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    BAC
    Earnings call· Dec 2024(Q4 FY24)

    BANK OF AMERICA CORP /DE/ BAC

    Jan 16, 2025 Source

    Executive summary

    Bank of America Q4 FY24 — NII Inflection and Strong Capital Returns

    Bank of America delivered a solid Q4 FY24, marked by a significant inflection in Net Interest Income (NII) and robust capital returns to shareholders. The company demonstrated strong organic growth across all business segments, particularly in deposits and loans, while maintaining healthy asset quality. Management is optimistic about continued NII growth in FY25, driven by deposit and loan expansion and fixed-rate asset repricing, alongside a commitment to operating leverage despite ongoing investments and compliance-related costs.

    Highlights

    5

    • Net interest income (NII) grew for the second consecutive quarter, reaching $14.5 billion (FTE) in Q4 FY24, exceeding expectations and providing a strong starting point for FY25.

    • Record sales and trading revenue of nearly $19 billion for the full year FY24, with Q4 FY24 marking a record $4 billion, up 10% YoY.

    • Deposits grew for the sixth consecutive quarter, with consumer deposits finding a floor in mid-August and ending Q4 FY24 at $952 billion.

    • Returned $21 billion of capital to shareholders in FY24, a 75% increase from FY23, including an 8% increase in common dividend and $3.5 billion in share repurchases in Q4 FY24.

    • Investment Banking fees grew 44% YoY to $1.7 billion in Q4 FY24, driven by M&A, debt capital markets, and equity capital markets.

    Concerns

    2

    • Noninterest expense increased in Q4 FY24, driven by higher incentives for strong revenue growth, investments in people/technology/brand, and increased costs for compliance and controls.

    • Provision expense for credit losses remained elevated at $1.5 billion in Q4 FY24, consistent with the prior two quarters, reflecting a cautious macro outlook.

    Guidance & targets

    7
    CategoryTargetConfidence
    Net Interest Income (NII)
    modestly higher than the fourth
    high materiality
    High
    Net Interest Income (NII) Growth
    6% to 7% higher
    high materiality
    High
    Net Interest Income (NII) Exit Rate
    at least $1 billion higher, in a range of $15.5 billion to $15.7 billion
    high materiality
    High
    Noninterest Expense
    roughly $17.6 billion
    medium materiality
    High
    Noninterest Expense Growth
    roughly 2% to 3% higher
    medium materiality
    High
    Net Charge-Off Ratio
    in the range of 50 to 60 basis points of loans
    medium materiality
    High
    Effective Tax Rate
    in a range of 11% to 13%
    low materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Consumer Banking
    Achieved new record of client experience scores. Deposits appear to have bottomed in mid-August at $928 billion and ended the year at $952 billion on an ending basis.
    FY24 earnings: $11 billionFY24 earnings % of company: 40%Net new checking accounts: >200,000Investment balances: $518 billionInvestment balances growth: 22%Full year flows: $25 billionAverage deposits: $942 billionAverage deposits growth QoQ: $4 billionRate paid on deposits: 64 bpsDigital sales: >60%
    		$10.6 billionmodestly—$2.8 billion net income
    Wealth Management
    Diversity of revenue continues to improve with increased banking product usage. Strong organic growth from Merrill and Private Bank. Business had a 26% pretax margin and generated a strong return on capital of 25%.
    FY24 earnings: $4.2 billionFY24 revenue: $23 billionNet new relationships: 24,000Asset management fees growth: 23%Banking product usage by GWIM clients: >60%Revenue from NII: ~30%Average loans growth: 4%Deposits growth QoQ: 2%Asset under management flows: $79 billion (FY24)Merrill bank and brokerage accounts opened digitally: 75%
    		$6 billion15%—$1.2 billion net income
    Global Banking
    Most efficient business in the company at less than 50% efficiency ratio. Strong momentum in Q4 for investment banking fees, led by M&A, debt capital markets, and equity capital markets. Foreign exchange impact and $6 billion decline in commercial real estate from paydowns affected overall loan growth.
    FY24 earnings: $8.1 billionFY24 earnings % of company: 30%Investment banking fees: $1.7 billionInvestment banking fees growth: 44% YoYInvestment banking fee position: #3Loans growth YoY (ex-FX/CRE): 2%Total deposits growth YoY: 10%International deposits growth: 10%
    		———$2.1 billion earnings
    Global Markets
    Achieved operating leverage and strong return on capital. Q4 sales and trading revenue was a record for the fourth quarter, including records for both FICC and equities. FICC benefited from tighter credit spreads and increased interest rate volatility; equities benefited from increased activity around the U.S. election.
    FY24 profits: $5.7 billionFY24 profits % of company: >20%FY24 sales and trading revenue: nearly $19 billion (record)Sales and trading revenue growth YoY: 7% (FY24)Sales and trading revenue (ex-DVA): $4.1 billionSales and trading revenue growth YoY (ex-DVA): 10%FICC growth: 13%Equities growth: 6%
    		15% (ex-DVA)15% (ex-DVA)—$955 million earnings
    All Other
    Loss impacted by comparisons to Q4 FY23 charges for BSBY and FDIC special assessment. No other significant items to report.
    		———loss of $407 million

    Operational metrics

    29
    Total Revenue (FTE)
    $25.5 billionup 15% YoY
    Q4 FY24

    Reported revenue on a fully taxable equivalent basis.

    Total Assets
    $3.26 trilliondown $63 billion QoQ
    Q4 FY24 end

    Driven by seasonally lower levels of client activity in Global Markets, used in context of balance sheet scale for fixed rate asset repricing.

    Excess Deposits Over Loans
    $870 billion
    Q4 FY24 end

    Represents a significant source of value for shareholders.

    Excess Liquidity in Short-Dated Cash and AFS Securities
    $649 billion
    Q4 FY24 end

    The longer-dated lower-yielding hold-to-maturity book continues to roll off, and we continue to reinvest in higher-yielding assets.

    Interest Expense on Deposits
    $600 milliondeclined QoQ
    Q4 FY24

    Contributed to NII growth, even as deposit balances increased.

    Deposit Rate Paid
    194 bpsdown from 210 bps in Q3 FY24
    Q4 FY24

    Reflects disciplined pricing across all business segments.

    Commercial Loans Growth
    5%YoY
    Q4 FY24

    Driven by continued build-off of strengths seen in Q3 FY24.

    Commercial Loans Growth (Excluding CRE)
    7%YoY
    Q4 FY24

    Excludes an 8% drop in commercial real estate loans.

    Consumer Loans Growth
    modestlylinked quarter and YoY
    Q4 FY24

    Every category of consumer lending grew on a linked quarter basis.

    Headcount
    213,000fairly flat through FY24
    FY24 end

    Managed carefully, with shifts in expenses to quiet coverage, marketing, client coverage, and technology investment.

    Incentive Compensation as % of Expense Growth
    45% to 50%
    FY24

    A significant portion of the expense growth was driven by incentives related to market-related revenue streams.

    Digital Logins
    14 billion
    FY24

    Reflects expanded digitalization and engagement across all businesses.

    Erica Interactions
    2.5 billion
    since inception

    Surpassed a new milestone, indicating strong adoption of AI-powered capabilities.

    CashPro App Payments
    $1 trillion
    FY24

    Surpassed a new milestone in payments made through the app.

    Average Checking Account Balance
    $9,000up from $7,000 pre-pandemic
    Q4 FY24

    Stabilized at a higher level than pre-pandemic, indicating stronger consumer financial health.

    Merrill Edge Balances
    $518 billion
    Q4 FY24 end

    Crossed a new milestone, with 300,000 new accounts year-over-year, typically starting at $100,000 (not $3,000 as a comparison point).

    BSBY Cessation Charge
    $1.6 billion
    Q4 FY23

    Notable item in Q4 FY23 GAAP net income.

    FDIC Special Assessment
    $2.1 billion
    Q4 FY23

    Notable item in Q4 FY23 GAAP net income to recover losses from bank failures.

    Adjusted Net Income
    $5.9 billion
    Q4 FY23

    Adjusted for the FDIC special assessment and BSBY cessation charge.

    Adjusted EPS
    $0.70
    Q4 FY23

    Adjusted for the FDIC special assessment and BSBY cessation charge.

    Shareholders' Equity
    $295 billionflat QoQ
    Q4 FY24 end

    Despite $5.5 billion of capital returned to shareholders.

    Total Loss Absorbing Capital (TLAC)
    $460 billion
    Q4 FY24 end

    TLAC ratio remains comfortably above requirements.

    Supplementary Leverage Ratio (SLR)
    5.9%
    Q4 FY24 end

    Leaves some capacity for balance sheet growth.

    Risk-Weighted Assets (RWA)
    increased modestly
    Q4 FY24

    Increases in loans were mostly offset by lower RWA supporting Global Markets client activity.

    Net Charge-Offs
    <$1.5 billionimproving modestly QoQ
    Q4 FY24

    Fourth quarter in a row where net charge-offs are around this level.

    Consumer Losses
    $1 billion to $1.1 billionstable
    Q4 FY24

    Seen in a pretty stable range over the past few quarters.

    Commercial Losses
    $359 milliondown from Q3
    Q4 FY24

    Driven by the continued decline in commercial real estate office losses.

    Financial Centers Added
    17
    Q4 FY24

    Part of continued investment in the franchise.

    BSBY Accretion Benefit
    a couple of hundred million
    Q4 FY24

    Expected to continue at this pace through most of 2025, with a little bit in 2026 and a tiny bit in 2027.

    Industry KPIs

    12
    MetricValueDetails
    Loans$1.08 trillionUSD
    Deposits—
    Rotce ROE13%%
    Cet1 ratio11.9%%
    Capital returns$21 billionUSD
    Fee income lines—
    Allowance reserves—
    Net interest income$14.5 billionUSD
    Net charge offs npls54 basis points%
    Total operating expenses$16.8 billionUSD
    Provision for credit losses$1.5 billionUSD
    Efficiency ratio operating leverage—

    Risks & headwinds

    4
    Interest Rate Volatility and Predictabilitynext 12 months

    100 basis point increase would benefit NII by roughly $1 billion, while a decrease of 100 basis points would decrease NII over the next 12 months by $2.3 billion.

    Mitigation: Dynamic deposit basis for interest rate sensitivity.

    Costs for Compliance and Controls Enhancementsecond half of 2024 onwards

    Costs are already embedded in our quarterly run rate.

    Mitigation: Increased resources substantially; OCC order acknowledges corrective actions began before announcement.

    Geopolitical and Macroeconomic Factors

    Unemployment rates in many countries are pretty low, leading to resource availability concerns.

    Mitigation: Manage the company to operate effectively given potential events like wars, trade wars, and federal debt levels.

    Excess Leverage in the System (Outside Banking)

    Hypothetical scenario of 4.8% unemployment rate (not believed by management for next 4 quarters).

    Mitigation: Stress testing helps position the company to survive 'horribles' even if they don't occur; focus on avoiding excess leverage.

    What to watch in Q1 FY25

    5

    NII growth in Q1 FY25

    Q1 FY25
    CurrentQ4 FY24 NII (FTE) $14.5 billion
    Targetmodestly higher than the fourth (after $250M day count adjustment)

    Why it matters

    Verifies the continued NII inflection and growth trajectory, a key driver of profitability.

    We expect to start the year in the first quarter with NII modestly higher than the fourth. Remember that the first quarter has 2 fewer days of interest and that's roughly the equivalent of about $250 million of NII equivalent. So even with that, we expect to grow modestly.

    Q&A highlights

    5

    Breakdown of NII growth drivers (loan growth, repricing, swaps) for FY25 and whether acceleration continues into FY26.

    NII growth is driven by improved deposit and loan growth (consumer and wealth deposits found a floor, loan growth picked up), and fixed asset repricing (old loans, cash flow swaps). The acceleration is expected to continue through FY25, but FY26 is too far out to comment on.

    “We're obviously pointing right now to deposit growth in particular because it's beginning to get back to something more normal... a little more confidence around deposit growth, a little more confidence around loan growth, those obviously compound through the course of the year.”

    asked by Steven Chubak · answered by Alastair Borthwick

    2 min read6 chapters

    Detailed Narrative

    01

    NII Trajectory and Drivers

    Management confirmed Net Interest Income (NII) troughed in Q2 FY24 at $13.9 billion (FTE) and has grown for two consecutive quarters, reaching $14.5 billion (FTE) in Q4 FY24. This growth is attributed to improved deposit dynamics, with consumer and wealth deposits finding a floor and growing, disciplined deposit pricing (rate paid declined to 194 bps from 210 bps QoQ), and continued loan growth. Fixed-rate asset repricing and cash flow swap maturities are also contributing tailwinds, with NII expected to be 6-7% higher in FY25 than FY24.

    02

    Expense Management and Investments

    Noninterest expense in Q4 FY24 was $16.8 billion. While up YoY (excluding the FDIC special assessment), it included significant investments in people, technology, and brand (e.g., Masters, FIFA sponsorships). Incentive compensation, tied to strong market-related revenue growth, accounted for 45% to 50% of the expense increase. The company also incurred additional costs to accelerate compliance and controls work, following an OCC consent order. Headcount remained flat at around 213,000 in FY24, with FY25 expense growth guided to 2-3%.

    03

    Capital and Shareholder Returns

    Bank of America ended the year with $201 billion of regulatory CET1 capital, resulting in a CET1 ratio of 11.9%, well above the 10.7% requirement. The company returned $21 billion to shareholders in FY24, a 75% increase YoY, including an 8% dividend increase and $3.5 billion in share repurchases in Q4 FY24. Management aims to continue returning capital, prioritizing growth investments first, and believes a 100 basis point increase in CET1 could be achieved if regulatory capital rules were more aligned with peers.

    04

    Credit Quality and Outlook

    Asset quality remained strong and stabilized, with net charge-offs declining modestly to $1.5 billion in Q4 FY24. Consumer losses were stable at $1 billion to $1.1 billion, while commercial losses decreased, driven by continued decline in commercial real estate office losses. The reserve levels are based on an unemployment rate assumption slightly below 5% by end of FY25, compared to the current 4.1%. The net charge-off ratio is expected to remain in the 50-60 basis points range for FY25.

    05

    Deposit Franchise Strength

    The company highlighted its strong deposit franchise, with deposits growing for six consecutive quarters. Consumer Banking deposits bottomed in mid-August at $928 billion and ended Q4 FY24 at $952 billion. The rotation from noninterest-bearing to interest-bearing deposits has slowed significantly, with noninterest-bearing balances now growing again. The average checking account balance has stabilized at $9,000, up from pre-pandemic levels of $7,000, indicating a valuable and growing deposit base.

    06

    Digital Adoption and Client Engagement

    Digitalization continues to expand, with over 14 billion logins to digital platforms in FY24 and Erica surpassing 2.5 billion interactions since its inception. The CashPro app processed over $1 trillion in payments in FY24. Digital sales in consumer product areas crossed 60% in Q4. Merrill Edge crossed $518 billion in balances, and three-quarters of Merrill bank and brokerage accounts were opened digitally, demonstrating strong client adoption of digital channels.

    AI-generated summary of the company’s earnings call. Not investment advice.