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Edited Transcript of BAC earnings conference call or presentation 15-Jan-20 1:30pm GMT

Q4 2019 Bank of America Corp Earnings Call

CHARLOTTE Jan 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Bank of America Corp earnings conference call or presentation Wednesday, January 15, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Thomas Moynihan

Bank of America Corporation - Chairman & CEO

* Lee McEntire

Bank of America Corporation - SVP of IR

* Paul M. Donofrio

Bank of America Corporation - CFO

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Conference Call Participants

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* Betsy Lynn Graseck

Morgan Stanley, Research Division - MD

* Gerard S. Cassidy

RBC Capital Markets, Research Division - MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst

* Glenn Paul Schorr

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Research Analyst

* James Francis Mitchell

The Buckingham Research Group Incorporated - Research Analyst

* John Eamon McDonald

Autonomous Research LLP - Senior Analyst Large-cap Banks

* Kenneth Michael Usdin

Jefferies LLC, Research Division - MD and Senior Equity Research Analyst

* Matthew D. O'Connor

Deutsche Bank AG, Research Division - MD in Equity Research

* Michael Lawrence Mayo

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Saul Martinez

UBS Investment Bank, Research Division - MD & Analyst

* Steven Joseph Chubak

Wolfe Research, LLC - Director of Equity Research

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Presentation

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Operator [1]

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Good day, everyone, and welcome to today's Bank of America earnings announcement. (Operator Instructions) Please note this call may be recorded. (Operator Instructions)

It is now my pleasure to turn today's conference over to Lee McEntire. Please go ahead.

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Lee McEntire, Bank of America Corporation - SVP of IR [2]

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Good morning. Thank you, Katherine. Thanks for joining the call to review our fourth quarter 2019 and our full year results. By now, I hope everyone's had a chance to review the earnings release documents, which are available on the Investor Relations section of bankofamerica.com website.

Before I turn the call over to our CEO, Brian Moynihan, for a few remarks, let me remind you that we may make forward-looking statements during the call. For further information on those forward-looking comments, please refer to either our earnings release documents, our website or our SEC filings.

After Brian's comments, our CFO, Paul Donofrio, will review more details on the 4Q results. We'll then open up for questions. (Operator Instructions)

So let's get rolling. Brian?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [3]

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Thank you, Lee. Good morning, everyone, and thank you for joining us to review our results. I'm going to let Paul take you through the fourth quarter, which reflected a strong finish to close out 2019. But before that, I want to give you a high-level view on our results.

Of course, our results continue to reflect the strength of the U.S. consumer in the biggest economy in the world. We continue to be well positioned here in driving market share gains with great service and capabilities. This quarter is also one of transition from a period of rising rates in 2018 to one that is moving through the impact of the declining rates in the second half of 2019.

How do you run a company, a big bank and deal with lower rates? Well, we drive what we can control with our sempiternal commitment to responsible growth. We drive more loans, more deposits, more assets under management and driving growth with the right pricing and at the right risks. We also have to manage our cost base carefully while making the required investments, and we have to take advantage of a strong balance sheet to provide good capital return to our shareholders.

At Bank of America, we checked the box on all these in the quarter. We grew loans -- average loans by 6% in our lines of businesses. We grew the deposits by 5% with very disciplined deposit pricing. Our expenses were relatively flat again while we increased investments across our whole company. And in doing that, we earned $7 billion after tax this quarter, with a return on tangible common equity of 15.4%. And due to our strong balance sheet, we returned $9.1 billion of capital to our common shareholders this quarter. At the same time, we deployed capital to support growth for our clients, communities and teammates.

Let me -- let's start on Slide 2. I'm referring to the full year results excluding third quarter '19 joint venture impairment charge. We generated $29 billion net income in 2019, a record for our company. That was 3% better than the prior year's results. We are also able to reduce shares by 9%, driving earnings per share up by 12% for 2019.

These results were driven by execution on all the pillars of responsible growth. We grew by serving our clients well and improved our market share across the board. We remain disciplined in our risk and our client selection framework. And by the way, our results are more sustainable as our focus on operational excellence led to a 58% efficiency ratio in 2019 while making the investments we need to make. Our return on equity was 11% for the year. Our return on tangible common equity was 15.8% for the year.

Record earnings allowed us to invest in our client capabilities, invest in our people and invest in our communities, all while holding the expenses in check. Take a look at Slide 3. You can see the investments we made across all our constituencies. And at the same time, we delivered strong returns for our shareholders.

To deliver for our clients, we continued our investment in talent. In 2019, we grew the company by 3,600 teammates. Overall, we hired 32,000 teammates in 2019, including 6,300 new employees from low- and moderate-income neighborhoods, 4,000 college and MBA graduates, and we also completed our 5-year goal to hire 10,000 military veterans into our company.

We completed more than $3 billion in new technology code initiatives last year, building on years of investments in award-winning digital and mobile capabilities to serve our clients better and help our teammates be more efficient. Most importantly, these investments are bearing fruit as you can see in our customer usage numbers that Paul will talk about.

Just a simple example. We surpassed 10 million clients using Erica, our industry-leading consumer AI agent. We introduced Erica about 18 months ago, and now it's starting to reap the scale benefits. Erica is an example of billions of dollars of scaled innovation fueled by our work on operational excellence.

These savings generated by operational excellence also enable us to make capital investments in our company of $1.7 billion during 2019 for newer modernized facilities and other related priorities. And in the past 3 years, we've built 207 new financial centers and modernized more than 1,300.

For our employees, we will start at $20 per hour minimum starting pay beginning in March. The cost of all these enhancements, importantly, are in our run rate of expenses, providing the capacity to keep investing in the future without increasing expenses.

Also for 2019, for the third consecutive year, we shared our financial success with our teammates with special compensation awards to approximately 95% of them. 3 years of special compensation awards totaled $1.6 billion in compensation in addition to all other bonuses and merit and everything else, allowing our teammates to do more with their families.

Last year, we also delivered more than $5 billion of community development financing for affordable housing and other important local priorities. We've made more than $250 million of philanthropic contribution to help drive economic mobility, including workforce training and development and many other local priorities where we help make a difference.

We also completed our 10-year $125 billion environmental business initiative goal in 2019. We made that commitment 4 years ago. And it was a 10-year commitment, and we completed 6 years early. That's why, this year, we set a new goal of $300 billion environmental initiatives across the next decade.

It was a strong year for our company and our team, capping our first decade. But here at Bank of America we have a saying, nice start. We know we can do so much more in the future.

So on Slide 4, I want to talk about the line of business results. The team's hard work has created strong improvement in earnings across the board in our lines of business. Dean Athanasia and the consumer team generated impressive $13 billion in after-tax earnings in our consumer and small business group by driving responsible growth. They continue to provide real value for clients through innovative products and services while driving improvements in upgraded facilities, entering new markets and driving innovation. Consumer's record level of efficiency and customer satisfaction scores reflect the hard work done the right way.

Andy Sieg and Katy Knox together run our Global Wealth & Investment Management businesses. They drove net new household growth in 2019 and more integration across those businesses with the rest of the franchise. Merrill Lynch alone brought in more than 40,000 net new affluent households during 2019. Margins in that business remained near the record levels. We generated $1 billion-plus in quarterly earnings in the quarters of 2019 and topped, this quarter, $3 trillion in client balances for the first time.

Tom Montag and his team across the Global Banking and Global Markets franchises are running one of the biggest commercial lending business in the world and one of the top market-making investment banking platforms. This powerful combination of Global Banking and Global Markets generated $11.6 billion in after-tax net income this year. The team continues to get its fair share of the fee pools across the globe and became more important partners for many of the world's largest clients.

With a renewed focus, our investment banking team regained some of lost market share from a couple of years ago, and Paul will give you those numbers later. Matthew Koder and team have done a great job of doing that. In addition, that team across the board continues to drive innovation in our Global Treasury Services platform. Paul is going to show you some of those capabilities in the slides later. All these business accomplishments across all these businesses while driving relatively flat cost.

Let's move to the trends on Slide 5. Our strong balance sheet and strong earnings have driven a corresponding strong increase in our return of capital. We have now dropped below 9 billion shares outstanding, 9.1 billion shares on a fully diluted basis, as shown here on the left side of the page.

In total, we reduced the share count by nearly 2.5 billion shares from its peak a few years ago.

As we look into 2020, Paul will give you some specific guidance on the company's view of what we see in our outlook, but for more general guidance, our research team -- our award-winning research team sees more generally the U.S. GDP growth at just below 2% and a global GDP growth just above 3%. We at Bank of America have seen in our consumer business a substantial amount of activity. In our consumer business, we see that our customers are coming off a strong finish in 2019 in their spending activity. In addition, there's good loan demand. This results from good employment levels and growing wages. At Bank of America spending by our consumers grew at 5.9% over $3 trillion in spending from 2019 over 2018.

We saw solid loan demand in our commercial client base throughout the year, but that moderated in the second half of the year as worries about global economic uncertainty and all the issues that are talked about every day dragged on. Today, we see some resolution of those issues. And that, combined with continued consumer strength, leads us to expect to see businesses continue their solid activity, and we're hearing more optimism. All this provides a great backdrop to drive responsible growth and continue to deliver for you.

With that, I'll turn it over to Paul.

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Paul M. Donofrio, Bank of America Corporation - CFO [4]

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Thanks, Brian. Good morning, everyone. You can see the summary of our Q4 results on Slide 6, and I'm going to begin on Slide 7.

In the fourth quarter, we reported $7 billion in net income and $0.74 in EPS. EPS increased 6% from Q4 '18, reflecting modestly lower earnings more than offset by a 9% reduction in average diluted shares. Returns remained strong in Q4, with a return on assets of 113 basis points and a return on tangible common equity of 15%, well above the company's cost of capital. Our results were driven by our team's focus and solid progress on managing what we can control and gaining market share in an economy that grew at a low single-digit pace.

In Q4, we again stayed focused on what we can control. Client activity remained solid, allowing the benefit of loan and deposit growth to aid in offsetting the negative impact of lower short-term rates over the past 3 quarters. We also continued to see healthy consumer trends in spending and asset quality. Lastly, we experienced a nice rebound in FICC trading from a more negative environment a year ago.

So having set the stage, let's turn to the details, starting with the balance sheet on Slide 8. Overall, compared to the end of Q3, the balance sheet was relatively flat at $2.4 trillion as growth of both loans and securities was modestly offset by lower global market assets. Deposits grew $42 billion and were first deployed to fund $11 billion of loan growth, with most of the excess funding the growth in debt securities. Liquidity improved as the average global liquidity sources benefited from deposit growth. Shareholders' equity declined $4 billion, driven mostly by the return of excess capital.

In Q4, we returned $9.1 billion in capital through net share repurchases and dividends, which exceeded the $7 billion earned. OCI declined by roughly $1 billion. Note that our book value per share of $27.32 has improved 9% from Q4 '18.

With respect to regulatory metrics, we remain comfortably above our minimum requirements, driven by the excess -- driven by the return of the excess capital I just reviewed. Our CET1 standardized ratio decreased to 11.2% but remained well above our 9.5% minimum requirement. Our risk-weighted assets increased modestly from consumer loan growth and increased Global Banking exposures. Lastly, our TLAC ratio also remained comfortably above our requirements.

Looking at how client activity impacted average balances. Let's start with deposits on Slide 9. Average deposits grew $65 billion or 5% year-over-year. For 4.5 years now, we have grown deposits on a year-over-year basis every quarter by more than $40 billion. Consumer Banking deposits grew $33 billion or 5% as we believe customers value the convenience of our financial centers and ATM network, leading online and mobile capabilities and our unique Preferred Rewards program. But much of this growth continues to be led by checking balances, which we consider to be the core operational deposits of these customers.

Wealth management deposits grew $8 billion or 3% year-over-year. Global Banking deposits grew $19 billion or 5% year-over-year and reflected both our strong GTS platform and the additional bankers we have deployed over the past couple of years.

Looking at average loans on Slide 10. You see pretty consistent client activity. Overall, average loans of $974 billion were up more than 4% year-over-year. More importantly, average loans in our lines of business grew $54 billion or 6% year-over-year as consumer loans grew 7% and commercial loans grew 6%.

As you can see in the bottom right-hand chart, we continued to demonstrate a fairly consistent range of responsible growth. Commercial loan growth was broad-based. Loans to middle-market clients grew 10%. But I would note the more stable linked-quarter balances here as revolver utilization moved a bit lower. We also saw growth in lending to small businesses, growing 7%, and within consumer, we saw strong growth of residential mortgages. I would also note that the stability of credit card balances, which reflects our decision last year to pull back on less profitable promotional balances as we continue to prioritize sustainable long-term profitability.

Turning to Slide 11 and net interest income. On a GAAP non-FTE basis in Q4, NII was $12.1 billion, $12.3 billion on an FTE basis and was relatively flat compared to Q3 '19. The benefits of loan and deposit growth, coupled with disciplined pricing, mostly offset the impact across short-term rates of a linked-quarter 47 basis point decline in the average Fed funds rate. And while long-term rates were up modestly on a spot basis, on average, for the quarter, there was little change. For the full year of 2019, GAAP NII of $48.9 billion was up 1% despite lower short-term rates. This is consistent with the perspective we had conveyed to you since the middle of the year.

We remain disciplined with respect to deposit pricing. In Q4, the rate paid on total interest-bearing deposits of 61 basis points declined 15 basis points. In Consumer Banking, which accounts for more than half of our $1.4 trillion of deposits, customer pricing remained relatively unchanged.

On the other hand, in Global Banking and wealth management, the decline from Q3 in the rate paid on interest-bearing deposits was more in line with the 38 basis point drop in average 1-month LIBOR.

Okay. Looking forward, as we move into 2020, let me start by saying our expectations assume a stable economic and interest rate environment, i.e., flat rates relative to the end of the year. Given those assumptions, we expect NII in Q1 to be lower than Q4 as the benefits of loan and deposit growth will be more than offset by 3 things. First, with respect to Q1, we will have 1 less day of interest. Second, we expect lower loan yields to be more fully reflected from the late October Fed rate cut. Third, reinvestment rates are expected to dilute securities yields despite fractionally higher long-end rates.

Moving to Q2, we typically experience seasonally lower NII for 2 reasons. First, we typically see higher interest expense from funding increased seasonal Global Markets client activity in equities. The benefit of this activity shows up in noninterest income instead of interest income.

Second, we also typically see lower average card balances as clients pay down their holiday balances. Both of these seasonal patterns have historically led to lower NII in Q2 compared to Q1.

So we would expect NII in the first 2 quarters of 2020 to be a bit lower than Q4 '19. From there, we would expect NII to rise modestly in the second half of the year driven by an additional day of interest and continued loan and deposit growth.

Turning to Slide 12 and quarterly expenses over the past 2 years. At $13.2 billion this quarter, expenses were 1% higher than Q4 '18 as increased investments throughout 2019 in people, real estate and technology initiatives were largely offset by savings from operational excellence and lower amortization of intangibles. We have been operating in a tight range for more than 2 years now, with quarterly expense in the low $13 billion range in all but 1 quarter if you adjust for the 3Q '19 impairment. So annually, we've been able to maintain a $53 billion expense base despite increased investments in tech, infrastructure, buildings, people, philanthropy and the other costs that Brian mentioned in the opening of the call. With respect to headcount, year-over-year savings from improved processes and workflows allowed us to fund an increase in the number of sales professionals as our LOBs added nearly 4,000 associates over the past 12 months.

With respect to outlook, our expectations for expense in 2020 haven't really changed from where we provided it in 2016 despite all the added costs of the higher investments and unknowns like Brexit and others since 2016. We expect our full year expense to be in the low $53 billion range this year, and as long as client activity and the economic environment remain stable, our investment plans will likely remain unchanged.

Having said that, I want to provide you with a few reminders with respect to expenses. First, Q1 is expected to include about $400 million of seasonally elevated personnel costs related to payroll taxes, with the remaining quarters of 2020 expected to return to a low $13 billion range. Also, beginning in Q3, the accounting for the BAMS JV is expected to change following its dissolution. At that time, we will separately record revenue and expense from merchant servicing operations rather than reflecting our share of the joint venture earnings as a single amount in other income. This will gross up both expenses and revenue with little bottom line impact. And like we told you in Q3, it's not included in our forward guidance. We will update you as we move closer to that time frame.

All right. Turning to asset quality on Slide 13. Our underwriting standards have been responsible and strong for years now, and asset quality trend reflect this even in this relatively benign credit environment. Total net charge-offs in Q4 were $959 million compared to $811 million in Q3. When comparing to Q3, remember, we sold in Q3 -- we sold some loans in Q3 that resulted in recoveries totaling $198 million that reduced net charge-offs. Adjusting for those recoveries, net charge-offs declined $50 million. And the net charge-off ratio declined 3 basis points to 39 basis points. Compared to Q4 '18, net charge-offs were modestly higher driven primarily by seasoning of the card portfolio.

Provision expense was $941 million and mostly match net charge-offs with only modest releases in both Q4 '19 and Q4 '18.

On Slide 14, we break out credit quality metrics for both our consumer and commercial portfolios. These metrics show you that asset quality remains strong in both categories.

Before turning to the business segments, I will just provide a couple of perspectives on CECL. Our day 1 implementation resulted in a $3.3 billion increase in allowance. This is in line with the last update we gave you. All else equal, this would lower our CET1 ratio by roughly 20 basis points, but as you know, it is phased into regulatory capital evenly through 2023.

Okay. Turning to the business segments and starting with Consumer Banking on Slide 15. Consumer Banking produced another solid quarter of revenue and earnings but was heavily impacted by lower rates in the second half of 2019. Net income of $3.1 billion declined 10% as revenue fell 4%.

As you know, we have been renovating and adding financial centers, adding sales professionals and advancing digital capabilities. Plus, we increased our minimum wage in 2019 and will again in Q1. Despite the cost of increased investments, we have been able to hold expenses relatively flat, and our efficiency ratio was 47%.

Away from the impact of rates, which we can't control, client momentum continued as we saw healthy spending, borrowing and savings by clients. As a result, year-over-year average deposits increased by $33 billion, up 5% to $720 billion, while maintaining strong pricing discipline. Client investments increased $54 billion, up 29% year-over-year to $240 billion, driven primarily by market, but we also saw $20 billion of client flows and our total net accounts grew 7%. Loans were up a healthy 7% driven by home loans. Debit and credit spending by our customers was up 6% year-over-year, consistent with a record holiday season and asset quality in this segment remained strong with a net charge-off ratio of 118 basis points, down modestly from last year.

Turning to Slide 16. I will quickly note continued positive trends across deposits, loans and investments, all of which I touched upon earlier. This level of activity continues to drive the acknowledgments and rankings in the upper left, and this is a short list of the more than 60 industry awards consumer and digital banking received in 2019.

Turning to Slide '17. Digital banking continued to drive growth and client engagement as we continued to invest heavily in this channel as a strong complement to our financial centers and ATM network. Together, they allowed our customers to bank with us anywhere, anytime and any way they want. Over 56% of our clients are now digitally active and logged in 8.1 billion times this year. That's up 9% year-over-year.

Digital channels generated 27% of overall sales. 34% of mortgages and 56% of client direct auto loans originated through our mobile app or online banking site. The digital mortgage experience itself originated $11 billion in loans in 2019 as we continued to add capabilities such as the ability to transfer HELOC balances on a mobile device.

And with respect to mobile car shopping, we closed the year with the ability to provide clients access to roughly 2 million cars from our participating dealer inventories.

Our market share of Zelle payments continued to increase this year as well. We now have 9.7 million Zelle users, and they sent and received 300 million transfers this year, totaling over $78 billion.

Erica surpassed 10 million total users and completed nearly 100 million requests since its launch with 38% penetration of active BAC mobile users. 27% of total deposits are now coming from mobile and over 50% of our clients have gone completely paperless, enhancing our efficiency and their experience. And customers increased their use of our mobile banking app to make appointments with 2.3 million digital appointments scheduled in 2019, up 19% year-over-year. Our efforts to move customers past enrollment to engagement and digital capabilities are stronger than ever and, we believe, industry-leading.

Turning to Global Wealth & Investment Management on Slide 18. Strong results were led by growth across AUM, loans and deposits as well as good market conditions in the quarter but also reflected the headwinds of lower interest rates. Record-level client balances topped $3 trillion, and our full year pretax margin was 29%. With $256 billion in deposits, this segment would rank standalone as the seventh or eighth largest bank in the U.S. So when rates fall, GWIM feels it, but much of the impact of falling rates was offset by advisories fees generated from our industry-leading wealth management platform.

Net income was just over $1 billion, down 4% from Q4 '18, reflecting lower interest rates and the absence of a prior year gain from the sale of a noncore asset, which also impacted the revenue comparisons. Excluding the prior year gain, revenue was flat and earnings grew 3%. Asset management fees grew 5% year-over-year due to higher market valuations and the fees from AUM flows, which more than offset general pricing pressures and lower transactional revenue.

Expenses decreased slightly as investments in sales professionals, technology and our brand were more than offset by lower intangible amortization and deposit insurance costs. Digital engagement with affluent clients continued to increase importance as 64% of Merrill clients are actively using our mobile or online platforms, and that statistic increased to more than 75% for our private bank clients.

Moving to Slide 19. GWIM activity reflects the confidence clients place in Bank of America and its advisers at both Merrill and the private bank. As Brian mentioned, household growth has been strong as Merrill added more than 40,000 net new households this year, and we added 60% more private bank relationships in 2019 than we did in 2018.

On the bottom right, note the $427 billion increase in client balances in Q4 '18. $383 billion of that increase reflected strong market conditions increasing the value of assets. $44 billion of the increase is from client flows. AUM flows accounted for $25 billion while brokerage flows contributed $6 billion. Bank product flows were driven by loans of $12 billion, which doubled from 2018. And deposit flows were modestly negative as clients shifted cash back into investments during the year following the 4Q '18 equity market declines. Average deposits rose 3%.

Turning to Global Banking on Slide 20. The business earned $2 billion and generated 20% return on allocated capital in the quarter. An 8% decline in net income was driven by lower NII and higher investment costs, which outpaced the improvement from investment banking income and leasing-related gains. Continued strong deposit and loan growth reflects the benefit of adding hundreds of bankers over the past few years, increasing our client coverage as well as continued advancement in how we deliver our loan product and treasury services. These investments will continue to benefit the franchise for many years to come as new bankers deepen existing relationships and add new ones.

Looking at trends on Slide 21 and comparing to Q4 last year. Throughout the year, we continue to add investment bankers both in the U.S. and internationally with a focus on expanding our client coverage. This benefited NII fees, with Q4 fees of nearly $1.5 billion, up 9% year-over-year. Despite -- excuse me, double-digit increases in both debt and equity underwriting fees led the year-over-year improvement.

Bank of America was involved in 7 of the top 10 debt deals and 6 of the top 10 equity deals in the quarter. Based upon Dealogic data, this performance drove a 50 basis point improvement in market share for the full year.

Turning to Slide 22. One of the reasons for the growth in deposits in Global Banking has been our consistent investment over multiple years in digital capabilities and transaction services. Note the growth in mobile and digital uses at the top of the page and our focus on solutions for clients on the bottom of the page.

Switching to Global Markets on Slide 23. As I usually do, I will talk about results excluding DVA. Global Markets produced $639 million of earnings. Year-over-year, revenue was up 10% from both higher sales and trading results and improved investment banking fees. Expenses were up a more modest 2% year-over-year. Within revenue, sales and trading improved 13% year-over-year driven by fixed income, currency and commodities with more a risk on environment when compared to Q4 last year.

FICC was up 25% from Q4 14 while equities declined modestly. FICC revenue showed improved results across most products but was particularly strong in mortgage products. The muted performance in equities was driven by lower client activities and derivatives, which was partially offset by our financing business where we have focused some investments.

On Slide 24, you can see that our mix of sales and trading revenue remains weighted to domestic activity, where global fee pools are centered. Within FICC, revenue mix remained weighted to our credit products. And importantly, please note, on the bottom left, at roughly $13 billion, the consistency of our sales and trading revenue over the past 6 years in the face of declining fee pools. It is particularly noteworthy considering the risk reduction noted at the bottom right. This goes against the perception that these revenues are generally considered to be more variable.

Finally, turning to Slide 25. We show All Other, which reported a profit of $262 million. Comparing against Q3 '19 is tough because that period included the $2.1 billion pretax impairment charge on our Bank of America Merchant Services joint venture. But there are 2 things worth noting as I close out. First, other income at the total company level this quarter included tax-advantaged investment partnership losses that were about $200 million higher when you compare to Q3. The benefits of this activity shows up in Global Banking -- in our Global Banking business and are produced by client activity related to tax-advantaged solar and wind investments. These investments generate good returns. However, the partnership losses, which reduced noninterest income, and the tax benefit in our tax line from these investments are not always realized in the same quarter, depending upon the type of investment.

The second thing I want to mention is the effective tax rate in the quarter of approximately 14%. It included the impact of higher tax credits from the increased tax-advantaged investments, and it also included roughly $300 million in discrete benefits from the resolution of several tax matters. Absent the discrete benefits in the quarter, our Q4 '19 tax rate would have been roughly 18%, and absent any unusual items, this is roughly where we expect the ETR for full year 2020 to be.

So thanks. And with that, we'll open it up to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question today from John McDonald with Autonomous Research.

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John Eamon McDonald, Autonomous Research LLP - Senior Analyst Large-cap Banks [2]

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Paul, wanted to ask on the NII outlook. When you put together your -- your commentary about the quarters, year-over-year, does that imply flat to down a little bit maybe on the NII in terms of your outlook against flat rates?

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Paul M. Donofrio, Bank of America Corporation - CFO [3]

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Yes. Year-over-year, modestly, I would say.

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John Eamon McDonald, Autonomous Research LLP - Senior Analyst Large-cap Banks [4]

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Down modestly?

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Paul M. Donofrio, Bank of America Corporation - CFO [5]

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Yes.

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John Eamon McDonald, Autonomous Research LLP - Senior Analyst Large-cap Banks [6]

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Okay. And then how are you feeling -- I guess if we think about positive operating leverage for this year, you mentioned the stability in expenses while you continue to invest. How are you feeling on fee income growth and when you wrap it all together, the prospects for positive operating leverage into 2020?

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Paul M. Donofrio, Bank of America Corporation - CFO [7]

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So obviously, we talked about in the prepared remarks the transition that we're going through in the rate environment. I would just remind everybody we had 18 consecutive quarters of positive operating leverage, and admittedly, it's a little bit more difficult to achieve operating leverage given the decline in interest rates last year and the associated impact on NII. As I said though, assuming a more stable rate environment, we would expect NII to return to growth in the second half of 2020 driven by loan and deposit growth.

And remember, NII is not directly linked to expenses the way other revenue is in, for example, investment banking, sales and trading, wealth management. We run and invest in the company for the long-term sustainability and for growth. And by the way, these investments over many years laid the foundation for operating leverage. So having said all that, we're not blind to changes in the operating environment, but we are also not managing rigidly to quarterly financial metrics. We're focused on the things that we can control like driving like client activity, deposits, loans investments and efficiency improvements through our focus on operational excellence. So if things change, we'll adjust, but currently, we feel our client activity and market share gains continue to support our investment plans in the near term.

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Operator [8]

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We'll take our next question from Glenn Schorr with Evercore.

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Glenn Paul Schorr, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Research Analyst [9]

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I have a follow-up question on your comments on the promo balances in cards and your pullback there. And I'm curious if that is a function of pricing getting tougher there, terms getting tougher there? Or is that your just responsible thought process 11 years into a recovery?

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Paul M. Donofrio, Bank of America Corporation - CFO [10]

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I think it's more a reflection of responsible growth and how we run, how we're focused on the customer and how we're focused on total revenue and not necessarily NII or fees. When you look at card balances, they certainly reflect a couple of items that we talked about, and it certainly reflects our focus more on profitability. First, we've been reevaluating some relationship prospects who are just looking to gain rewards or take a short term -- take short-term advantage of promo balances. So clearly, that's affected balances a little bit. Also, with less promo balances, the percentage of the portfolio paying off these much has risen a bit. I think what you see though, if you look at our risk adjusted margin, that's up 25 basis points year-over-year to 8.7%. If you adjust out the 4Q gains we had last year, and we continue to have more than 1 million cards each month. Again, with a focus on profitability of new accounts. So I think that line's going to start to grow from here?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [11]

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I think, Glenn, just to be -- Paul's last point (inaudible) production of new customers taking the card product from us and the usage continues to grow. So we had 1 million-plus new cardholders. We still have a lot of room to go from a 2/3 type of penetration at customer base and then how many people use that as a primary card. So we really focus a lot on that. And what we're focusing on that, generating new customers who are serving is not exactly the strategy. And so it's a mix of profitability, but also really sticking to that core holistic customer strategy.

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Glenn Paul Schorr, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Research Analyst [12]

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Appreciate that. Just 1 more, maybe on GWIM. So market's up a lot and more people going fee-based offset lower rates, and you talked about that. So we've been hanging in this 28% to 30% range, which is great. But the question I have is can -- as scale continues to build and all the investments that you've made there, can we see margins start to tick up a little bit above there? I know we're constrained by payouts and things like that. Just curious, bigger picture over the next couple of years.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [13]

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Yes. So think about it in 2 dimensions. One, inside the Wealth Management business is a very large bank. So if rate's stable here from here, then the loan and deposit growth, which have been strong, we'll then pick up that, and that's very leveraged to the margin, contribute to the margin. That's 1 point. So you're going through the same twist in that business with a 75 basis point drop in rates in the very late part of -- last few months of 2019. That's no different than many other situations. So that will mitigate and go forward.

If you think about the other side of the question, which is sort of, can you get it higher, you've got the basic thing, the way that the compensation system runs from a way of presentation is you've got 50% of the revenue. Round numbers goes into the compensation. So you're basically making $0.30 on the other $0.50 in profit margin, which is a pretty strong margin. So it has all the opportunities along the dimensions, which is a (inaudible) set of things that we've got to go after, which is you think about the Merrill Edge assets growing in the MEGI portfolio, which is over $4 billion and growing 30%, 50% a year type of things. As they grow, and the products are available to Andy's to whole team of FAs, that provides additional efficiency. And then you think about the digitization of that customer base in both private bank and Merrill Lynch, which is the least penetrated of all the customer bases in terms of digital statements and things like that, we can drive the margins that way. Then the physical plant, we continue to increase the density of the physical plant with other physical plant in various cities and towns, consolidating offices and getting people in the common space that saves money. So there's a lot of way we can work on digitization, physical plant efficiency, adding more financial advisers to have more scale and contributing to overhead, which then generates more margin. So it's -- you're working -- it's pretty good to make $0.60 -- 60% of your margin after comp and we're not changing the comp system, so -- but there's a lot of things forward, and I think we can continue to improve. It would be -- appear to be easier or if, in fact, rates stay stable and you drive loan growth, which is what our projection is, and if rates start rising again, it will look like (inaudible) in terms of margin. But we've been able to sustain it even in a falling rate environment.

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Operator [14]

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Our next question comes from Steven Chubak with Wolfe Research.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [15]

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So I wanted to ask a follow-up on fee income. So the NII resiliency has been quite impressive. Loan deposit account growth, as you noted, Paul and Brian continues to track very well. The core fee growth was a bit softer this past year. It declined modestly despite some of the strong market tailwinds. I know, Brian, in the past, you haven't given explicit guidance on core fee growth expectations, but you did note that it showed traject in line with GDP. And just given some of the moderating U.S. and global GDP growth expectations you cited earlier, just trying to think about how we should be modeling or forecasting fee income expectations in the coming years?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [16]

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I think each category -- if you think about the broad categories where most of them come through, the strategy in the consumer business has been to reduce reliance over the last decade-plus on penalty fees and things like that. We kind of hit status quo on that. In other words, we brought it down significantly from Reg BI and all that stuff is kind of done. The interchange in the consumer fee areas, the card income and stuff, that's through the system at this point. The rewards impact that, but you get the benefit back in a preferred rewards system through the ability to have that stable margin. So I think we should see those fees, which have gotten to a point where they ought to grow marginally. But remember, the part of the strategy is to invest in our client base, loyalty to our company and our products. And so they'll be modest because of the NII growth. Think about 8% growth in checking balances year-over-year in consumer. That is helped -- driven by people consolidating a relationship with you, which you pay back through the reward system through their card usage. So it's always going to be that.

When you go to wealth management, you tell me what the market's going to do, and you'll see that will be heavily influenced there. That should grow faster. As you know, trading, as Paul said, isn't as volatile as people wanted to discuss it. But on the other hand, there's compression on the fee side. So each line items has a different element. Treasury services revenue is up, I think, at the high single digits, but the fee line piece of it's flattish, that's because people are paying us through balances. So I think that -- Steven, a guy like you has been around banks for a long time. The differentiation between types of revenue fee versus spread is becoming harder as the business models have morphed them together in just terms of total revenue. So we ought to go revenue slightly faster than the economy and have the expenses grow below that by a couple hundred basis points, and we've been able to do that. And as this twist in rates ends this quarter, you'll see us get back on that track as we move through 2020.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [17]

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And maybe just a follow-up for you, Paul. You've been retaining a substantial percentage of mortgage loans on balance sheet. In lieu of selling those loans, you're deploying that excess liquidity into MBS. And I'm just wondering, as we prepare for CECL, does that inform your appetite or your willingness to continue down the same path? And just separately, just given the strength of your credit position and a relatively clean balance sheet. I was sort of hoping you guys could be CECL pioneers and maybe be the first bank to provide some more concrete guidance in terms of day 2 provision impacts or expectations?

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Paul M. Donofrio, Bank of America Corporation - CFO [18]

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Well, on your first point, we are originating mortgages and putting 94% of them, I think, this quarter on the balance sheet to continue the trend that we've been doing for many, many quarters now. We'll see how that develops over the long term, but for now, that's our plan. Clearly, we consider the effect on liquidity. We consider the effect on capital balancing, returning capital with growing the balance sheet. Those loans don't really have a high amount of CECL impact. So -- but I'm not saying we're going to never change what we're doing there.

In terms of CECL, I think we've given you the guidance that we're comfortable with. We would expect provision to be a little higher than net charge-offs in 2020. And due to CECL, we've been running -- when you back everything out, we've been running at net charge-offs at approximately $1 billion a quarter. We don't see that changing much in the future. And when you just factor CECL into that, it means that our provision's going to have to be a little bit higher than net charge offs.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [19]

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You always have to remember that the -- not on the last part, but on the first part, at the end of the day, the reason why we have securities and mortgage-backed securities and treasuries is simple: When you generate $60 billion in deposit growth and your loan balances grow by $10 billion or whatever, $10 billion or $20 billion, the other half has to go to be invested somewhere and you're raising this money and all-in cost in the 40 basis points of deposit pricing across the whole board, and a lot of it's coming noninterest, you're not going to turn down that good customer activity. And we don't take credit risk in that part of the portfolio because we take enough credit risk around the rest of the company. And so the strategy on the investment side, mortgage-backed had put with treasuries, and think of that as just excess liquidity. On mortgages, paul told you that we've been putting on the balance sheet because they're better yielding than mortgage-backed securities. And frankly, our credit risk is better than the mortgage-backed securities' availability, so why would we pay somebody else for taking that risk?

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [20]

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Fair enough. And I appreciate you guys taking the day 2 plunge as well.

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Operator [21]

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We'll take our next question from Betsy Graseck with Morgan Stanley.

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Betsy Lynn Graseck, Morgan Stanley, Research Division - MD [22]

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Brian, 10 years of excellent management here driving the bus on improving operating leverage, especially over the past 3, 4 years. Can you give us a sense as to how you see the rate of change go from here? Because we've had, obviously significant improvement in the consumer side. And the question I get from people is, is it over? And by the way, how do you generate positive operating leverage in global banks and global markets given the SKU to producers? And is there that much opportunity in the back office side? So maybe you could hit on those, that'd be helpful.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [23]

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Sure. So let me paraphrase a little bit, but it's a delectation to be able to run this company with all the power and have the honor of doing it for decades. So we just passed a decade with the team, and they've done a great job. But what you pointed out is they've done a great job of putting a position. So if you look at the operating efficiency of the consumer business or the wealth management business or the banking business, which we show separate from the markets business, you can see these are 38%, 40% efficiency ratios here, 45% here. It's how can you improve. And Betsy, what I'd say is we just don't know how far this digitization of the actual processes and work goes in the company. And we just keep coming up. We have 6,000 simplified improved ideas over the last few years we've implemented -- they continue to produce great savings. And so we just don't see an end to that. And so leave aside that the economy is growing at sub-2% level predicted for 20, leave aside that the rate environment's slow. We've been able to push forward the activities that didn't -- can produce more efficiency. And we think that's -- there's a lot ahead of us. And so I'd like to -- we'd say a nice start to our team saying, thanks for all the hard work you've done. But also, we're only getting started here. And if you start thinking about we just passed the number of checking accounts that we had in 2007 in this company this quarter. And so we ran off all the non-primary accounts, but on the primary accounts, and now the average balance is 7,000. If you think about the cost of deposits in consumer, I think it went down by 4 basis points year-over-year, something like that. So they're just -- it's a grind, and it's a lot of hard work. But incremental efficiency that we can get at this scale by these investments and by the digitization and the further taking out activity, which costs more.

Another example is checks written since Zelle became really pushed out there about 2 years ago has started dropping 10% per year. So 5 years ago, we had almost 1 billion checks written by consumers. Now, we're down to $600 million. Each 1 of those checks is a piece of paper that requires processing time. And you're seeing that drop by 10% a year. Is that going to change overnight when they're gone? Absolutely not. But on the other hand, it's constant positive operating pressure benefit for us. So look for us to improve it across the board. Your colleague earlier asked about the wealth management business. We think we have upside there. Andy and Katy and the teams are working on it. There's a lot of process simplification that we've worked on hard. There's a lot ahead of us.

And then you get the markets business, the electronification effect will make it more and more efficient over time, like we've seen in equities. As you know though, that's a market price business, so you're always fighting the revenue changes at the same time. In fact, if you look at most of us from 5 -- 4, 5 years ago, we actually had the same amount of trading profits we have then. We just turned it into this quarter, $600 million of profit, generally, $1 billion of profit when it's going a little bit better in the earlier quarters and the activity is higher. That's a good business. It's just you're fighting both sides of the equation. So look for us to improve everything. There's room to improve. Tremendous scale advantages, the new markets opening up provide extra lift, and it's our job to do it and the team's excited to.

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Betsy Lynn Graseck, Morgan Stanley, Research Division - MD [24]

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Okay, good. Good forward look there. Paul, on the longer term, Paul, maybe I could just be a little bit nearer term with a question for you. I think you mentioned a couple of times the NII expectation for 2020 being down modestly from 2019, full year, full year. But then you talked a little bit about a better second half than first half. And maybe you could give us a little bit more detail on the granularity, why you expect that to be the case. I assume it's with the forward curve and flattish rates. But -- and then you gave some color earlier on. But maybe give a little sense more, like what's behind that conviction level that year-on-year, you get some improvement in the back half?

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Paul M. Donofrio, Bank of America Corporation - CFO [25]

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Well, I think it's -- look, it's about loan and deposit growth, and it's about deposit pricing discipline. On deposit pricing, we plan some modest reductions in deposit pricing, assuming no further cuts. As we continue to bring deposit pricing to an appropriate level given the 3 (inaudible) -- the 3 cuts that we've experienced. If the forward curve materializes and we get another short end cut, we expect deposit rate paid for the industry and for us to decline even further as higher pass-through products in wealth management, global banking react relatively quickly to any rate cuts. So it's about the confidence we have in how we price our products and the confidence we have in growing deposits and growing loans. The guidance is more about -- we have an extra -- 1 less day in Q1 we've got to deal with. We have the second quarter. Normal activity that we see in equities, which, again, that's a plus. That just shows up in noninterest income instead of interest income. And by the time you get to the third quarter, we would expect, assuming the current sort of economic environment, we would expect our loan and deposit growth, the lack of that seasonality, the deposit pricing to have an effect, and we'll start growing again.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [26]

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Just to add to that. Your question and John's question go the same direction, which is you've got this quarter in the first couple of quarters because (inaudible), Paul just described it, you have to push through. But what we see is getting back on as we move into the middle of 2020, we're back on that basic operating leverage through NII stability to growth and expense flatness. So it's -- but it just -- it takes a little while to get underneath the 75 basis point rate cut in 4 months.

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Operator [27]

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Our next question comes from Jim Mitchell with Buckingham Research.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [28]

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Maybe I could just follow-up on that last question in a different way. Is your expectation that the net interest margin should start to stabilize in the back half of the year, is that what gives you the confidence in the NII growth? Or is it really -- do we still should expect maybe a grind down of NIMS, but the balance sheet growth starts to take over? How do we think about when in the current rate environment, that sort of net interest margin, assuming mix is unchanged. Obviously, it's a big assumption, but do we assume that NIM starts to stabilize in the second half of this year?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [29]

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I think that's what -- you've correctly summarized succinctly what we said.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [30]

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Okay. So maybe I get another question. So just on the deposit growth...

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [31]

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We'll reward you a bonus question for that one.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [32]

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Just on the deposit growth, the industry, we've seen some acceleration in 4Q. We have lower short-term rates. We have the Fed balance sheet expansion. There tends to be some seasonality in 4Q. How do we -- do you think this acceleration can continue into at least the first half of this year. I guess, how do you think about the deposit growth? And if there -- if we could see continued sort of above mid single-digit growth.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [33]

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Yes. I think if you look at Page 9, when you have great movement due to the types of things that reestablish and reserve levels by the -- at the Federal Reserve, et cetera, et cetera, et cetera, that's going to affect the lower -- our markets business in the lower right-hand in a banking, stuff like that. But it really doesn't have that much of an impact in the bank -- the wealth management and the consumer banking area, and that's really what drives the value. So for the $700-odd billion in the consumer business, which grew checking at 8% year-over-year, and that's fairly consistent with what they've been doing. You remember that's 11 basis points all-in, including the interest bearing, part of which also grew year-over-year. So that $700 million a year in total interest expense for $700 billion of deposits. That's what drives the economics. And then wealth management and Global Banking also, but the -- and so that doesn't really affect it by all the sort of broad macroeconomic variables. That's just us doing a great job with consumers with great customer satisfaction, great product capabilities, great high-touch, high-tech, and then generating more and more checking accounts, while the average balance for checking account is $7,000 plus and growing. And that's what's going to drive it. So I'd say you're absolutely right. There can be momentary things that will enhance deposit growth in some of the pure institutional businesses. But it doesn't make much difference to the general U.S. consumer.

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Operator [34]

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Our next question comes from Mike Mayo with Wells Fargo.

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Michael Lawrence Mayo, Wells Fargo Securities, LLC, Research Division - Senior Analyst [35]

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A simple question is, what is the dollar amount of tech spending and investment spending in 2019, and how does that compare to last year and this coming one? And the backdrop for that question is, the efficiency -- we've gotten a lot of questions on efficiency on this call, and it was worse in the fourth quarter. And your 58% efficiency for the year is not where some other banks are targeting, like 55%. Now we know that you're spending a lot of money. We can see Slide 3. You've pointed out that the spending is paying off. So if you could just put a wrapper around the spending and put a number to it, then we, as analysts, can figure out, okay, a more core efficiency level, if you would.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [36]

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So 1 of the things that just in our efficiency ratio compared to other people were 58% for the year. But remember that we have a lot more wealth management at 30% -- 28%, 29% profit, pretax margin, i.e., 71% efficiency ratio than anybody else does. So that changes that answer relative to some of our core banking peers. It's just a bigger, bigger number because we have the biggest business with $3 trillion, assets making $1 billion a quarter after tax at the best margins, but it's just the sheer math. So when you look at it by business unit by business unit, our efficiency is the top in the class, it's just our mix is different. So I'll let you figure that out, Mike. But back to your tech spend, we spent $3 billion -- $3.2 billion or $3 billion in '18, the same in '19. We have it scheduled to be the same this year. It's just this constant level of spending. Now it's different projects, obviously, every year. That's pure technology initiatives. You put that on top of the backbone and everything, and the number people could talk about would be higher. But that is just to drive new products and capabilities through the system, and we aren't changing that because that's what's driving that ability to keep expenses flat. If you look across the chart Paul showed you, when you see '17, '18 and '19, and the expenses per quarter running [$13.1B, $13.3B] (corrected by company after the call), et cetera, think about how much we've done in there in terms of hundreds of new branches, thousands -- 2,000 -- 1,300 or so complete redos, new buildings for our teammates and wealth management, et cetera, et cetera. And so that -- those are tremendous investment levels that are all in the run rate while we're chopping away, and that's coming from the operational excellence. So we're spending that much on technology, but the question isn't spend, Mike, it's are you getting the usage out of it? And that's where you got to look at things like the usage of Zelle, which we're going at 80%, 90% a year. The use of the cash pro mobile, which grew over 100% a year. That usage, what I talked about, in checks written coming down. When I talked about that we have 4,300 branches. But in there, we've actually opened up in new markets for the last couple of years, 15 branch, 20 branches, et cetera, and continue to do that. So the efficiency of the rest of the markets funds that, even though your numbers of branches are relatively flattish, so they're coming down slightly. So it's a complex set of things. But hopefully, that gives you some color.

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Michael Lawrence Mayo, Wells Fargo Securities, LLC, Research Division - Senior Analyst [37]

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Yes. I guess, I'll try 1 more time, since it's not in your tech number, like you are expanding to new markets, you are opening new branches, you are hiring new associates. How much does this investing increase the growth rate of expenses?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [38]

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It's $3.3 billion. So it's in the run rate. In last year, it will be like amount this year. So could you take half of that out? You could, it'd just be not the right thing to do for the company. But it's paid for by the other -- the cost takeout it supports or the mix and how the customer uses, which provides efficiency. So 50% -- more than 50% of our auto loans originated digitally. Yes, I think we did see $4 billion to $5 billion of mortgage origination. So it's -- what we're reaping the benefits of my 3 years hence is the investments we made in '17 as you go into '20 are produced -- for example, digital auto did not exist. And now, you're getting 58%. Just think how much more efficient that process is. Digital mortgage -- yes?

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Michael Lawrence Mayo, Wells Fargo Securities, LLC, Research Division - Senior Analyst [39]

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One more time. Like this tax spend to run the bank, changed the bank. I assume you're spending more to change the bank today versus 3 or 4 years ago. That mix goes more towards change the bank. What are the figures and where do you think they're headed?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [40]

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The $3 billion plus, obviously, with Brexit behind us, with a lot of the regulatory environment rules behind us in terms of implementing the CCAR and the capital rules and a lot of the modeling, and you're still spending money improving that data to make those models work. That's gone. The only thing that works against that is -- so yes. If you thought about how much it's going to -- sort of new business initiatives, the mobile banking feature functionality, it's higher in 2020, it was in '19 than it was in '18, largely around this issue that you're running off some of these long-term projects, which is good.

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Operator [41]

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Our next question comes from Gerard Cassidy with RBC.

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Gerard S. Cassidy, RBC Capital Markets, Research Division - MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst [42]

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Brian, can you remind us -- you touched on -- in some of your comments already about the number of checks that were processed 5 years ago versus today. When you're moving from the paper to the digital, can you remind us what the cost savings are when you do that per unit?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [43]

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Yes. So that was going to be checks written by our customers, which is this good point because that stops the thing before it starts. But basically, if you look at deposits, which I think is what you're referencing, Gerard, we are now more mobile than we are at the branches and have been for about 5 quarters. And then the ATMs are still half. The mobile's a little over like 27% or something like that, and branches are the rest. So if you think about that, that is $5 in physical movement, $0.50 and $0.05. $0.50 at the ATM and $0.05 around numbers.

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Gerard S. Cassidy, RBC Capital Markets, Research Division - MD, Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst [44]

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Great. And then moving over to credit. Can you guys give us any color -- I mean, credit's strong across the board for almost all the banks. And are you guys keeping an eye on any particular sectors within your portfolio? And then as part of that question, we sensed from some of your peers that have reported that the corporates or commercial customers seem to be maybe a little more optimistic in the fourth quarter because of some of these trade issues. If you could comment on that, if you're seeing that in your customer base as well?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [45]

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I'll take the second half, and I'll let Paul. Yes, you are seeing, with the --- leave aside what happens day-to-day, but generally, the companies are seeing the resolutions emerge for some of these issues. That makes -- a little bit more confidence. In terms of their activities, we'll hopefully see that in the first half of this year, if nothing goes backwards. The market being up, obviously, gives people a good feeling.

But one of the thing you have to think about is in the first part of '19, Gerard, you had your inventory decline recession, as people would call it. That went through the system. So you've entered a new place, right? So you come down, you hit a bottom, and then you start to grow off from there. We're kind of in that transition phase. So I think the combination of the external environment getting the deal today with China, obviously, is a resolution of 1 of the issues that was over people's minds. There are other USMCA. Everybody says it's going to be passed. I think if that got passed, it'd be very helpful to people. The fact that people have done what they needed to do, it was during the year '19, to change supply chains and think about it, that's disruptive without endpoint value to the customer, so to speak, and it's like us with Brexit. We spent $400 million plus money. The customers didn't get better services out of it. We just had to create more entities and get them up and running. Those things are sort of through the system. So I think that -- what you're feeling is a little bit of a relief on the other side of that work, which was being done, and worry, which is being done without a lot of activity. And so even capital expenditures, which grew at a much slower rate off the high in 2018, you're starting -- people -- our experts say will stabilize and kind of come out from there.

And on credit, Paul?

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Paul M. Donofrio, Bank of America Corporation - CFO [46]

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Sure. So on credit, I'd start by saying that we are always running through the portfolio, routinely analyzing various sectors, bringing it to senior management, discussing it. So we've got a real great process for always looking for some risks that are on the horizon. As you know, we've been -- we've been running the company with strong underwriting standards for years now. You see that in our CCAR results. So I mean, I hesitate to sort of pick 1 sector or another because we noticed stuff out in the marketplace, but it may not affect us directly, given how we've run the company for years now. But if you're looking for some sectors that we're paying attention to, not that we think we're overly concerned about them given how we've managed the company, but we're certainly paying attention to leverage loan market, leverage lending. We're certainly paying attention to energy with respect to natural gas prices. We're certainly looking at retail with respect to enclosed malls. We've got our eye on -- always have our eye on spots around the world that maybe experiencing a little disruption. So that's how I'd answer that question.

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Operator [47]

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We'll now go to Ken Usdin with Jefferies.

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Kenneth Michael Usdin, Jefferies LLC, Research Division - MD and Senior Equity Research Analyst [48]

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Just a question on the balance sheet and capital. So you're at 11.2% CET1. Your stated target has been around 10%. We're still waiting for the SCB finalization. Two questions. So one, any anticipated changes to where you think your capital goal might be? Depending on what we get. And then secondly, have you gone to a point where you might rethink the mix between your dividend payout, which is lower than peers, and the buyback in terms of the mix?

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Paul M. Donofrio, Bank of America Corporation - CFO [49]

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Maybe I'll start on, I guess, buffers, and you can -- Brian, you might want to pick up on the dividend or buybacks. But look, today, as you point out, we have a meaningful cushion. So it's really not an issue for us right now.

In terms of what our ultimate buffer is going to be when we don't have as much of a cushion, we haven't really talked about that publicly because we don't think it makes sense today to pre-charge what a buffer needs to be given the size of the current cushion, and given, as you mentioned, regulations, SCB, other things are still changing and lots of things can affect that buffer when we get there. So but I would just emphasize, we have a sizable buffer right now.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [50]

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In terms of dividend versus buyback, we will keep increasing the dividend as we move up to sort of the 30% level and earnings payout. We've been clear about that. And then the rest will go into reducing the share count. And when you look at the page we showed you earlier, part of the issue was the share count was a lot higher than we -- than people expected, sort of in the 2009 time frame after the Merrill transaction. So we're pushing that back down, and we think that's a good use of our capital. We don't need the capital to fund the loan growth and deposit growth. You're seeing us able to do that through continuing to fine-tune the balance sheet. And so expect us to move the dividend up consistent with what we've done before, assuming CCAR approval and all that good stuff. But it's -- the idea is we'll keep it at a level that allows us to use the share buyback to help drive the EPS growth, and you saw the benefits of that year-over-year in an environment where the rate movements mid earnings flatten in the second half of the year. What you saw was the EPS year-over-year was up double digits because we can retire the shares. And so we think that's the best thing to do for the shareholders.

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Operator [51]

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We'll take our next question from Matt O'Connor with Deutsche Bank.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division - MD in Equity Research [52]

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I was just wondering if you could talk about the pace of loan growth that you're expecting for 2020, maybe both kind of within the business lines and then net from the drive from runoff? And then the drivers of growth, and if that's changing at all versus what it's been in the last kind of 6, 12 months. Obviously, commercial for the industry has slowed. Maybe that's temporary. So just talk about the pace and the drivers of loan growth this year.

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Paul M. Donofrio, Bank of America Corporation - CFO [53]

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Sure. So look, growth in our business segments should continue to be kind of mid-single digits. As you know, we grew 6% this quarter. Both consumer and GWIM grew at 7%, driven by increased residential mortgage activity. Global Banking grew 6% year-over-year, and that was driven by large corporates, middle market companies, leasing activity and solid growth in international regions. So pretty broad-based. We anticipate solid growth in consumer loans, assuming the current economic environment, as well as the sort of pull-through of applications through the -- mortgage applications through the pipeline.

With respect to card, we've already talked a little bit about that. We expect that we can start growing card over time here. With respect to residential mortgages, originations were strong this quarter. They were up significantly. So that's going to translate to solid Q1 growth. However, you have to remember that, that's going to be partially offset by continued runoff of the non-core portfolio. We expect all growth to be up modestly year-over-year. We expect solid growth in small business. And remember, in all these categories that I'm talking about, we remain focused on prime and super prime. And on commercial loans, our outlook remains favorable. Again, growth year-over-year should be in sort of mid-single digits. So that's how I'd run through it.

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Matthew D. O'Connor, Deutsche Bank AG, Research Division - MD in Equity Research [54]

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Okay. And then netting out the kind of mid- single-digit growth in the business segments with the runoff, do you think you could kind of stay in this pace of the 4% growth that you saw this quarter as some of the macro holes?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [55]

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Yes. Yes. And if you look at the runoff chart on the loan page there in the upper right-hand corner, you'll see that we basically have gotten really to the point where that's now natural runoff. There won't be any sales of major impacts for purposes that we were doing before to continue to move loans, which we weren't getting income on because of their status in terms of restructuring and things like that out and clean the portfolio. That's just smaller, so I think that helps the overall nominal growth number for the company.

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Paul M. Donofrio, Bank of America Corporation - CFO [56]

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It's not going to be $1.5 billion to $2 billion...

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Matthew D. O'Connor, Deutsche Bank AG, Research Division - MD in Equity Research [57]

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Sorry. Maybe $1.5 billion or $2 billion of loan sales, but nothing major? Is that what you're saying?

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Paul M. Donofrio, Bank of America Corporation - CFO [58]

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No, no, not loan sales. The runoff.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [59]

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That's the runoff.

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Paul M. Donofrio, Bank of America Corporation - CFO [60]

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The runoff is running at about $1.5 billion, $2 billion per quarter.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [61]

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Of just natural paydowns in those mortgages and home equities.

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Operator [62]

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We'll take our last question today from Saul Martinez with UBS.

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Saul Martinez, UBS Investment Bank, Research Division - MD & Analyst [63]

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So forgive me for beating a dead horse on the efficiency ratio question. But I guess I'll ask it in a slightly different way. I mean, you guys are at, what, 57%, 58% even with GWIM being a big part of the overall mix, revenue mix. But if we assume that revenue growth gets back to, say, GDP growth over time, is there any reason why you couldn't reduce your efficiency ratio below, say, the mid-50s percent range into the low 50s, given some of the opportunities you talked about, Brian, and just secular trends towards digitization, electronification of payments, which obviously reduce this unit cost pretty materially. Is there -- it doesn't seem like there's an obvious reason why you couldn't continue to drive that down pretty materially even from here?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [64]

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That's what we're doing. If you keep the expenses flat, and the basis of the premise was if the revenue grows, PDP plus, that's 200 basis points of operating leverage, and that will keep producing efficiency ratio by definition. So you're stating what our job is, and we've been able to do it, and we'll continue to.

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Saul Martinez, UBS Investment Bank, Research Division - MD & Analyst [65]

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Okay. So there's no obvious -- is there any point at which, or any obvious point at which it becomes just much more difficult? Or is there -- the glide path from here is just seems like there's nothing really to prevent you from doing that for a while?

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [66]

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We'll let you know when we think we can't do it anymore, but we don't see it, so.

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Operator [67]

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So we have no further questions at this time. It is now my pleasure to turn the call back to Brian Moynihan for any closing remarks.

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Brian Thomas Moynihan, Bank of America Corporation - Chairman & CEO [68]

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Well, I thank all of you for your attention on the call. We finished another strong year in 2019 for the team, and they did a great job growing the earnings, doing it the right way, making the investments across the franchise. As we say, it's a nice start. We'll continue to focus on responsible growth. We've got a lot of room to run in this company. Every business had good client activity, the loan to deposit, underlying customer growth at the size and scale of this institution are tremendous work of our teammates. And all that helped us provide stable performance with the rate cut that came through relatively late in the year. So we feel good about that, and we feel good about working through the other side of as Paul described earlier. We are focused on the cost, as many of you asked about, but we're focused on continuing to develop and implement products and services, which meet the market's needs and continue to help us grow our market share across every business at the rate we're doing it, which we think is an opportunity, which is ours to continue to take. Thank you.

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Operator [69]

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This does conclude today's program. Thank you for your participation. You may disconnect at any time.