Bank of America Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

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

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

Question: Steven Chubak - Wolfe Research LLC - Analyst : No, it's a really good point. Thanks for the additional headcount nugget, Brian. Much appreciated.

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

Question: John McDonald - Truist Securities - Analyst : Thanks, Brian. You got to be a typecast.

Question: John McDonald - Truist Securities - Analyst : And then just to switch topics so that Brian doesn't make fun of me, on --

Question: John McDonald - Truist Securities - Analyst : Now in terms of capital, how are you thinking about the CET1 target and the buffer that feels appropriate in this environment? And how does that play into your thinking on buybacks?

Question: John McDonald - Truist Securities - Analyst : That -- does that leave you towards a mid-teens ROTCE target, Brian, as NIM normalizes, and capital normalizes?

Question: Glenn Schorr - Evercore ISI - Analyst : I have a relative question on trading. I know how impossible it is to predict really the environment. But you took share in investment banking, and you've invested and gotten benefits from that. You have invested in trading. So maybe it's a weird question because you just put up record revenues in FICC and equities as you mentioned, but when we see good environments like this, some companies tend to really blow out numbers. You guys have zero loss days. You don't tend to blow out numbers. Are there -- is that a comment about gaps in the business mix that you'd like to invest more and fill in? Is that a comment about risk tolerance? I'm just curious how to think about it on a relative basis.

Question: Glenn Schorr - Evercore ISI - Analyst : This might be a simple follow up. But on your comments when talking about credit and reserves, your reserve for unemployment are a little bit below 5%, you're at 4.1% now. I think that's the way this cycle is played out. I think that's typical BofA conservatism. I think that's the accounting. But I guess my question is your reserves will be fine, your P&L will be fine. But if that plays out, does that completely change how we're thinking about the pick up in consumer spending, overall loan growth, things like that. But that is we're talking about just the next four quarters.

Question: Erika Najarian - UBS Group AG - Analyst : My first question just as a follow up, Brian, I think I heard you say in response to John's question that you think the exit rate net interest margin will be 2.1%. I think in 4Q '25. I just wanted to confirm that I heard that correctly. And underneath that Alastair, could you talk about the repricing or down deposit beta dynamics that you would assume to get to that net interest margin?

Question: Erika Najarian - UBS Group AG - Analyst : And just as a follow up, both you and Alastair have during -- over the course of 2024 started introducing the concept of a normalized net interest margin of 2.3%. With a neutral rate, maybe around 4%, does -- can BofA get there more quickly, particularly given the deposit dynamics that you mentioned, Brian? I guess I'm trying to -- we're just trying to figure out you guys did introduce the concept of normalized NIM. So I'm not trying to seek out guidance in terms of '26 or '27 or whatever you had had to have told us that for a reason and I'm just wondering if the forward curve or what the dynamics are, that would lay out the path to achieve that over the medium term.

Question: Mike Mayo - Wells Fargo Securities LLC - Analyst : So you kind of upped your NII guide in the next say several quarters. And this was the first question asked, how much is short rates, how much is long rates, but most importantly, how much of this is a little bit more steepness in the yield curve? And what part of the yield curve is most important for that? And what's the sensitivity for every 10 basis points of additional steepness that adds, how much to NII or something along those lines? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BAC.N - Q4 2024 Bank of America Corp Earnings Call

Question: Mike Mayo - Wells Fargo Securities LLC - Analyst : And then a big picture question, Brian. With the new incoming administration in a different tone as it relates to bank regulation, in fact, the incoming Treasury Secretary said he would like to reinvigorate banks. So if you were to talk to them and maybe they're listening, what would you like to see changed as it relates to bank regulation? And then a specific question, I know it's going to be tough. If you give me any sense, it would be great. But your CET1ratio, if you didn't have gold plating, if you had a level playing field, if you took out some of the extraneous operating risk penalty, how much would your CET1 ratio increase in that sort of world?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : Maybe just dialing in on the deposit growth. You clearly have been outperforming the peer group but maybe just want to focus on consumer for a second. You generated $1.1 million of net new checking accounts, which seems best among peers. I think that's showing up in better consumer deposit growth in 4Q. So what do you think you're doing differently that's generating that kind of consistent success in adding new accounts?

Question: Jim Mitchell - Seaport Global Securities LLC - Analyst : And then maybe pivoting on the expense side, the guidance of 2% to 3% growth. It's kind of a pretty decent step down from what we saw in the back half of the year. So what areas do you see sort of slowing on the expense side given the -- your optimism on organic growth? How do you kind of decelerate the expense growth in '25?

Question: Vivek Juneja - JPMorgan Chase & Co - Analyst : I have two separate questions. First one with expenses. Just want to clarify to the last question, Brian, what you said. So what are you assuming for incentive comp in '25 in your guidance? Is it flat year on year? Are you assuming some increase? Any color on that?

Question: Vivek Juneja - JPMorgan Chase & Co - Analyst : Second one, I guess I can't leave you disappointed. It must given you and Alastair love NII. So let me ask a little netty question that. BSBY hedges, since those started to accrete this quarter, how much was the benefit this quarter? And what is the cadence of that as we look out over '25?

Question: Vivek Juneja - JPMorgan Chase & Co - Analyst : So that $200 million -- couple of hundred million, that probably and given that it's $1.6 billion to be recovered over a couple of years, that should continue at this pace all through '25 then, right, at least that --

Question: Vivek Juneja - JPMorgan Chase & Co - Analyst : And then -- sorry if I may another one, Brian, to your comment on capital, you said you want to keep a 50-basis point buffer, your CET1 with 11.9%, 50 basis points, 11.2%. Is there a plan to go down to the 11.2% at some point and therefore step up your buybacks or what's the thinking there?

Question: Matt O'Connor - Deutsche Bank AG - Analyst : Just if there was some relief on capital, are there areas that you would incrementally lean into. Obviously, without knowing all the rules, it's hard to know for sure. But just are there areas that you're like if we had that extra 100 basis points or 50 basis points or 150 basis points, you would do a little bit more in some areas than you have been?

Question: Matt O'Connor - Deutsche Bank AG - Analyst : And I guess so like depending on how the capital rules are tweaked, it could make some businesses just more profitable, right? So even though you have enough capital to put to those businesses, if the returns aren't making your hurdles, maybe it could with some tweaks, and I've heard REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BAC.N - Q4 2024 Bank of America Corp Earnings Call some of your peers talk about like equity prime brokerage as one area that could have higher returns of capital requirements to reduce. And again, we don't know exactly how it's going to play out. But do you envision any kind of changes to how you evaluate businesses?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Brian, hey, we've talked about this in the past and also with you Alastair, obviously, credit quality for you and your peers has been -- is very strong and in view of the rate cycle we just came through where we went from 0% to plus 5% at the short end of the curve and really never saw a surge in charge offs due to rates going up that much. When you guys look at credit quality, is it due to better underwriting standards or sticking to your underwriting standards or is it your customers themselves? Because we all went through the pandemic are just much stronger balance sheets, more resilient. Well, what would you account for so far that this credit cycle has been fairly benign for you and your peers?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And then as a follow up, I share your optimism on the outlook for the economy and many of your peers in the capital markets business, we -- I think many investors do, what are the risks? I mean when you guys sit down at night and everything is going well, what do you talk about as what curveballs do we have to watch out for? Is it a rate environment that changes quickly without anybody really expecting it? Is it complacency? What are some of the risks that you guys think about?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : And Alastair, I liked your comment about when you're talking about the 17 financial centers that you're a growth company. Hopefully, that will be reflected in the PE shortly.

Question: Betsy Graseck - Morgan Stanley - Analyst : So Brian, here's the question, small business optimism is up, and you've got a flat curve at the front end and so I'm kind of wondering how that feeds into C&I demand. And I'm wondering what your conversations with not only small business, mid business corporate, it'd be really interesting to hear how you think they're preparing for this change.

Question: Betsy Graseck - Morgan Stanley - Analyst : Yeah. I'm just looking at you are -- Bank of America is one of the few that actually has small business loan growth year on year. And I know a lot of that came a couple of quarters ago. But with this very sharp increase in small business optimism, I would think that could potentially be something you could benefit from.