billion, or more than 11%, driven by the spread improvement in our asset yields and funding cost.

Partially offsetting the spread improvement is the lack of interest income associated with the UK Card portfolio, which was sold in Q2 '17. The increase year over year was also driven by growth in loans and [Inaudible] securities as well as lower prepayments and therefore lower bond premium write-offs. Focusing on the net-interest yield, it improved 16 basis points from Q4 '16, to 2.39%. Compared to Q3 '17, NII increased $300 million, driven by loans, securities, and asset growth in global markets, as well as a run-up of short-end rates in anticipation of the Fed [Inaudible].

With respect to deposit pricing, we raised rates modestly on selected wealth-management products as well as for certain commercial clients. Consumer rates paid remained stable. NII on a full-year basis grew $3.6 billion, or 9%, to 44.7 billion. In 2018 we expect solid NII growth driven by loan and deposit growth and some net-interest-yield expansion, assuming the forward curve plays out as currently expected.

But I would remind you that 2017 included approximately a half a billion dollars of interest from the UK Card business that we sold. This will be a significant offset to NII growth in 2018. In 2018, we also don't expect the same full-year benefit from the reduced premium amortization experienced in 2017, given the increase in rates that borrowers have already experienced. More short term, as you think about NII in Q1 '18, we expect to benefit from the December rate hike.

Having said that, remember, there will be two less days in Q1 than Q4. That should reduce NII by approximately $175 million. Also, NII from loan growth in Q1 is normally muted by seasonal declines in card loans. One other item worth noting as you think about Q1, the tax act will lower NII on an FTE basis because the NII gross-up will be lower.

However, remember, NII gross-up on an FTE basis is completely offset by higher tax expense, resulting in no change in earnings. Still, on an FTE basis, NII is expected to decrease by approximately $120 million each quarter. On a GAAP basis, again, NII is not impacted. With respect to asset sensitivity as of 12/31, an instantaneous 100-basis-point parallel increase in rates is estimate to increase NII by $3.3 billion over the subsequent 12 months.

This is largely unchanged from September 30 and approximately two-thirds driven by our sensitivity to short-term rates.Turning to Slide 9, we had another solid quarter of expense management. Note this quarter includes an accounting change for the retirement-eligible incentives. Previously this expense, which was historically just over $1 billion, was recorded in Q1 when awards were granted. We will now account for an estimate of the next year's grant ratably over current year's four quarters.

Prior periods and this quarter's supplemental materials have been restated for this change. Non-interest expense of $13.3 billion was down $140 million, or 1%, from Q4 '16. Note that this amount includes two actions which totaled approximately $200 million that I mentioned earlier to share [Inaudible] tax savings with lower-paid employees and the communities we serve. Excluding these discretionary actions, expenses were down 2%.

In addition to cost savings associated with the sale of our UK card business, year-over-year improvements and non-interest expense were broadly distributed across expense categories as we continue to focus on [Inaudible], understanding and improving our work processes, and optimizing the company's consumer delivery network. We expect these benefits over the medium term to drive efficiencies that will help us offset inflationary costs and potentially increases in investment. Compared to Q3 '17, expenses declined by $120 million despite the late-quarter discretionary spend. Decline was driven by lower mortgage servicing costs and lower revenue-related incentives in our global markets business.

Excluding the tax act's impacts on revenue, our efficiency ratio of 62% was above our target, reflecting the typical seasonal weakness in our sales and trading business. OK, turning to the business segments and starting with consumer banking on Slide 10, Q4 caps a tremendous year for this business. On a full-year basis earnings were $8.2 billion, growing 14% over 2016, with operating leverage driving the efficiency ratio to 50% by the end of the year. Focusing on our Q4 results, earnings at $2.2 billion grew 14% year over year and returned 24% on allocated capital.

Year over year, this business created over 600 basis points of operating leverage, as revenue growth of 10% outpaced expense growth of 4%, Higher interest rates and growth in client balances drove the year-over-year improvement in revenue. Year-over-year average loans grew 9%, average deposits grew 8%, and Merrill Edge brokerage assets grew 22%. Cost of deposits, which reflects non-interest expenses as a percent of average deposits increased modestly because of the year-end discretionary actions mentioned earlier, the share of future tax savings with lower-paid employees and the communities we serve. Net charge-offs increased $107 million from Q4 '16 as we continue to experience modest and expected seasoning of our credit card portfolio and loan growth.

Provisional expense increased to $126 million in Q4 '16 and that charge-off ratio remains low at 1.21%.Turning to Slide 11 and looking at key trends, as I mentioned earlier, revenue increased 10% year over year. Within the revenue, mortgage banking income was the only major category that was lower year over year, driven by volume decline. In Q4 we retained about 90% of our first mortgage production on balance sheet. Looking at revenue more broadly, we believe our relationship-deepening [Inaudible] award program is improving NII and growth of balances and allowing cost savings.

These benefits are more than offsetting headwinds in the non-interest income line that our industry is facing. Spending levels on debit and credit cards were up 7% year over year and we issued 1.1 million new credit cards in the quarter, in line with last year. Spending levels and a one-time partner rebate drove a 5% revenue increase in card income, which continues to be impacted by strong competition on the rewards front. Service charges were up a more modest 1% and in 4Q we modestly revised our overdraft policy by eliminating certain fees.

This revision reduced overall fees but has benefits in that it will improve customer satisfaction while helping to lower servicing cost. By the way, customer satisfaction in consumer banking reached an historic high, with roughly 80% of our clients rating us 9 or 10 on a 10-point scale. Focusing on client balances on the bottom of the page, you can see the success we've continued to have growing deposits, loans, and brokerage assets. We remained focused on prime and super-prime borrowers with average booked FICO scores of at least 760.

Expenses were up 4% compared to Q4 '16, as the year-end special bonus impacted this business more heavily than others. Otherwise, investments in renovating branches and technology initiatives modestly outpaced continued optimization and saving from digitalization. To give you a sense of the type and level of continued investment in our financial centers, let me highlight a few facts. During 2017 we opened 30 new financial centers, with 25 of these in no-go areas not previously served by our retail network but in areas where we have existing wealth-management and/or commercial banking presence.

We also opened 41 student centers and 69 lending centers and branded 585 Merrill Lynch officers. We also renovated nearly 300 financial centers and replaced more than 3,400 ATMs.Turning to Slide 12 and focusing on the continuing improvement in digital banking trends, as you can see, the year-over-year growth in these metrics continues to be impressive. We remain the leader in digital banking. We now have nearly 35 million digital users, including 24 million accessing their accounts through mobile devices.

We processed payments for customers valued at $669 billion in Q4. Annualized, that equates to over $2.5 trillion per yea. And note the 10% growth of digital payments relative to non-digital at 1% as customers continue to migrate from cash and check, helping us improve efficiency and reduce risks. In particular, note P2P payments increasing.

They doubled from Q4 '16 as the adoption of Zelle makes it easier to send, request, and even split person-to-person money transfer. Also note on the bottom left the growth in mobile channel users, with 1.3 billion log-ins. Also noteworthy is the volume of mobile deposit transactions which now represents 23% of all deposit transactions and while still small, half of all our retail direct auto loan applications are originated digitally following the recent rollout of our digital auto shopping capabilities last quarter. These digital trends and the investment behind them, plus the continued investment in our financial centers that I earlier listed, must be thought of together as you evaluate and we execute on our high-tech, high-touch customer strategy.Turning to global wealth management on Slide 13, [Inaudible] earnings $742 million, up 17% from Q4 '16, a pre-tax margin of 26% and a return on allocated capital of 21%.

Market appreciation and client flows were once again a tailwind for asset-management fees, offsetting modest spread compression. At the same time, brokerage revenue continued to face headwinds as volumes declined and mix shifted. All in, revenue grew 7% year over year, with strong NII improvement and 16% growth in asset-management fees partially offset by lower brokerage revenues. This activity, coupled with careful expense management, drove 4% operating leverage.

This quarter we saw AUM flows of $18 billion, bringing flows for the year to nearly $100 billion. Year-over-year expenses were up 3%, driven by revenue-related incentives as well as investments in both primary sales professionals and technology. Over to Slide 14. We [Inaudible] solid, overall client engagement.

Client balances rose to $2.75 trillion, driven by higher market values, solid AUM flows, and continued loan growth. As we noted during reviews of previous quarters, clients started to more appreciably move deposits into cash investment alternatives within AUM and brokerage starting early in the year. In the second half of the year, trends improved after we increased rate paid on certain products. Average loans of $157 billion grew 7% year over year, continuing a trend of clients deepening their relationship with us.

Loan growth remained concentrated in consumer real estate as well as structured lending. Turning to Slide 15, global banking earned $1.7 billion, increasing 6% from Q4 '16. Return on allocated capital was 17% and stable with last year despite an increase in allocated capital. I want to talk about full-year results for a moment to highlight the success of this business in 2017.

On a full-year basis, global banking set several records, including revenue of $20 billion and net income of $7 billion. Full-year earnings were up 21% on strong operating leverage. Revenue grew 8% while expenses were up only 1% as the business reduced overhead to offset increases in investments. And we added more than 400 new bankers over the past two years as we continue to deepen and expand local coverage and commercial and business banking.

Returning to Q4 year-over-year comparisons, revenue growth of 10% was driven by improved NII, reflecting solid loan and deposit growth compounded by rising short-term interest rates. We also grew IB fees 16% year over year. Growth was led by advisory fees but debt and equity fees were also up year over year. The efficiency ratio improved 200 basis points to 42%.

Provision expense of $132 million increased from Q4 '16 as a result of the commercial charge-off mentioned earlier. Half of the loss was recorded in global banking and half in global markets. Provision expense also included some release of reserves on our energy portfolio, which continued to improve. Growth of loans in global banking remained fairly consistent, with past several quarters increasing 4% year over year.

the outlook for loan growth given tax reform remains to be seen, but optimism among our clients is high. However, we also expect some of our clients to use repatriated funds and tax savings to pay down borrowings and other obligations. Looking at trends on Slide 16 and comparing to Q4 last year, with respect to average loans, growth of 4% was led by corporate borrowers evenly balanced between domestic and international clients. Within commercial lending, C&I rose 5% while commercial real estate was flat.

In global banking, loans growth was down 1 basis point compared to Q3 '17, continuing the trend we've seen all year which modestly compressed spreads year over year by mid-single digits. Average deposits rose $14 billion, or 5%, compared to Q4 2016 with most of the increase concentrated in the second half of the year, reflecting increases in rates paid in Q3 and Q4. As interest rates rise, the value of these deposits and the relationships they represent is best seen in global transaction revenue, which is up 10% year over year to nearly $2 billion. Total investment banking fees $1.4 billion finished the year strong growing 16% versus Q4 '16.

Advisory fees hit a new record. For full-year 2017, we remained ranked No. 3 in overall investment banking fees with fees totaling $6 billion, up 15% from 2016.OK, switching to global markets on Slide 17. I'll review results excluding DVA.

Global markets generated revenue of $3.5 billion and earned half a billion dollars. Year-over-year earnings were down by $238 million, driven by lower sales and trading results, higher technology investment spending, and provision. Revenue is down 2% year over year as a decline in sales and trading revenue was partially offset by a gain on the sale of a non-core asset recorded in other income. Sales and trading revenue held up better from the middle of the quarter-end through the end of the year than it did in the prior year.

Trading of $2.7 billion declined 9% from Q4 '16. FICC sales and trading of $1.7 billion decreased 13% [Inaudible] the decrease was driven by less favorable market conditions across macro products [Inaudible]. Equity sales and trading, at just shy of $1 billion, was stable year over year as growth in client financing activity offset declines in cash and derivatives-trading given lower levels of volatility and client activity. With respect to expenses, Q4 '17 was 5% higher than Q4 '16 as lower revenue-related incentive costs were more than offset by continued investments in technology.

Moving to trends on Slide 18 and looking at trends across the last three years, we would highlight the following. First, starting in the lower left box, full years of trading revenue has been fairly consistent over the last three years at $13 billion to $13.6 billion and note that we have achieved this stability while reducing our [Inaudible] RWA. Now, [Inaudible] over the last three years and that change was reflected in client activity and volatility that varied greatly from both a product and regional perspective over the last three years. Still, we were able to produce relatively consistent revenue on reduced risk over this time period.

We believe this consistency shows that clients value the diversity and comprehensiveness of our global markets capabilities, including sales and trading as well as research in every major market across the globe. On Slide 19 we show all other, which reported a loss of $2.7 billion. A few things to note this quarter: The $2.9 billion impact from the tax act was recorded here. So, excluding that charge, all other would have produced a profit of a little over $200 million.

Unrelated to the tax act, all other results also include [Inaudible]. Revenues compared to Q4 '16 [Inaudible] were down a little more than $130 million year over year. Remember when comparing year over year, Q4 '16 included expenses and charge-offs for the UK Card portfolio sold in 2017. The tax rate this quarter was impacted by the negative impacts of the tax act as well as the benefit of the unrelated subsidiary restructuring.

With respect to tax rate in 2018, prior to tax reform, we expected our GAAP tax rate for 2018 to be around 29% before unusual items. Now we expect the GAAP tax rate to be approximately 20% absent unusual items. And remember when thinking about the tax rate on an FTE basis, the difference between GAAP and FTE has now narrowed from 2 basis points to 1 basis point. This reflects a preliminary analysis of the non-deductibility of FDIC premiums, the global mix of our profits, and other tax reform provisions.OK, let me turn it back to Brian for a couple of closing comments before we open it up for Q&A.

Brian Moynihan -- Chairman and Chief Executive Officer

Thanks, Paul. As we wrap up, we thought it would be useful to hit a couple of questions from the top that Paul and I've been fielding as tax reform becomes more of a reality. The first question we get often is, how do our clients and how do we feel about the tax reform and the client activity. It's clear from what our clients tell us that tax reform will be a positive for our clients and customers in the United States.

There are two key elements from the standpoint of corporate America tax reform: first, the lower competitive tax rate, and second, a territorial system, and both of these were accomplished in the tax reform. This coupled with the continued regulatory-reform agenda to balance regulation, are well-received by businesses, and this increased confidence will ultimately make it, and undoubtedly make it into the business plan. As one of the largest banks in the United States, we will benefit with that as our customers grow and invest. That being said, those customers just as we at Bank of America will look and our peers in our industry are carefully evaluating alternatives to reinvest some portion of those savings to drive further business activity to help grow our company and achieve even more competitiveness.

The second question I gets is, does our focus change and will we run the company differently given a lower tax rate and the [Inaudible] is no. We're going to remain focused on driving responsible growth, continually trying to connect better with our customers, striving to make it easier for those customers do business with us, and for our employees do business inside the company. We'll continue to drive operational excellence, lowering operational expenses as we've done for many quarters in a row, and improving our competitiveness as we develop and invest in new products and services. We will also continue to drive our share-return model and we expect the largest portion of benefits in tax reform to be delivered to you, our shareholders.

In the end, whether through increased investments, capital distributions, or supporting our clients, all this will benefit the economy and shareholders and drive our activities consistent with responsible growth. The third question is, do we think that the impact of tax reform will affect loan growth. Near term it'll be tougher to judge as people repatriate money or receive more after-tax cash flow. The question is, will they pay it on loans, and perhaps they will.

However, over the medium to long term, having more after-tax cash flow can't but be good for business and we will benefit by greater loan growth as those businesses invest those proceeds. We believe the real test for our loan growth will be more the general economy and how it's growing and less about the tax rate.Another question we often get is, does the tax reform change our commitment to a $53 billion goal for 2018. I started out by pointing out that if you look at our expenses in the fourth quarter, we effective reached a run-rate expense in the $53 billion range. We reported for $13.3 billion in the quarter, if you back out the $200 million in additional bonuses and the accelerated charitable contribution, that leaves us just about $13.1 billion.

You multiply that times four and that's $52.25 or so billion. If you add $400 million in the FICA-related tax to come in the first quarter and throw in on top of that a couple of hundred million dollars of potential incentives due to the fourth quarter being a lower trading quarter, you get to around a $53 billion run rate. So, effectively we've reached our goal. In the second quarter of 2016 when we first announced this goal, I want to remind you that the expenses that we were trailing at that time were $56 billion.

It was in our business plan to hit $53 billion in 2018 and it still is. But as we look forward, we have no doubt, as I said earlier, that businesses including our company will have to look at taking advantages of some of the tax savings to invest to improve their business [Inaudible] faster than they would have done before the tax-reform act. So we continue to evaluate options for longer-term value creation along the dimensions of investments we've been making in branches, in technology and people. We'll continue to assess as we move through the year, however, to be clear we'd expect most of the benefits from tax reform'll flow to the bottom line through dividends and share buybacks over time.

In addition, the investments we make will drive operational excellence and efficiency that will continue to play to our benefit over time.The next question I get is around capital return expectations: Will they change given the tax reform. The simple answer to that question is yes. In 2017 we reported net income available to common shareholders as $16.6 billion and returned $16.8 billion back through share repurchase and dividends. We don't need to make any acquisitions in the company, in fact in the United States, deposit acquisition's not legal.

So all growth will have to be organic and will continue to be so. We believe we have sufficient capital to absorb our risks as we grow and in fact we have excess capital. We have the capital to also support our customers' demand for financing and we always want to use that capital first to help customers grow. So, yes, we will expect to return more capital to shareholders given the tax act.That brings us to the last question I often hear from investors: How are you performing against your return targets and do they need to increase with the tax savings implied in tax reform act going forward that Paul spoke about? This year, excluding the impact of the tax act, our return on tangible common equity was 11% and return on assets of 93 basis points.

They're just shy of the 12% and 1% targets that we laid out a few years ago. Going forward, the benefits from tax reform will easily mathematically accelerate those and we'll reach those targets. The potential lift in returns can be seen by just adding the benefits of the lower tax rate. Assuming 100% of the benefits go to the bottom line, this would equate to something north of 150 basis points of increased return on tangible common equity and more than 10 basis points of increased return on average assets.

But keep in mind, we've always been clear that the long-term targets were just a step to keep marking our continued path to driving this company's operating performance. CSR targets will be obtained but that doesn't lower our desire to drive responsible growth to continue to improve the company and continue to improve the returns and return the capital to you and we will continue to do that.So, wrapping up, we will stay focused on responsible growth in 2018. That's what got us here and what will get us here going forward. We will control the things we can do and drive operating leverage through the company.

And with that, let me open up for Q&A.

Questions and Answers:

Operator

At this time, ladies and gentlemen, if you would like to ask a question, please press *, then 1 on your touchtone phone. You may withdraw your question at any time by pressing the # key. Once again, it's *, then 1 to ask a question. And we can take our first question from Betsy Graseck with Morgan Stanley.

Your line is now open.

Betsy Graseck  -- Morgan Stanley -- Analyst

Good morning. Brian, I just wanted to follow up on one of the comments you made around the expenses. As you indicated in the prepared remarks, the expense improvement has been fantastic, in particular in the consumer business where operating leverage has been very strong over the last two years. I wanted to understand from your prepared remarks, you were saying that $53 billion, you've already met it and you'll retain it for the full year or may change your outlook based on how the customer demand evolves with the tax plan and within that, just wondering if you're expecting that you'll be able to generate more operating leverage, in particular in the consumer space given the groundwork you've laid in digital payments and the branch network.

Good morning. Brian, I just wanted to follow up on one of the comments you made around the expenses. As you indicated in the prepared remarks, the expense improvement has been fantastic, in particular in the consumer business where operating leverage has been very strong over the last two years. I wanted to understand from your prepared remarks, you were saying that $53 billion, you've already met it and you'll retain it for the full year or may change your outlook based on how the customer demand evolves with the tax plan and within that, just wondering if you're expecting that you'll be able to generate more operating leverage, in particular in the consumer space given the groundwork you've laid in digital payments and the branch network.

Brian Moynihan -- Chairman and Chief Executive Officer

Sure. I think what we're saying is that, just start from the base principle, the vast majority of any increased after-tax cash flow would go to the shareholders. The question that we have to look at, Betsy, as you referenced is, is there an amount of investment that we have to make to accelerate some of the things we're doing, especially around consumer business but across all the business, accelerate -- the branch buildout in some of the cities has proved to be very successful. [Inaudible] we would do over five years, do you wanna speed it up a little bit? Or do we invest a little bit more in technology, especially to make the next major move in the markets businesses, which Tom and the team are driving at, to get, even with stable revenues, to start to drive the profit back up again, or in the treasury services business? So, the debate is, is there some amount you'd invest to help accelerate growth but it would be along the dimensions that we've been doing, and it would just improve our ability to get them done and speed it up.

It would be modest, I think, is the best way to say it.

Betsy Graseck -- Morgan Stanley -- Analyst

OK and then on the consumer business, the operating leverage has obviously been extraordinary in the last two years. Is there more to come this year?

Brian Moynihan -- Chairman and Chief Executive Officer

Yea. We want to focus all of you across all the business operating leverage and they've shown good progress, the company as a whole, and each of the businesses. In consumer [Inaudible] continue to get operating leverage. They've done a great job.

You see the branches are down 100 and some year over year. The digital transactions continue to go up, but there's a lot of room to go still, even though we think we've made great progress in digital, and we have, only 22% of the deposits are made digitally and about 30% are made over the counter at the branches. So as we continue to get customers to adopt these new and exciting technologies, we'll see more operating leverage but the team's done a great job there and I think they'll continue to improve it. Likewise, you're going to see some of the transformation we're doing in the wealth-management business continue to grow and Terry and Andy and Katy and the team are doing a great job.

That business has grown but we need to start to drive some of the digitization techniques that we used in other business, including commercial business, into that business which you'll see, and that will help the operating leverage there. And in the commercial business, it's very efficient. So, it's very hard-fought to get much expense but even then they still have done a good job of taking the expense leverage through the changes and the underwriting ways we do business, how we underwrite -- centrally versus de-centrally and things like that. so, it'll be across the board and we expect more out of consumer.

Betsy Graseck -- Morgan Stanley -- Analyst

OK, thanks, and then just last question on the dividend-payout ratio. I realize that earning's up with a lower tax rate. Do you expect you'll keep that dividend-payout ratio flat or how are you thinking about the dividend and overall capital return?

Brian Moynihan -- Chairman and Chief Executive Officer

We basically said we're moving toward a 30% payout ratio of earnings and I think that would mathematically follow what you just laid out, the fact that if tax earnings go up, it'd be higher number. We're not quite there yet but we're pushing toward that direction.

Betsy Graseck -- Morgan Stanley -- Analyst

OK, thanks a lot, Brian.

Operator

And we can take our next question from John McDonald with Bernstein. Your line is now open.

John McDonald -- Bernstein -- Analyst

Hi, good morning. Brian, thanks for the comments on expenses and how you're thinking about some of the tax impacts and maybe accelerating investments. I guess, kind of just coming back to that, if we think about, you got through this $53 billion, you're kind of there now, is this a level where you feel like you could run the company and kind of have some kind of maybe just core inflation associated with the economy? Are you still reinvesting cost-saves but you're still taking out cost some places and reinvesting in other? If you think about 2019, you're beyond this $53 billion kind of where you want to be or should we think about an efficiency and ratio set of goals for the next year? Is that a better way to think about it?

Brian Moynihan -- Chairman and Chief Executive Officer

I think, as we said before, the key is to drive operating leverage as Betsy referenced, John, and continue to drive that across the businesses. A couple things. We've been clear that we decide the discussion about the invests on the proceeds of taxes but basically, the $53 billion was a rate that we could kind of sustain around, i.e. continuing to invest in operational improvement over time and keeping a relatively flat.

And you are dealing with inflation and things like that that creep up on you. And so, we had a pretty good dynamic going and the sole question is do you want to invest a bit to speed up and that would just increase that number by a bit and then play over the next couple of years but the basic principle's to run a company relatively flat through continued investment and cost-effectiveness is still -- we've still got a lot of room ahead of us. I always come back, John, and you've followed our company closely, we will continue to have the same rigor around the way we run the company. Just because the tax rate is lower doesn't change how we're going to do it.

So, we're going to keep driving that analysis that says how much can we invest in building this operational excellence campaign we're on. We just see tremendous opportunity to keep applying digitization to paper and the work and the company and continue to drive that. So some of these investments will be branches or people or salespeople, and have been, and the businesses, but on the other hand we're investing tremendously in effectiveness in the company and we'll continue to do that.

John McDonald -- Bernstein -- Analyst

OK. And then just for Paul on the overdraft policy, understanding the long-term franchise value of the new policy, trying to think about the near-term financial impact. Is there any kind of pull-through or continuation of drag on deposit fees that might come from the new overdraft policy or is that impact maybe fully in the fourth quarter numbers yet?

Paul Donofrio -- Chief Financial Officer

I would say that you're going to see that next year, if I were modeling it, you want a probably low single-digit impact.

Brian Moynihan -- Chairman and Chief Executive Officer 

It came in partway through the fourth quarter. So a good chunk of it's in there, John, so it'd be a modest impact beyond that.

John McDonald -- Bernstein -- Analyst

OK, thank you.

Operator

We can take our next question from Steven Chubak with Nomura Instinet. Your line is now open.

Steven Chubak -- Nomura Instinet -- Analyst

Hi, good morning. So, I wanted to start with a question on credit outlook. Delinquency trends remain quite favorable. Brian, you noted that NPL declined both consumer and commercial.

I'm just wondering how we should be thinking about the provision outlook in the coming quarters. Is it still reasonable for us to expect that to traject in line with charge-offs to maybe some upward growth as the loan portfolio continues to season, so maybe somewhere in the range of like $900 million to a billion? Is that a reasonable expectation

Brian Moynihan -- Chairman and Chief Executive Officer

We expect credit to continue to perform the way it performed in the first three quarters of 2017, which we would characterize as solid if not excellent. We would expect provision to roughly match net charge-offs, with reserve releases moderating over time as we continue to build allowance and support of loan growth. Those releases are being driven by non-core consumer real estate and energy.

Steven Chubak -- Nomura Instinet -- Analyst

OK and just one clarifying question for me on the expense side. I know that Betsy and John had already touched on this a little bit but I just wanted to clarify the guidance that you guys had actually given on the last earnings call. Brian, it was in the Q&A where you alluded to the fact that you expect expenses to be flattish in 2019. I know you're very focused on digitization and automation.

I just want to confirm whether that's still a reasonable expectation. Just because it looks like most people are contemplating some expense ramp from 2018 to 2019.

Brian Moynihan -- Chairman and Chief Executive Officer

We'd expect that all things being equal, they would be flattish and that's what we've told you. The question is, we took a little bit of money and accelerate investments and kind of run through a couple of years and probably drop back off but it's be very modest and in the greater context. A lot of those investments get capitalized, the near-term P&L impact's different, but basically from a conceptual framework, we think we can run the company and that, below $53 billion on a consistent basis for the next couple of years with a caveat that we may look to invest part of the tax savings on top of that and well be very clear if we do that.

Steven Chubak -- Nomura Instinet -- Analyst

And one final one for me just regarding the remarks on the wealth-management side. Brian, you talked about efforts to invest in technology to drive improved profitability. In the past, you had alluded to a 30% margin target. I didn't know if that was still a reasonable expectation that you guys could get to.

Brian Moynihan -- Chairman and Chief Executive Officer

Yea, I think we're at 27 this quarter, 26-27, 26, we've been bouncing around there. It's the target to get to. I think mechanically there's some things that help us over the next couple of years in terms some stuff running off that pushes this up. So we continue to do that.

What we're talking about is a more fundamental reset on a couple of things. Obviously, in the lower affluent businesses we're driving Merrill Edge and things as a more efficient platform by definition and secondly, there is a lot of paper in this business and a lot of work, even the advisors themselves, there's a lot of automation of work they do that will make it easier for them so they can become more efficient and handle more clients [Inaudible]. But if you think about the core pre-tax margin, it'll move up and we still believe we can get it up around 30 and the deposit side helps that as the arbitrage from rates goes through that business.

Steven Chubak -- Nomura Instinet -- Analyst

Excellent. Thanks for taking my questions.

Operator

And our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Glenn Schorr -- Evercore ISI -- Analyst

Hi, thank you. Hopefully, this is simple and I know you can't talk for the regulators but all else equal, have you thought through how the tax act might impact the CCAR process, meaning I see just a lot higher PP&R and it shouldn't impact anything else in a vacuum but just curious if I'm missing something there.

Brian Moynihan -- Chairman and Chief Executive Officer

I don't think you're missing anything. I think all companies, all banks are going to keep more of what they earn. That's going to increase our profits. So, we're going to be in a better position to return more capital to shareholders in the form of dividends and buybacks.

Glenn Schorr -- Evercore ISI -- Analyst

And then just switching over to wealth management, a couple of little questions. No. 1, where's all the growth coming from, meaning you noted the strong flows. Curious what's current versus new clients.

And you also noted advisors are up 3%. Is that training or is that recruiting? Just curious.

Paul Donofrio -- Chief Financial Officer

Look, the FA reflects really our continued investment in the training program. Some experienced hires offset by sort of the normal kind of attrition which has been very low particularly in competitive losses.

Brian Moynihan -- Chairman and Chief Executive Officer

Paul, just remember, just to be clear, we have changed our recruiting. We announced that six months ago where we had been recruiting in sort of the traditional way. So, most of the growth is coming through our advisor-training platform, which we consolidated between the people who work in a branch and the people who work in the Merrill office. They're brought under one big training program, again, for effectiveness and we think there's great prospects for that.

It will take a few years for that to play out, obviously.

Paul Donofrio -- Chief Financial Officer

So as you think about the numbers, it's just AUM growth, which is being driven by market levels, being driven by increased flows. It's being driven by some new households and we're very focused on that. That's offset by a little bit of spread compression and decline in transactional revenues that we've been seeing now for a couple of years.

Glenn Schorr -- Evercore ISI -- Analyst

OK, last follow up, if I could. Your decision to stay in protocol is a little different than a handful of the large peers. Just curious, your thought process and experience so far.

Brian Moynihan -- Chairman and Chief Executive Officer

The experience so far has been relatively modest in terms of anything. People have been changing their opinions, but we continue to monitor the market, we figure out what we want to do but we haven't changed our position yet.

Glenn Schorr -- Evercore ISI -- Analyst

OK, thank you.

Operator

And we will take our next question from Matt O'Connor with Deutsche Bank. Your line is now open.

Matt O'Connor -- Deutsche Bank -- Analyst

Good morning. I was hoping to follow up on the outlook for net-interest income for the full year. You mentioned some of the drags from the card business. I guess in the grand scheme of things, it doesn't seem like a $500 million drag from card is really that material.

Obviously, you had good [Inaudible] growth year over year. So, just trying to get a little better sense of maybe the magnitude of [Inaudible] that you're looking for. And then if you want to give us the bond premium amortization, how much benefit that was this year versus last, that might be helpful.

Brian Moynihan -- Chairman and Chief Executive Officer

Look, we expect solid NII growth in 2018 from continued sort of NIM expansion as well as loan and deposit growth. I think the size of the increase is going to depend upon the amount of loan growth and [Inaudible] rate increasing along the forward curve, and obviously our ability to manage deposit rate paid. With respect the bond premiums, what I would point out was that in 2017 we got a benefit of approximately $700 million from lower bond amortization driven by slower prepayments as long-end rates moved up at the end of 2016. So, you really can't expect that to repeat itself this year given that that curve is not linear, it's convex, and we've already had a big increase in rates.

So, we're not going to get the same decline in the future of prepayment speeds. You noted and I would also note that 2017 included half of UK Card and then you've gotta factor in FTE but all that said, we feel good about 2018 NII growth. We think it's gonna be solid. It's going to be back to basics growing loans, growing deposits, managing deposit rate paid well.

Matt O'Connor -- Deutsche Bank -- Analyst

Ok, it's helpful. And then just separately on the retail deposit side, you mentioned essentially no repricing there and it's consistent, I think, with what we're seeing for most of your big peers but just wondering what your thoughts are in terms of when there does start being a little bit of upward pressure, there, and being the biggest deposit player, you might be one of the kind of setters in the price there as we think about rates going forward.

Paul Donofrio -- Chief Financial Officer

I'm not sure how helpful I'm going to be to you. I would just make a couple of points that we've made many times. The industry really hasn't seen on the retail side deposit rates increase sort of much or at all on traditional counts and I think it's important just to remind everybody that Bank of America delivers a lot of value to depositors. You've got transparency, convenience, safety, mobile banking, nationwide network, advice and counsel.

I think all of this plus a lack of market pressure so far has kept deposit rates relatively low. You've seen rates rising in [Inaudible] and global banking. Look, at some point rates are going to rise and my guess is we're getting close to that point, given the expected Fed fund rate hikes here in 2018. We just don't know though.

What all I can tell you is that we're going to balance our customer needs and we're going to balance the competitive marketplace with our shareholders' interest and we're going to do the right thing for all the parties.

Brian Moynihan -- Chairman and Chief Executive Officer

I'll just add a couple of things. One, the pricing strategy in consumer's largely driven on depth of relationship. So, as we look at pricing tiers and how we do it and set by market, set by product, set by customer type and relationship, the rewards programs that reward deposit balance along with lower rates on loans and other types of things, it's an integrated business and a lot of people focus on the one aspect of it and try to isolate it but it's actually a very integrated business. But to give you a couple other things, what holds us down is, as you look at deposits year over year and consumer up $47 billion, the checking, which is always going to be very low, it was up $30 billion of the $47 billion, or $29 billion of the $37 billion and CDs are down $4 billion again.

So, even we've run off CDs. So, that dynamic is always going to lead to an all-in deposit price for basis points that looks lower, but it's the quality of the checking, franchise and core franchise we have. I think we had the average checking balance in consumer reach $7,000 this quarter. They're all prime core-transaction accounts for the household, which means the paycheck's coming in and that's what's driving the overall structure of the business and will continue to do so.

Matt O'Connor -- Deutsche Bank -- Analyst

OK, thank you very much.

Operator

And we will take our next question from Mike Mayo with Wells Fargo. Your line is now open.

Mike Mayo -- Wells Fargo -- Analyst

Hi. What is your total technology spending, say, for 2017? How did that compare to 2016? Where do you expect that to be for 2018?

Paul Donofrio -- Chief Financial Officer

Well, to be comparable, you have to understand what the components are but the component most people focus on is what we call technology initiatives or coded programming. That's about $2.7 billion and relatively flat.

Mike Mayo -- Wells Fargo -- Analyst

Relatively flat for 2016 and 2017. What about for 2018?

Paul Donofrio -- Chief Financial Officer

Relatively flat for 2017 and 2018. We are getting, even the way the program, a little bit of efficiency, the nominal number for 2017 [Inaudible] higher than that and the number for '18 will be lower than that but it's largely getting the same amount of work done for a little less efficiency, a little less cost per dollar per programming unit, for lack of a better term. So, that's been fairly constant across time and we continue to evaluate that level of spending at all times.

Mike Mayo -- Wells Fargo -- Analyst

So, going back to Slide 12 for the consumer banking digital trends, are you spending more money in those areas as you get more traction? I mean, you see 23% of mobile deposit transactions that are digital. I mean, where do you want to take that 23% number and do you need to spend more to get there?

Paul Donofrio -- Chief Financial Officer

Well, I think when you talk about technology, yea, the consumer bankers benefit by a lot of technology spending across a lot of dimensions including the way we distribute the environment to the branches, use of tablet type technology in our branches to interface with customers, better call center technology. It is a tremendous investment in the consumer. On the digital side, specifically we will travel with the customer and we're getting the customers to understand the value of instead of going to ATM to deposit a check, do it with their phone, or instead of going to a branch to deposit, do it with their phone but we can't get ahead of them. We have to walk with them and help them do it and help them grow and that 23% number from three or four years ago as you see on the page, Mike, that 12%, it's a meaningful amount.

It's about 1,000 branches of activity go through the phone. So, we'll continue to drive that but I think, yes, we've invested but it's not necessarily what we've invested this year, it's the $1 billion we've probably invested in mobile technology over the last five, six years to get us here that now we're taking advantage of. And then, as you know, [Inaudible] comes out, the Merrill Edge capabilities continue to improve to help in the [Inaudible] America. So, there's a lot of stuff behind it.

So, think about the spending of $2.5 billion to $3 billion in technology, think of us having done that for a long time and think of some of those benefits now coming through. So, it's not like we have to accelerate spending to get the mobile behavior. It's actually a change in customer behavior, which is less about the technology. It's more about getting the customer to move their behavior.

Mike Mayo -- Wells Fargo -- Analyst

You guys have said take a look at all these trends collectively on Slide 12 but don't look at one in isolation. So, what sort of metric should we monitor externally to gauge your progress? Would it be, for example, the consumer banking efficiency ratio or is there one all-encompassing number or how would you suggest that we think about this?

Paul Donofrio -- Chief Financial Officer

Well, I think the efficiency ratio, when the team tells me that they have it down to 50 and they're gonna get below 50, and they take great solace in that, I tell them "Don't take great solace in that because we don't know how low it could go" but the one I think I'd argue is that we've always looked at is if you look on Page 10, Mike, the average cost of deposits. If you take the entirety of running this system as a percent of deposit which you can benchmark equal relatively clearly in the industry, you'll see that we run about 160 basis points -- that's the phones, the mobile, the technology, people, and all that stuff against the deposit base. That has come down over the last seven, eight years from 300 basis points to 161 basis points. That is a simple way for people to think of the impact of all this transformation activity in your effectiveness and efficiency in the business.

Also, you wouldn't want to do this if your customer scores are suffering during that timeframe. The customer scores have risen, as Paul said earlier, to record heights. You can't get ahead of the customer and you can't push the customer do something that they don't want to do. Hence the challenge is to keep that cost efficiency at 161 basis points to be the benchmark while improving customer experience.

Brian Moynihan -- Chairman and Chief Executive Officer

And, Mike, [Inaudible] you got to focus on operating leverage. That's a key thing that we're looking at all the time and holding people accountable to in addition to efficiency and then all the other individual metrics across mobile adoption and digital sales.

Mike Mayo -- Wells Fargo -- Analyst

Last follow-up just on that last point, Brian. A lot of investors have voiced concern that the internet digital banking will be the demise of the deposit, that deposits will flee more quickly. What's your short answer to that concern?

Brian Moynihan -- Chairman and Chief Executive Officer

I think year over year the consumer business grew $47 billion over, again, deposit growth. I think that sort of speaks for itself, Mike.

Mike Mayo -- Wells Fargo -- Analyst

All right, thanks.

Operator

And we will take our next question from Ken Usdin with Jefferies. Your line is open.

Ken Usdin -- Jefferies -- Analyst

Thanks, good morning. If I could follow up on the loan side, 6% year over year in core business, pretty decent rate and you're seeing growth across. Just wondering what are your expectations for loan growth as you look out, and in a bigger sense any sense of just movement in commercial and corporate America in terms of starting to think about investing more in their businesses?

Paul Donofrio -- Chief Financial Officer

We feel really good about loan growth. Clearly, tax reform is going to make businesses and individuals have more money in their pocket and we think that's going to stimulate economic activity. We think the tax reform has made America stronger, there's been more investment there because we've leveled the playing field. So, medium, long term, even short term I think we're very optimistic about loan growth with a slight caveat that people are repatriating some funds.

So, we're going to see what effect there is in the short term really on large corporate international kind of borrowers. At a more detailed level, we feel like we've been growing well in mortgage and we're going to [Inaudible] that's going to be offset by home equity run-off, card's been growing well in the fourth quarter. I would note that seasonally card balance is usually done in the first quarter. Auto has been growing strongly historically.

That's going to soften or has softened. Again, I would remind everybody that we are focused on prime and super-prime and we didn't follow the market out to extended the durations but we're still holding our own there and expect slight modest growth next year. And on the commercial side, we've been growing loans at mid-single digits and, again, subject to what happens with repatriated funds here in the short term, I don't see any reason to change our expectations around loan growth.

Ken Usdin -- Jefferies -- Analyst

Paul, is there any change in the rate of run-off in the all-other bucket from that $71 billion bucket? How fast are you expecting that to still run off?

Paul Donofrio -- Chief Financial Officer

The way I'd characterize it going forward is it's going to run off sort of four to five to six per quarter, call it five.

Ken Usdin -- Jefferies -- Analyst

OK, one quick one. Mortgage is a small line but it had a big swing, $300 million to a negative, especially that other line. Can you just talk us through what the couple hundred million-dollar negative was in the other part of mortgage and if that's recurring or just a one-time thing?

Paul Donofrio -- Chief Financial Officer

Yea, sure. You're talking about the MBI one, right?

Ken Usdin -- Jefferies -- Analyst

Yes.

Paul Donofrio -- Chief Financial Officer

So, we had [Inaudible] warranty provision of approximately $200 million to resolve some claims. If you exclude that and you look quarter over quarter, the decline in mortgage banking income reflected lower production volume in a small mortgage market as well as lower servicing income. As the size of that portfolio continues to decline, keep in mind that mortgage banking income line is just simply becoming less relevant since we are now retaining 90% of our originations on the balance sheet. And coming back to the [Inaudible] warranty of $200 million to resolve a claim, if you take a look at the litigation line this quarter, it was a little bit lower than normal.

So, we're resolving claims. Sometimes they show up on litigation. Sometimes they show up on [Inaudible] warranty but there's a little bit of geography there.

Ken Usdin -- Jefferies -- Analyst

Got it. All right, thanks a lot, Paul.

Operator

And we will take our next question from Saul Martinez with UBS. Your line is open.

Saul Martinez -- UBS -- Analyst

Hi, thank you. Saul Martinez. A couple of questions. I just wanted to go back, Brian, to the comments on your ROTCE and your ROA targets obviously with the bump from tax reform, you hit and you exceed the 12% and the 1% target that you previously laid out but as you go forward, you benefit from the lower tax rate, you sort of right-size your efficiency, get to the $53 billion and drive positive operating leverage from there, rates normalize.

Not to put words in your mouth but it seems like it's pretty easy to get to sort of to the mid- to high-teen ROTCE and ROAs well in excess of 1 but do you have a view on where you think your ROTCE can get to over the next couple of years and where ROAs can get to over the next couple of years if things progress as you think they might?

Brian Moynihan -- Chairman and Chief Executive Officer

I think that you in your question sort of state it for yourself, which is yes, there will be a mathematical bump that will make it, quote, easy to get there. That's at 12% and you're running right around that now but what we were trying to say earlier is we don't look at 12% as being "Gee, we made it. Now let's stop." The answer is we'll drive that number as high as we can, driving responsible growth, and as we start to get rid of more of equity, then we earn because we have access to equity that'll help. We can continue to improve the earnings that'll help us drive operating leverage and all the things you cited will help.

So, we're going to do it on a sustainable basis. So, the point was when we talked about those targets, we were probably running around 8% or something like that. And so, we said we had to pass over a couple of years to get as close to 12% and 1% ROA at the time and we've made it there and it'd be easier by tax reform but that doesn't mean we're stopping. We will just drive this company the same way and it'll come out be higher now and we'll see those levels and expect to continue to exceed.

Saul Martinez -- UBS -- Analyst

OK, fair enough. I guess just to follow up and it's, I guess, maybe a little bit more of a philosophical question. So, Larry [Inaudible], as you know, sent a letter indicating that management should look not only at maximizing profitability and returns for shareholders but at the social impact of their actions, and I think for good reasons you guys take pride in being a good corporate citizen but I'm curious if you have any thoughts on that and whether you think there is a trade-off between maximizing profitability and doing good for society and other stakeholders? And with the tax windfall, do you feel like maybe there will be greater pressure to invest in things or to provide products or take actions that you may not have taken if tax reform hadn't happened?

Paul Donofrio -- Chief Financial Officer

I don't think it'll change the way we run the company. We've been running it on a responsible growth with the four elements: that it grow, no excuses; that it do it on a customer-focused organic basis; gotta do with the right risk; and gotta be sustainable, along the best place for people to work, share our success with our communities and drive the operational excellence. That format won't change. So, what Larry wrote about and what we've been working on for years, the idea of ESG and those types of things as part of our sustainable, part of our sharing success with communities.

This is not new for banking. I mean, it goes back to -- Our banks, all those legacy banks that came together, all were formed to help communities grow. So, we had a long history in investing because we're if already successful, the economies in the communities, we do business in are successful. So, I don't think it's a major change in our industry, frankly, $200 million charitable giving, 2 million volunteer hours, billions of dollars of low and moderate housing [Inaudible] earnings, $1 billion plus out to the CDFIs.

We can rattle off all the stuff, $100 million [Inaudible] commitment we're halfway through. These are things we were doing long before tax reform came and we'll do when tax reform goes away some day or something else changes. These are things that make this company great and, as you said, it's a philosophical viewpoint but also the public role of banking is just a little bit different.

Saul Martinez -- UBS -- Analyst

OK, great. Thanks a lot. I appreciate the answers.

Operator

And we can take our next question from Marty Mosby with Vining Sparks. Your line is now open.

Marty Mosby -- Vining Sparks -- Analyst

Thank you. Wanted to drill into the expenses just a little bit to get some clarity. It seems like there was two, kind of, not unusual but kind of standout -- $200 million worth of compensation that would have been in the first quarter now's accelerated into the fourth quarter. And then, Brian, you were talking to $200 million of the charitable foundation and the extra bonus payments.

Just want to make sure those were two separate items and that those numbers were correct.

Brian Moynihan -- Chairman and Chief Executive Officer

Marty, I think we've got a little confused. So, in the fourth quarter in the $13.3 billion of expenses, there's about $145 million, $150 million of a one-time $1,000 bonus to people under $150,000 in our company plus we accelerated $50 million of charitable donations in the fourth quarter '17. That's the $200 million. That's what we're talking about.

So, the $13.3 becomes $13.1 if you back up those two items and then do the math, multiply it times four. The acceleration, I assume what you're talking about there is change to FAS123 which is that, a simple way to think of it, if we used to take a billion in the first quarter, now we take 250 per quarter, it moves around a little bit that's a phenomenon we announced earlier this quarter, last quarter we're going to take. So, that number is in that $13.3 also, the 250 for that. It's not acceleration.

It used to be done all at once in one quarter. Now, we spread it across four quarters.

Paul Donofrio -- Chief Financial Officer

We made that change in the fourth quarter. So, you're seeing it in the fourth-quarter numbers.

Brian Moynihan -- Chairman and Chief Executive Officer

And the earlier number's been restated, so the relative difference year over year is the same. Does that help, Marty? Make sure I got your question --

Marty Mosby -- Vining Sparks -- Analyst

[Inaudible] make sure those were two separate items and that reconciles where I was getting. And then, if you look at the securities portfolio, you had two things kind of popped up. One, you took just a very modest or slight loss in security sales. Also your ALCI, you had that OCI adjustment, those rates went higher that you mentioned earlier.

Will you be actively restructuring because it does kind of drop to capital anyway in taking those losses as you have the opportunity to kind of round up earnings? Just curious how aggressive you wanted to be kind of in that push.

Paul Donofrio -- Chief Financial Officer

The short answer is no, we're not in any way restructuring our securities portfolio. There was a very modest -- nice find, there -- $23 million loss on some securities we sold in the fourth quarter. That was basically just some legacy stuff we got to a nice price, that affects our CCAR results and we wanted to get rid of it, so we think that's a good trade-off.

Brian Moynihan -- Chairman and Chief Executive Officer

It wasn't related, Marty, to the core sort of way we invest the excess deposit proceeds in a given quarter. This is legacy stuff we're just trying to clean out.

Marty Mosby -- Vining Sparks -- Analyst

One of the things we're anticipating is that banks can actually accelerate the benefit as we do get uptick on the back end of the curve by doing some of that aggressive restructuring. So, just was curious if you have been kind of thinking about or kind of looking in that direction.

Brian Moynihan -- Chairman and Chief Executive Officer

We feel look really good where we are in terms of our securities portfolio.

Paul Donofrio -- Chief Financial Officer

And, Marty, always remember the reason why we have the securities portfolio is because we have that deposit franchise growing $40 billion to $50 billion year over year, loans growth at a more modest rate specially due to the run-off. So, you just have to put the money to work and we put it into an investment portfolio to extract that value of that great deposit franchise.

Brian Moynihan -- Chairman and Chief Executive Officer

Yea, remember we're only putting them in treasuries, mortgage-backed securities, or cash. We have a very high-quality securities portfolio.

Paul Donofrio -- Chief Financial Officer

Operator, do we have another question?

Operator

Certainly. We'll move to the next question. It comes from Gerard Cassidy with RBC. Your line is now open.

Gerard Cassidy -- RBC -- Analyst

Thank you. Hi, Brian.

Brian Moynihan -- Chairman and Chief Executive Officer

Morning, Gerard. How are you?

Gerard Cassidy -- RBC -- Analyst

Good, thank you. Your fourth-quarter results were good and the outlook looks quite good for you folks as well as your peers. Can you share with us what risks you're kind of looking out for on the horizon? Obviously, again, things are looking very good for you folks and we always have to watch out from left field for some type of risk. Anything that you can identify that you guys are just keeping an eye on?

Brian Moynihan -- Chairman and Chief Executive Officer

Yea, I think, Gerard, obviously we're afraid of horribles that you can go through whether it's geopolitical risk, whether it's markets, changing risk, whether it's credit risk because unemployment levels rise. They're all going to come back. This economy's gonna keep moving along, even accelerate or decline and we don't see a lot of risk in that but we do watch those risks. How we avoid them is not what we're doing today.

In fact, it's what we've been doing over years to stay in a high prime quality and consumer business, balancing the consumer business versus commercial exposure, maintain our tough discipline in commercial credit and the situation this quarter obviously is always a wakeup call that some things don't turn out well, and we gotta back, and what are the lessons learned and what we did we do right or wrong in that and how do we avoid that in the future. And the team has spent significant time doing that. We weren't happy with it from the top of the house through to the actual people who were involved in it but even with that, the credit cards year over year were relatively flat and the team's going to adjust. So, when we think about all those risks and [Inaudible], you know the list as well as I do.

The question is how do you balance and how do you keep yourself ahead of those so that you won't be immune from them but they will impact our company. That is what we define as responsible growth, quite frankly.

Gerard Cassidy -- RBC -- Analyst

OK, thank you. And then you guys mentioned that your commercial customers were optimistic about the future. Can you share with us in the investment bank what the pipeline looks like at the end of the fourth quarter coming into '18? And then second, within the investment banking division, I think you mentioned you hired 400 bankers, what sectors are you really doing well and is it healthcare, technology, financial?

Brian Moynihan -- Chairman and Chief Executive Officer

Those bankers are in the commercial banking segment. So, they're middle market and [Inaudible] bank, just to be clear. They are successful but they're across all industries. Paul, why don't you talk about --

Paul Donofrio -- Chief Financial Officer

Sure. The investment banking pipeline, end of the year, lower than Q3, mainly due to the completion of some large transactions in Q4 combined with the postponement or cancellation of some other large transactions. Having said that, again, I think we're very optimistic about 2018 given the tax act which, again, has leveled the playing field here. And we think companies are going to be interested in more M&A transactions and ultimately they're going to be investing and raising capital.

So, down a little bit but that's kind of normal for cleanup at the year-end. Your other question regarding sector, we're No. 3 globally and when you look across all of our entity groups, we are plus or minus around that range pretty consistently. We obviously have a couple of groups that are strong than others but we feel like there are no weak spots in investment banking and all the groups are very strong.

Brian Moynihan -- Chairman and Chief Executive Officer

Gerard, one thing I thought you were going to go to was what do consumers feel. It was interesting that the spending for the full-year '17 whether it's credit cards, debit cards, ACH, wires, payment of bills, cash out of ATMs, over the teller line, checks written, was as 6% growth over '16 and '16 to '15 was a little under 3%. So the consumers are feeling pretty good and spending very strongly out there and it is broader than just the credit and debit card spending. That is up 6% to 7%, as Paul said earlier, but it's the broader use of cash which shows that consumers are putting money out there and spending on things.

So, we feel good about the consumer side and the month of December was faster than the year in terms of the growth rate of 7% versus 6%.

Gerard Cassidy -- RBC -- Analyst

That's a real good insight. And then just lastly, I think you talked about getting the dividend-payout ratio to 30% and I recognized that this is a board of directors' decision. If the regulators give the green light to the [Inaudible] banks that 40% dividend payout ratios are OK, philosophically, how do you think about that if, again, the green light is given by the regulators?

Paul Donofrio -- Chief Financial Officer

I think we'll have to think about that when we get there. I'm not sure for [Inaudible] largest banks are not going to always be a little more circumspect or whatever the right word would be in terms of governing our dividend. They just don't want us to ever have to cut our dividends and as you do, look at it mathematically across time periods. The idea of us [Inaudible] 70% of our earnings, therefore being able to pay for the dividend is a very low probability and that's where they came up with that number and I think we'll see how it plays out.

I don't know what they'll do but our strategy inside the company is to continue to move up the dividend on a rational basis along with the earnings and get it close to that number.

Gerard Cassidy -- RBC -- Analyst

Great, appreciate it. Thank you again.

Operator

And our next question comes from Vivek Juneja with JP Morgan. Your line is open.

Vivek Juneja -- JP Morgan -- Analyst

Hi. I have a couple of questions for you folks. Paul, you've mentioned that NII, you did some puts and takes. Just want to tie them all together.

Net-net, I recognize that they can't issue in Q1, would you expect some growth going from Q4 to Q1 given the December rate hike even adjusting for the [Inaudible]?

Paul Donofrio -- Chief Financial Officer

I think it's too early to give you that sort of guidance. I've given you everything that I want to give you at this point. Again, we got two fewer days, we've got the card loans, which is usually a bit lower. You have to get rid of the FTE, I don't know how you look at it.

And remember that at the end of Q4 there was a run-up in LIBOR in anticipation of the rate increase. So, we got some of that benefit in Q4. It's really just going to depend on loan and deposit growth and what happens on deposit pricing. That's why I'm not really willing to tell you higher or lower because I just don't know how deposit pricing's going to play out over the quarter.

Vivek Juneja -- JP Morgan -- Analyst

OK, thanks on that one. Brian, a question for you. One of your peers set a goal of 2% of net income for corporate philanthropy. Are you thinking of setting anything like that?

Brian Moynihan -- Chairman and Chief Executive Officer

We have what you call [Inaudible] charity. We've kept our levels consistent from before the crisis now about $175 million to $200 million a year as we expect to keep it there. In addition to that, we do tremendous volunteer work 2 million hours a year and other things. We feel comfortable at that level.

I haven't even done the math lately, but I think that's 1% after-tax at this point but our view is that we can have a lot of impact there and it ebbs and flows depending on what's going on at the moment but I don't expect this to change dramatically.

Vivek Juneja -- JP Morgan -- Analyst

OK, thank you.

Operator

And we will take our final question from Brian Kleinhanzl with KBW. Your line is open.

Brian Kleinhanzl -- KBW -- Analyst

Thanks. I know you don't want to give a commentary about deposit betas in the quarter and all that, but what's the ability that you have to remix [Inaudible] up to 125%, so to the extent that you don't want to get as competitive on deposit rates, I mean is there still plenty of opportunity to remix from short-term into loans?

Paul Donofrio -- Chief Financial Officer

On deposits, it's a very sophisticated question of how you price. We price literally by every market, by every product, by different customer sets. So, as Paul mentioned earlier, in the wealth-management business we moved pricing up because people with $10 million in investment assets with us, obviously the cash in their accounts is an investment asset as opposed to in the retail business, it'd be their household daily flow. So, it's a very sophisticated question and you're seeing us work that question across time and you saw us raise rates in the wealth-management business.

Consumer business rates raised, albeit slower. The corporate business responds a little bit more instantaneously, but it's a methodology for paying for services. So, it's a very complex thing. So, it's hard to sort of give you a single answer and when we model, we use a number but frankly, we've done better than that model every single quarter but we have to be conservative on our modeling for NII and other purposes.

Brian Kleinhanzl -- KBW -- Analyst

OK. And then just one follow-up on the expenses in 2019. I mean, is there a big opportunity to do investments? I know you said you would give further details later on as you looked across, maybe pull forward some investments and lower expenses, but it seems like if you were to go on some kind of accelerated investment, maybe there would be a chance to get below that $53 billion in expenses in 2019. I mean, that's a possibility, something you're actively pursuing?

Brian Moynihan -- Chairman and Chief Executive Officer

Our job, what we told you guys, was when we get to $53 billion for '18, be relatively flat, thereon absorbing 6% medical care, cost increases, raises, and things like that, and that comes through ability to continue investment effectiveness and efficiency. So, that's an operating strategy level on the exact number that we're focused on and we continue to focus on that. So, there's no change to that. The question would be, do you want to accelerate some investments given the higher after-tax yield and we will look at it.

As I said, we will look at it across time. You have to be able to get the value of those investments. As one of the callers' questions referenced a little bit earlier, we added 400 commercial bankers. We have to make sure if we added 400 more tomorrow, you might not be able to get them to speed.

So, you have to make sure that coming in and use techniques to divide the portfolio to give them deeper client penetration to get the products per customer up. That takes time. You just can't snap your fingers. So, the ability to accelerate those investments are largely based on what we think we can do that will be modest in the sense that even if a fair increase at the margin is not a big number in the overall scheme of things at the $53 billion expense level.

Any other day our challenge is to drive operating leverage and we continue to do that, we've done 12 quarters in a row and we will continue to do that going forward and that's good for our shareholders.

Brian Kleinhanzl -- KBW -- Analyst

OK, thanks.

Operator

This does conclude the Q&A session. I'll turn it back over to our presenters for any additional comments.

Duration: 93 minutes

Call Participants:

Lee McEntire -- Senior Vice President of Investor Relations

Brian Moynihan -- Chairman and Chief Executive Officer

Paul Donofrio -- Chief Financial Officer

Betsy Graseck -- Morgan Stanley -- Analyst

John McDonald -- Bernstein -- Analyst

Steven Chubak -- Nomura Instinet -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Mike Mayo -- Wells Fargo -- Analyst

Ken Usdin -- Jefferies -- Analyst

Saul Martinez -- UBS -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Gerard Cassidy -- RBC -- Analyst

Vivek Juneja -- JP Morgan -- Analyst

Brian Kleinhanzl -- KBW -- Analyst

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