I'll turn
the conference over to Lee McIntyre. Please go ahead.
Good morning. Thank you for joining the call to review our Q1 results. Hopefully, you've all had a chance to review our earnings release documents. As usual, they're available, including the earnings presentation that we'll be referring to During the call, on the new and improved Investor Relations section of the bankofamerica.com website.
I'm going to first turn
the call over to our CEO, Brian Moynihan for some opening comments. And then I'll ask Paul D'Onofrio, our CFO, to cover the details of the quarter. Before I turn the call over to Brian and Paul, let me just remind you that we may make forward looking statements and refer to non GAAP financial measures during the call regarding various elements of the financial results. Our forward looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, particularly during the pandemic period we've been operating in. Factors that may cause those to be different Are detailed in our earnings materials and the SEC filings that are on our website.
Information about the non GAAP financial measures, including reconciliations to U. S. GAAP, can also be found in our earnings materials that are available on the website. So with that, I will turn it over to you, Brian. Take it away.
Thank you, Lee, and thank all of you for joining us. It's been a year since we first reported our results, which would include the health crisis impact. But what we see different now is we see an accelerating recovery versus the economic uncertainty that we would have faced last year at this time. The most recent economic indicators reflected an economic recovery that has gained momentum and continues to be supported by fiscal monetary policies. From our company's perspective, we have emerged as a even stronger company and competitor than what we were when we entered the healthcare crisis.
Compared to last year, Bank of America's balance sheet has higher capital ratios, higher reserves with lower charge offs and record liquidity. Our diverse business model with leadership positions across all our businesses has helped us earn our way through the crisis. Our Global Markets and Global Wealth Management businesses, which would typically benefit from this healthy capital markets environment, continued to perform well this quarter. Our Consumer and Global Banking businesses also performed well, but they were this is after being more negatively impacted For several quarters by the interest rate environment and credit costs. These businesses now are in full recovery mode or out generating New assets and new relationship with our clients.
All this work by my team and which we're very proud of here has led to EPS In the Q1 of $0.86 per share and a return on tangible common equity of 17%. Paul is going to take you through the details in a moment. But simply put, we believe our decade plus long dedication to responsible growth That's put us in a position to both earn more money and deliver more back to you, our shareholders. Our announcement this morning regarding share repurchases It's our intention to increase those repurchases over the coming quarters as the current restrictions are lifted by the Federal Reserve. So first, let's discuss the recovery economy.
On Slides 3, 45, we've shared slides like this with you the last few quarters. They are updated for the most quarterly data. They highlight the key economic signposts. I won't go through all the details on them, but they're there for your reference. But a few highlights.
Obviously, GDP consensus projections continue to improve and you can see our tremendous best in class Bank of America Research Chairman Teams projections in the upper left hand corner of Slide 3. You will note also the increases in the consumer spending from our Bank of America customers at the bottom of the slide, which is not only much higher than the prior year when payments began to decline, but notably is much higher this year to date And year to date 2019, a more appropriate comparison. This is a key element of the economic optimism you're seeing reflected in the market. Looking back to 2017, after tax reform and other matters, we saw a step change in money movement by our customers, Moving from previously a 5% year over year type of growth rate to up to 9% in 2019 versus 2018. Then the pandemic hit and growth of 20 over 2019 was only 1%.
But so far year to date, We're going faster on a larger base than the 2019 9% plus growth trend at 10% plus. The Q1 was a record dollar amount of money moved by Bank of America consumers. The trend is fully on track even though the economy has not yet fully reopened. March was a record month of spending by Bank of America consumers and led to the highest ever quarter of consumer spending. As you look also on these slides, note on Slide 4, the lower level of card delinquencies as a spike from the expired deferrals Next year the next quarter, excuse me.
As economy has improved, customers have continued to increase their business across our platform. When you think about it from a customer's perspective, which is what we do as a business and comparing across the pandemic period of last 12 months, We have simply added more customers across every line of business. And those customers are more digitally engaged in every business as well. You're going to see later on Slide 17 that we added nearly 1,000,000 active digital customers this quarter, Pushing us past 40,000,000 active users, led by increased use by boomers and seniors. We have more deposit and cash management customers and balances in every business from consumer to small business to Merrill Lynch to private bank, The business bank and the commercial bank across the whole franchise.
New investment relationships in our consumer businesses Merrill Edge platform Now total more than 3,000,000 accounts and net new households continue to grow both in Merrill Lynch and the private bank. We saw aggregated client flows across our investment platforms of $48,000,000,000 in the quarter, bringing those total investment assets over $4,000,000,000,000 With a range of those capabilities from our digital only capabilities in our consumer business all the way through the great service and capabilities provided by our 20,000 wealth advisors. We added new lending customers, whether through PPP and Small Business and Business Banking and along with broader traditional banking relationships to our middle market and corporate clients. And we've helped existing and new clients attain funding to access market through our sales and trading investment banking platforms. Combined sales and trading investment banking revenue of $7,300,000,000 is The highest in a decade is up 28% year over year.
Jimmy Demar and Matthew Koder and the teams led by Tom Montag have done a great job there. Our customer satisfaction levels across all these groups of clients rose during the pandemic and the brand loyalty of our company is at the highest it's been. We also note that our employee engagement is at the highest Quarter and you'll note in our expenses with another broad based bonus plan, which is the 4th time we've done this. And the support provided to the communities we serve, our employees' sense of pride in our company and what it does has reached new level of satisfaction. So that being said, we do have some work to do in certain areas as we have for the last decade.
I'd highlight those 3 areas with a couple of comments on each. Those areas are loan growth, net interest income and expense. Our loan growth continues to be a lot of liquidity in the system and customer payments remain high, which impacts our loan balances. This is across the whole consumers and companies. Pipeline origination improving, but remain below Pre pandemic levels.
We've reinstated all our credit standards back to where they were before the pandemic. And we remain Highly focused on capturing loan growth as the economy expands and continues to recover. The projected economic growth should cause the need for Companies to borrow, build inventory, increase hiring and invest and do what they do in their businesses. As you can see from Slide 4, Global Banking loans after following January appear to have stabilized again in March. We'll have to see how this plays out, but that's the first This month the month of March was a good sign.
Pipelines continue to build, but line usage remains low. Card applications and mortgage originations Continued increase in each of the last three quarters. This along with mortgage rates moving higher and driving lower prepayments and runoff of Current mortgage loan sets up consumer loan growth. That strong customer liquidity obviously negatively impacts loan growth, But it has benefited credit cost. We saw quarter 1 net charge offs from 1,000,000 below pre pandemic levels in dollars and percentage further supporting reduction in
And our credit reserves
this quarter. Now net interest income. We told you 6 months ago that we believe the 3rd quarter Would be the trough and has proven to be so. Despite the drawdown of loans and 2 less days of interest in this current quarter, NII was flat Q4 of last year. As we move through 2021, we believe the benefits from a steepened interest rate curve Should begin to work its way into our revenue driven by continued investment of our liquidity as well as picking up those lost days of interest.
Thinking about the expected NII trajectory this year within the year ahead, I would set the stage as follows. If the forward interest rate curve materializes and we see modest loan growth late in the later quarters of the year, we ought to see NII as we exit the Q4 of this year, dollars 1,000,000,000 a quarter higher than the most recent level of $10,300,000,000 in this quarter. The last area I would highlight is expense. We had a large expense this quarter driven by several factors. Some were seasonal impacts, some were good news and that they're volume and revenue driven impacts And others were not typical of our normal operating expense due to charges taken.
We expect a significant decline as you look forward to the Q2 20 21 in expense. We've seen the headcount in our company start to work its way back down due to attrition, especially as the specialized programs begin to run their course. I'd also remind you that the Q1 is typically elevated For payroll tax expense in this year was about $350,000,000 Next, I would say roughly $500,000,000 of our increase is driven by the improved activity and higher revenue, which The course is a positive. It's what we're in the business to do. The items I classified as differing from our typical costs were as follows.
1st, given the progress made in our digital engagement with our customers and other customer traffic behavior, we will continue to rationalize real estate For our teammates and our customers and recorded impairment charge due that of $240,000,000 in the quarter. 2nd, a portion of the equity awarded last year to our Global Bank For last year's work and for our Global Banking Markets teammates, we had a different retirement rule. And as previously reported, we changed our retirement rule, which Cause that to accelerate in full this quarter instead of being amortized over the next 4 years. Other costs worth noting include severance costs and special For the 4th time, it's built on shared success awards the 3 times prior that was given in 3 previous years. Additionally, COVID expense remains elevated as we continue to help our clients through the various assistant programs established by the government PPP unemployment Same stimulus payment disbursement and PPP forgiveness.
But broadly speaking, we have done a great job in helping customers with these programs. We've Now originated almost 500,000 PPP loans and have obtained forgiveness for our clients for 200,000 of those. We processed $180,000,000,000 unemployment claims and $73,000,000,000 in the IP stimulus payments. Paul is gonna Share a bit of the details in the quarter's expenses, but even after absorbing these expenses, our PPNR rose from 4th quarter. As we ended last year, we talked about a target for this year's Expenses mean 2021 fiscal year expenses to be similar to the $55,000,000,000 level in 2020.
Given the charges this quarter, We would increase that target by about $1,500,000,000 However, I just want you to keep some perspective here. We reported $57,000,000,000 in expense for the year 2015, 6 years ago. Even though all the investments we've made in technology and the build out of branches and new markets, new sales resources and just having more customers, more activities, The inflation of healthcare and real estate and other costs, moving our teammates, our starting wages from $15 to $20 an hour during that time period. We are targeting 2021 expense at roughly to where it was in 2015, 6 years later at a lot bigger company later. That discipline and operational excellence is what we do and you should expect us to continue that.
So in summary, this quarter we again drove responsible growth. We support our employees by keeping them safe from rewarding their efforts in the pandemic. We support our customers by providing strong balance sheet and resilient systems to transact. We support our communities by supplying critical funding and driving improvement toward racial In social equality with our increase in our $1,000,000,000 commitment to 1 point We've already delivered over $300,000,000 of that commitment. At the same time, we delivered to you, our shareholders, dollars 8,000,000,000 in earnings, Generating return on tangible common equity of 17% and return $5,000,000,000 in capital to the shareholders in the Q1.
This shows you can both deliver for you, our shareholders and deliver for our customers, our employees and our other stakeholders in society. With that, let me hand off to Paul to cover the quarter in a little more detail.
Thanks, Brian. Good morning and hello, everyone. I'm starting on Slide 6 and 7 together. As I've done in the past few quarters now, The majority of my comparisons will be relative to the prior quarter to reflect how we are progressing through this health crisis rather than year over year. In Q1, we earned net income of $8,100,000,000 or $0.86 per share, which compares to $5,500,000,000 or $0.59 per share in Q4.
The earnings improvement included strong revenue growth, which more than offset higher expense. Additionally, earnings also included a $2,700,000,000 reserve release, which resulted in a $1,900,000,000 provision benefit. Revenue growth was driven by strong sales and trading results, Record investment banking fees and record asset management fees in our Wealth Management business, while consumer fees faced the seasonal challenge against elevated Q4 holiday spending. With respect to returns, return on tangible common equity was 17.1% and ROA Was 113 basis points. Moving to the balance sheet on Slide 8.
The balance sheet expanded Q4 to $2,970,000,000,000 in total assets. Deposit growth continued to drive the balance sheet higher. Deposits grew $89,000,000,000 in the quarter and are up $300,000,000,000 from Q1 2020. Note that As deposits continue to grow, loans declined $25,000,000,000 from Q4. We deployed some of this excess liquidity into debt securities, which increased $172,000,000,000 while cash balances declined $54,000,000,000 and reverse repo also fell.
It is also worth noting that our liquidity portfolio is now more than 1 third of our total balance sheet And has surpassed $1,000,000,000,000 On a period end basis, our global markets balance sheet Increased by $129,000,000,000 coming off year end seasonal lows and as customers increase Their activity with us. Note that on an average basis, it is only up marginally from the prior year And versus Q4, up only $40,000,000,000 Shareholders' equity increased $1,000,000,000 Earnings were mostly offset by $4,500,000,000 in net capital distributions and a decrease in OCI of $1,800,000,000 driven by an increase in long bond rates. With respect to regulatory ratios consistent with the 4th quarter standardized remains our binding approach for us And at 11.8%, our CET1 ratio is our binding metric. While the CET1 ratio declined 15 basis points from Q4, It is 2.30 basis points above our minimum requirement of 9.5%, which translates into a $35,000,000,000 capital cushion. The benefits to the ratio from an increased level of capital were more than offset by higher RWA from the liquidity deployed into mortgage backed securities and growth in our global markets balance sheet.
Our supplemental let ratio at quarter end was 7% And 6.1% on a pro form a basis, excluding the relief for deposits at the Fed and investments in treasuries. 6.1% versus the 5% minimum requirement leaves us plenty of room for growth in the balance sheet. Before moving away from the balance sheet, I will focus on averages as that is what drives NII. With respect to loans, on Slide 9, You can see the downward trend across the year as customer liquidity and accommodating capital markets drove pay downs well above historic levels. I would draw your attention to the linked quarter change.
Global Banking commercial loans declined $16,000,000,000 but as Brian noted earlier, we are seeing pipelines build And balances have stabilized for more than a month, so we are hopeful for a turnaround. Loan payments by consumers continue to outpace originations with loans declining $14,000,000,000 in consumer banking led by mortgages. Plus, we saw normal seasonality in our card products as customers paid down holiday balances with stimulus contributing to the high payment rates. But what is also noteworthy is the linked quarter improvement In GWIM and Global Markets, GWIM continued to benefit from security based lending as well as custom lending. In Global Markets, we relaxed some hold limits As the economy continued to strengthen.
With respect to deposits on Slide 10, we continued to see tremendous growth across The client base not only because of growth in the Money Supply, but also because we are adding new accounts and attracting liquidity from existing customers. Turning to Slide 11 and net interest income. On a GAAP non FTE basis, NII in Q1 was $10,200,000,000 $10,300,000,000 on FTE basis. Net interest income declined $1,900,000,000 from Q1 2020 driven by the rate environment and lower loan balances, but was relatively flat to Q4. Compared to Q4, We see this as a good outcome considering the headwinds of 2 fewer days of interest, lower loan levels and modestly higher premium amortization expense.
These headwinds were mostly offset by the deployment of excess deposits into securities and a benefit of approximately $100,000,000 from a legacy litigation settlement involving some securities. The net interest yield was relatively stable, declining 3 basis points from Q4 and it was flat if you exclude Global Markets. Reducing cash and repo, we deployed some of our Excess liquidity into securities in Q1 split across treasuries and mortgage backed securities. Securities increased $172,000,000,000 from year end on a weighted average basis relative to what we were earning on the cash. We improved our yield on that roughly $170,000,000,000 by approximately 115 basis points.
Now the improvement in yield could have been higher, However, but similar to Q4 purchases, we hedged a portion of the treasuries purchased with swaps effectively keeping those securities floating. As you will note, given all the deposit growth And low rates, our asset sensitivity is rising. Our asset sensitivity to rising rates remained significant, highlighting the value of our deposits and customer relationships. Sensitivity is lower From the year end levels as higher rates and deployment of liquidity into securities increased Our baseline, so the sensitivity no longer assumes that liquidity is available to invest at higher rates. A few thoughts on NAI for the remainder of the year.
But first, please note that these forward looking comments on NAI assume that the forward Interest rate curve materializes that the economy continues to recover and that we have some fairly modest loan growth in the back half of the year. Given those assumptions, we expect some improvement in premium amortization across the next few quarters if mortgage rates follow At $1,500,000,000 in Q1, write off for premium continued to be a headwind As mortgage prepayments remained quite high. So forward looking comments include a lot of material moving parts from rates, Loan levels and premium amortization, but as Brian said, we believe 4Q 2021 NII could rise Okay. Turning to Slide 12 and expenses. Q1 expenses were $15,500,000,000 $1,600,000,000 higher than Q4.
I will add to some of the remarks Brian mentioned earlier. First, Q1 included the normal seasonal elevation of payroll tax Expense of about $350,000,000 2nd, as a result of the current period's solid revenue performance and a better outlook for revenue for the remainder of the year, We accrued for higher incentives and experienced increased processing costs. This added roughly $500,000,000 to the quarter. 3rd, we incurred some expense, that differs from our typical operating expense. We reversed a decision made on some 2020 incentive comp awards, making certain portions of those awards retirement eligible.
This accelerated approximately $300,000,000 of expense into Q1 that would have been expensed over 4 years. We also recorded an impairment charge of $240,000,000 for real estate realization and we incurred $160,000,000 of severance charge as we move back towards business as usual With respect to our headcount, this is based on an expectation that as roles get Eliminated through process improvement, some associates might choose severance over opportunities to work in a different role in the company. Lastly, our COVID costs remained largely unchanged as modest declines in some employee related costs We're offset by costs associated with restarting PPP originations and forgiveness and additional unemployment claim processing. COVID costs are proving a little slower to safely reduce than we had hoped. Turning to asset quality on Slide 13, government stimulus and support has helped Customers get through this pandemic.
That support, coupled with our customer assistance programs and years of underwriting discipline under responsible growth, Has resulted in low net charge offs. Net charge offs this quarter were $833,000,000 or 37 basis points of average loans And were lower than Q4 and they were 14% lower than the Q4 of 2019, which was the last quarter before the pandemic, despite an expected increase in card losses of $229,000,000 in Q1. With the exception of a small uptick in small business and the card losses, losses in Every other category declined from Q4. Provision was a 1.9 benefit In the quarter, as an improvement in the macroeconomic outlook and lower loan balances resulted in a $2,700,000,000 release Driven primarily by card, while the commercial release was $1,200,000,000 Our allowance as a percent of loans and leases ended quarter at 1.8%, which still remained well above the 1.27% Where we've begun 2020 following our day 1 adoption of CECL. With respect to reserve setting assumptions, we continue to include a multitude of scenarios.
Based upon our Q1 weighting of those scenarios, GDP is forecasted to return to its 4Q 2019 level by the end Of 2021, the weighted scenario also assumes that the unemployment rate at the end Of 2021, we'll be just north of 6%, which is in line with March unemployment rate. For 2022, the weighted average scenario assumed unemployment just under 5.5% As we exit the year, to the extent the economic outlook and the remaining uncertainties continue to improve, We expect our reserve levels will move lower. On Slide 14, We show the credit quality metrics for both our consumer and commercial portfolios. Overall, consumer net charge offs rose $211,000,000 from Q4 and absent the $229,000,000 increase noted in card, other losses declined. With respect to card losses, given the reduction in late stage delinquencies in the 180 day pipeline, We expect card losses to be lower in Q2.
NPLs remained low despite a small uptick Due to consumer real estate deferrals, which have limited expected loss content given healthy LTV ratios. Moving to commercial, net charge offs declined $296,000,000 from the 4th quarter as the portfolio stabilized With result criticized exposure and NPS declining in the quarter. Overall, given the environment, The asset quality of our commercial book remains solid and 90% of the exposures are either investment grade or collateralized. Turning to the business segments and starting with Consumer Banking on Slide 15. Consumer Banking produced another strong quarter in terms of Customer deposits and investment flows reflecting the strength of our brand, the innovation around digital and deployment of specialists in our centers, all of which has enabled us to capture more than our fair share of the increase in customer liquidity.
The segment earned $2,700,000,000 in Q1 versus $2,600,000,000 in Q4 as the provision benefit more than offset lower Mostly seasonal revenue and higher expense. Revenue declined 2%, Reflecting lower card income from Q4, Q4 elevated holiday spending, Expenses moved higher out of real estate impairment costs as well as seasonally higher payroll tax expense. This also caused an increase in our cost of deposits this quarter to 142 basis points. Absent the impairment charge, The cost of deposits would have been 131 basis points. As expected, net charge offs rose from Q4 Due to the flow through of the bold in car delinquencies as noted earlier, at A $1,400,000,000 reserve release resulted in a $617,000,000 Provision benefit in the quarter.
On Slide 16, you can see the significant increase in consumer deposits and investments. Average deposits of $924,000,000,000 are up 25% compared to Q1 2020 With nearly 2 thirds of that growth in checking, rate paid is down to 3 basis points as 56% of the deposits Lastly, note the growth throughout the quarter as average deposits were up $39,000,000,000 from Q4. We covered loans earlier, so I would just note investment balances Of $324,000,000,000 are up 53% year over year as customers continue to recognize the value of our online offering. In digital enrollment this quarter, 70% of our consumer households use some part of our digital this year. We continued to see digital payments And Zelle taking hold across all our businesses.
Zelle consumer dollar volume is up 72% year over year, Small business is up 182% year over year and 90% of our business to consumer payments in Global Banking are now made via Zelle. As you can see, our digital assistant, Erica, continues to add users, capabilities and usage. Plus, we are applying our success with Erika to other businesses as well. Okay. Turning to Wealth Management.
We continued to deliver solid organic growth, serve the comprehensive banking and investing needs of clients and manage risk responsibly. We experienced strong household new household acquisition in a virtual environment and a very competitive market. This resulted in a record quarter with respect to total client flows, including near record AUM flows and record AUM fees. Net income of 8 $81,000,000 improved 6% from Q4 as revenue growth and improvement in provision an increase in expense. With respect to revenue, the record AUM fees were complemented by higher NII On the back of the slide, we have solid loan and deposit increases.
Expenses increased driven by revenue related costs and CEH elevated payroll tax. Merrill Lynch and the private bank both continued to grow clients as we remained a choice for affluent clients. Client balances rose to a record $3,500,000,000,000 up $822,000,000,000 year over year, driven by higher market levels as well as strong client flows. During Q1, our advisors added over 6,000 net new households in Merrill Lynch and nearly 700 relationships in the private bank. Let's skip to Slide 20, which is a new page, highlights our progress to digitally engage wealth management.
In Merrill and the Bank, our clients and advisors have both embraced The value of a digitally enabled relationship in which digital tools are critical mechanisms for fast, safe and secure transactions. Our wealth clients are some of the most highly engaged clients in the franchise with 80% of Merrell households digitally active. In Q1, we saw a record number of logins, Clients are logging into freight, check balances and originate loans with ease, all of which This can be done through a simplified annum. We continue to enhance and modernize capabilities Moving to Global Banking on Slide 21. The business earned nearly $2,200,000,000 in Q1, improving $100,000,000 from Q4 driven by a provision benefit, solid revenue.
While loan growth has been challenging, deposit growth has Strong and Investment Banking revenue exceeded previous records. The team produced $2,200,000,000 in firm wired Investment Banking fees Growing year over year by 62% 20% over Q4. Looking at revenue and comparing to Q4, Despite the higher IB fees, total revenue declined 3%, driven by weather related impairments Some tax advantage investments. Provision expense reflected a reserve release of $1,200,000,000 in Q1. Importantly, net charge offs of $36,000,000 fell by $278,000,000 from Q4.
Interest expense rose 14% from Q4, reflecting the incentive award changes noted earlier. Additionally, the strong IB performance and improved outlook and seasonally elevated payroll tax increased personnel costs in Q1. Looking at the balance sheet on Slide 22, Average deposits moved relative to Q4 as customers remained highly liquid. Year over year, deposits are up an impressive 27%, while rate paid is at an historic low. As noted earlier, loans declined early in the quarter, but stabilized late in the quarter.
Wholesale digital engagement continued to accelerate and usage continued to grow, driven by the same ease, safety and convenience of our digital banking capabilities that our consumer customers enjoy. Switching to Slide 24, results reflected the highest order in over a decade with solid year over year improvement and an even more significant increase relative to Q4. As I usually do, I will talk about the segment's results excluding DVA. This quarter, net DVA was negligible, but the year ago quarter had a $300,000,000 gain. Global Markets produced $2,100,000,000 of earnings in Q1, more than double the level of Q4 and up 39% from Q1 2020.
Focusing on year over year, revenue was 26% on higher sales and trading and equity underwriting fees. The year over year expense increase was driven by volume related expenses in both Card and trading and an acceleration in expense from changes in the incentive awards. Sales and trading contributed $5,100,000,000 to revenue, increasing 17% year over year, driven by a 22% improvement in FIC And a 10% increase in equities. FICC results reflected gains in commodities and strong results in credit, Mortgage and municipal products versus relative weakness in Trading opportunities in other macro products. The strength in equities was driven by a strong trading performance in cash.
The business has produced strong returns delivering a 22% return on capital in Q1. Finally, on Slide 26, we show all other, which reported profits of $257,000,000 Compared to Q1 2020, The improvement in net income was driven by a larger tax benefit given an expected increase in ESG activities this year. The year ago quarter also included a modest reserve build. Our effective tax rate this quarter was 12% And excluding the tax credits driven by our portfolio of ESG investments, our tax rate would have been 23%. For the full year, absent any changes in the current tax laws or other unusual items, we expect an effective tax rate to be in the range of 10% to 12%.
Okay. With that, let's go to Q and A.
Today, we'll go first to Glenn Schorr with Evercore ISI. Please go ahead.
I wonder if we could just You gave us a lot of detail on expense side. I just wanted to try to get a jumping off point on the Q2. I think with all your Comments, it gets you to the low to mid-fourteen billion dollars range. I want to see if that's right. And then if you could give us the right perspective, meaning if you look, You all were able to keep the total expenses flat for many years while you grew the franchise.
Now the economy is growing, capital markets We're very strong and the expense dollars have crept up, but I don't believe DofA has an expense Great problem, but I wonder if you could address that and give us the right perspective to look at. Thanks.
Sure. So in terms of the Q2, I think you're about right. We expect expenses just north of $14,000,000,000 depending on the revenue environment And the amount of progress we make in taking down the COVID costs. In terms Of your comment about our ability to manage expenses, we agree with you. I think as Brian noted in his opening comments, We've managed not to increase expenses for years now And we've absorbed merit increases, investments, minimum wage, improvement in benefits, All the dramatic increase in processing volumes, digital increases, so where we have sort of As talked about in other calls, we've been using operational excellence and other initiatives to basically fund The investments in our future, I think our goal here is to Clearly create operating leverage over an extended period of time.
We've talked about maybe expenses Rising maybe at a 1% level per year, and I think that's probably the best guidance we could give you. Absent again some of the Ins and outs, we had a lot of variability this quarter. And obviously, we're sitting here in the middle of a pandemic With a lot of COVID expenses that have been a little bit more sticky than we had all hoped, But they're going to come out. There's no question about that. And so we'll get back to kind of a normal level of expenses and a Very reasonable growth level over the long term relative to revenue.
Thank you. That's exactly what I was looking for. Maybe just one other one. We've seen a lot of growth in the private Credit markets, and it started out strong in middle market lending. It's transitioning and doing some now large Corporate lending, there's specialized lending in aircraft and transportation maritime.
So I'm curious, given the breadth of your franchise, Those all those things I mentioned are kind of in your backyard. They don't that's just a lending relationship. They don't have the same franchise you have. But curious if you see The growth in private credit as a significant competitor in your traditional backyard.
I'd say, Glenn, those depending on the asset the type of loan, people have been in these markets for years, Think mortgage, think other types of consumer credit and then in the commercial side. So sure, Yes, that has an impact, but our job is to compete through it. But the reality, what's having the impact now, frankly, is to draw rates and lines of credit and stuff are low and companies That are operating well. There's companies that still need to get through the pandemic impact, just aren't using the lines and that's bump along the bottom. We've shown you those long term Chart, so we feel good about our middle market and our business banking businesses and small businesses.
We feel good about they're getting set up As the economy continues to improve and the growth will come back and the services and rate we can provide are competitive. And so I don't think that'll Ever changed, and I think it reaches further. Sometimes it reaches the step we want to do as a company, obviously, in terms of leverage, You have extra amounts of leverage and things like that, but we feel we're very strong and competitive. And before the pandemic hit, we Middle mark will go mid single digits and we'd expect to return back to that level.
That's great. Thanks, Brian.
We'll take our next question from Gerard Cassidy with RBC. Please go ahead. Your line is open.
Can you guys share with us, I think You touched on the capital cushion being about $35,000,000,000 and you announced a $25,000,000,000 Share repurchase program today. Obviously, with the new stress capital buffer construct that goes into effect in the 3rd quarter, You and your peers will be free to buy back your stock in the fashion in which you see if it's best for you guys. Can you give us some color How are you thinking about that $25,000,000,000 buyback on how it will proceed after you get the okay? I'm assuming you're going to pass CCAR, of course, In June, that gives you the green light to do the buyback.
So let's start with a couple of things. One is the number goes up this quarter because the average of the 4 quarters is You move forward a quarter and that's a higher average, so we'll be able to do more this quarter. And then assuming The new rule is coming to effect in July. We have substantial cushions and we'll look to bring that cushion down. We're not going to we're going to maintain a cushion Yes, over the bar requirements 9.5%.
It will maintain a cushion over that. You'd expect us to move fairly at pace to start to bring That's closer to the cushion that was honestly held up by the suspension last year this time of our ability to repurchase stock at all for the first For the Q2, Q3 and Q4 of last year, which if you go back and think about our original CCAR filings, we were going to buy back a Substantial amounts. So we'll get back on the back in the saddle and drive it forward. And also, because the earnings You power the company, you work on continue to work the dividend and so expect us to get right after as soon as we can.
Very good. And Paul, you talked about the loan loss reserve levels. And when you compare them to your day 1 CECL number from January of 2020, obviously, you're considerably higher than that number. Can you share with us The outlook for potential loan loss reserve releases, and could you see an environment Well, you could approach that day 1 reserve level, considering the economy when you look at your own forecast that you gave us today It is much stronger than what it was on the day 1 in January 2020. Can you give some further color on that?
Sure. Just on reserves, absent a deterioration in environment, which we don't expect, We believe the reserves will continue to come down in the coming quarters as we remain as the remaining uncertainties Continue to diminish. In terms of the reserve versus sort of day 1 CECL, Every quarter, we are reserving based upon the size and mix of our portfolio at that moment And our view of the future based upon independent sources. So as you think about that, You've got to recognize that our portfolio has changed. For example, card, which as you know has some of the highest reserve rates It's down 25% from day 1.
So you really need to think about how the mix has changed. You just can't go back to our reserve level on day 1, which I think was 127 basis points, if I'm not mistaken. And just apply that to today's numbers, I think you're going to do a little bit of a product mix there To get back, we've done that work and it shows we have still a significant, I'll call it, cushion to day 1.
Our next question is from Mike Mayo with Wells Fargo. Please go ahead.
Hi. I have 2 opposing views and I'm hoping that you can help me reconcile them as it relates to efficiency. On the one hand, like your slides are very positive. Global Bank, 74 percent digital connections wealth, 80% of households consumer Digital still growing and the unit cost per dollar of deposit, what, 130 basis points, so it's like best in class. So All that technology progress is noted.
On the other hand, I look at Slide 12 and I see the efficiency ratio And I see the expenses and I hear the higher guidance for expenses for this year. So I guess if you could help me reconcile These positive underlying trends with this number on the page of 68% efficiency ratio, And I do recognize that you're calling out a lot of expenses. The $1,600,000,000 increase quarter over quarter, is that Should we consider that kind of just one time? And where should this efficiency ratio go over time? Thanks.
Mike, you pointed out that the operating posture of the businesses continues to improve. But as you go across Page 12, you got to remember, and you well know this, that in the stuff on the left hand side of the page, you had A rate environment that it finally after years have come up to some level of Fed funds rate and then short LIBOR rates And that helped our efficiency ratio move under 60%. But even if you look at this quarter at 68% and you back out the type of expenses that you drop in the low 60% s and then NII improvement will because that frankly, as you well know, comes with very little expense attached to it, I. E. That we don't need More branches and more infrastructure and more even more commercial bankers as those loan uses goes up and the spreads spread off of our floors due to our Massive deposit base.
So I think you should expect it even on pro form a basis you could see the low 60s you expect it to move back in the levels you see here As we move through the year, pick up the NII and then if rates start to move up, you'd even pick up more.
And you don't always disclose how much you're investing, but how is your investing spend? I mean, did you lighten up During the pandemic or you're going to take some now
or Like a technology side, we did. Yes, I mean, technology initiatives last year were 3% and change and this year will go up, Frankly a bit in those numbers we gave you because we continue to take advantage of that. And so I think 25 branches opened up in new cities this quarter and we're seeing the success from that markets That we weren't in 2, 3, 4, 5 years ago. We're now moving in the top 10 all organic and driving off of that. And then salespeople, now that's what we probably lightened up last year just because the opportunities weren't there.
But you're going to see us continue to reposition people from The efficiencies in the OpEx program to the front. And so headcount rose really to support the Exigencies of the circumstances when you couldn't have your teammates appropriate iniquity to each other. We had to have A few more of them move in the issues that were there for social distancing, working from home and overstaffing I think as a high risk employee, so we ran up a little higher and now you're starting to see us drift down. So that core number of headcount will drive our Expenses, but the reality is we invested at the same rate last year and everything except for incremental commercial bankers probably And then we did it in past years and we're going to do it again this year because it's the payback is huge.
And then last follow-up. Just on the COVID related expenses, Seems like a little bit of a longer tail than maybe you had expected. When do you think some of those come off? I mean, you've treated Your employees well with the special payments and all the other efforts that you've made. Is that like another quarter or 2 or are we toward the end of that?
We're blending it. It's blending down because of the situation change. Obviously, as schools reopen and things like that, we can normalize the We started last year this time and said teammates when you're from home, we'll give you $100 a day to hire somebody to come into your home, take care of your kids so you can do a great job for our clients. That's why our client scores Continue to rise during the pandemic. Obviously, as schools have reopened, we've tailored that program.
We will normalize it at the end of the second quarter. That's one thing. Obviously, PPP, Mike, it got extended again. But as we're seeing the volumes be more Maaz, this time we could start to shape those teammates out. The forgiveness program will take us longer just because it's a tail obviously, but we're through 200,000 done.
And so you'll see that happen and the You'll see that happen in the extra cleaning and meals for the teammates and the testing and all the things we've done. That all will come down as we sort of normalize operations over the next 6 months. But it took longer because things like PPP came out 2 more times Since either 2 or 3 times, I guess 1 and 4 would be the right number. But so it's good. But we're doing what we need to do to support our customers $500,000,000 or $500,000,000 excuse me, loans originated under 4 different programs with a constant change in rules.
At the peak, we had 10,000 people working on it. Now we've got about 3,000 there and 3,000 forgiveness and we can work it back down. So Think over the next 6 months, you see it start to blend down piece after piece after piece.
All right. Thank you.
Our next question comes from John McDonald with Autonomous Research. Please go ahead.
Thanks. Sorry, on the expenses again, just on the COVID expenses that you were discussing, Brian, with Paul. We might as what's The kind of size ballpark of that, I'm trying to think about the $56,500,000 total expenses. And if we took off the $500,000,000 kind of special stuff you announced this quarter And then the COVID cost, which might be $1,000,000,000 a year, like is the might you rebase at some point at 55 Before business growth and things like that, I'm just trying to kind of put some numbers on it. Is that reasonable?
I would think of COVID This is in the Q1 to be approximately $400,000,000 of net COVID expenses. That was Roughly flat by the way to last quarter. As Brian said, we ramped up for the new PPP and unemployment processing of claims, But we did offset some of that ramp up with lower expenses associated with childcare and supplemental pay and things like that.
Yes. So John, just to be simple minded about it, the reason why we had we told you the full year is going to be higher is because We think it's $1,000,000,000 higher in the Q1 here that wasn't sort of in our mind because of timing differences on some of the compensation matters and other things. So As you well know, we'll get it we're pushing it back down as fast as possible.
Yes, yes. Okay. And then, Paul, just wanted to follow-up. When you're talking about the interest rate disclosures, you mentioned that the model doesn't assume Deployment automatic deployment of liquidity anymore. Can you just explain that, like what changed because of rate moves or deployment?
Thank you.
The model doesn't assume automatic deployment of liquidity. I think we're talking about the 100 up and 25 down?
Yes, exactly. Yes, I mean,
we got a little bit less asset sensitive because we deployed some liquidity In the Q4 and in the Q1. And so now that's in the baseline. And if when rates shock up, You're not deploying that liquidity at a higher rate anymore. So it kind of moved from The sensitivity to into the baseline. You see what I'm saying?
Okay. Got you. And the last thing was just the NII ramp That could happen to get you $1,000,000,000 higher by the Q4. How do you see that distributed? Is that kind of evenly or is it kind of based on the second half loan growth coming back?
Yes. Look, we've been fairly careful about our guidance. There's a lot of moving pieces here. You've got Amortization of premium that can move around. You've got loan growth, which is hard to predict.
So we want to be careful about being too specific about how we get from here to there. I think we feel very good about getting there. Again, the guidance that we gave you that NII in the Q4 could be $1,000,000,000 higher than what it was In the Q1, that's based upon the forward curve materializing and some modest loan growth in the back half of the year. We've got some flexibility because we do have liquidity. You can go faster or slower on in terms of investing.
We'd like to put that in loan growth and not necessarily into securities, but we will invest it over time. We've got to see the amortization expense start to come down. It hasn't come down yet, even though mortgage rates have gone up. And like I said, we've got to see some loan growth and we'll pick up at least 2 days here. So that's the best perspective I can give you.
And our next question comes from Matthew O'Connor with Deutsche Bank. Please go ahead.
Good morning. I just want to follow-up on the deployment of liquidity that you've done. Yes, you do a lot this quarter, last quarter. If we look back since the end of 2019, most of your deposits have been deployed in Your securities, and most of those securities, I think, are longer term mortgage backed that aren't hedged. I know you said some of the treasuries were hedged, But that's a small portion of what you added.
So I guess just conceptually, like is this signaling that you think rates have kind of gone up, The big moves already happened for the next few years. Are you kind of thinking loan growth is not going to come back that much? What's the thought of locking in so many assets at these rates this quarter and in the last couple of quarters?
Let me back up because I want to make sure that everybody's clear about kind of what we have done. You went all the back to 2019. If you
go all the way back
to year end 2019, Deposits are up $450,000,000,000 and loans are down $80,000,000,000 So we created $530,000,000,000 Of liquidity to deploy somewhere, plus we're going to see some more deposit growth. So the $530,000,000,000 of liquidity had to be deployed somewhere. Through the end of Q1, securities were up $380,000,000,000 and cash and equivalents are up $150,000,000,000 to $300,000,000,000 But As I said in the remarks, we bought treasuries, but on about $150,000,000,000 of those treasuries, We have interest rate swaps. So you can really think of the $300,000,000,000 of cash as being $450,000,000,000 in terms of our ability To fund loan growth or invest, return or other uses. So, we've been balancing Liquidity, capital and earnings throughout this whole process, we don't tend to make bets on interest rates one way or another.
We just want to make sure that We can deliver for our customers, no matter what happens. And I think we've been trying to do that as we've gone through this pandemic. Again, it's all about balancing Liquidity, capital and earnings.
Okay. And then just separately, in the prepared remarks, you guys mentioned about Increasing hold limits a little bit. I think you were referring to the trading businesses. But if you could just circle back on that concept and give a little more detail on kind of where you were and where you are now in terms of the hold limits.
Yes, sure. I mean, look, we in terms of if you think about pre pandemic underwriting criteria, We are on the consumer side, I think back to pre pandemic now. In terms of the commercial side, There are still the affected industries that we're watching carefully, but everywhere else, I think we're back to pre pandemic. And in light of the size of our company, in light of The need for loan growth, I think we're relaxed a little bit on some hold levels, particularly in global markets where they have more of Moving then storage mentality around loans and what they do for customers. So, yes, we're just taking a few Maybe bigger positions than we might have otherwise taken pre pandemic, but there's no real change in the underwriting standards.
The company is bigger. We have more liquidity. We have more capital. So we think all of this is appropriate.
And that's with respect to large corporate loans, not the trading book, just to clarify.
That's right. That's right.
Yes. Okay.
Just across Longo, just to think about it, What's going to drive the company's P and L also on the consumer side, especially, If you look at by business, so the Wealth Management business actually has grown a little bit. You got the commercial business down and consumer is down. Consumer is largely down because of mortgage Churn, but the big thing that happened is cards came down. And what's been interesting to watch now And so because we pulled back this time last year's unemployment went to 15%, everybody pulled back their underwriting criteria, Matt. We've now reinstated as Paul said.
But so what's happened, we did a 1,000,000 units of new cards a quarter going into the last year's Q1. It fell as low as $400,000,000 It's back up to $600,000,000 change already and moving north on that. And if you look by month, it's stacking back up. So that's and if you look at where that's coming from, obviously, the branch system, which basically was run at around 2,500 of the 4,300 branches for The last 6, 8 months, 9 months is only catching back up as it opens up and sales come in. So That bodes well on the obviously on the consumer side on the cards, which are most important.
Mortgages production will continue to kick back up and prepayments Slowdown is a slightly higher rate environment. You'll see that bodes well there. GOM has done it has some of the mortgage aspects, but on The type of lending that G1 does to affluent wealthy people, they've done a good job and they've actually seen that grow. And then you go to the business banking middle market and that's all Line usage and so that should come through. In order for the economy expanded 7% this year is what our Bank of America team has at Yes.
At some point, companies have to access capital to meet that final demand and you should see that uses come up. So even in things like the car business, because there just aren't the cars to sell, you're seeing line uses down at lower levels. So As you think across the things, the whole levels and things that Paul is talking about enables us to push a little harder just because of sheer size of our company. But if you think about it, the Think about the flywheel that we have in the company as a production engine having had necessarily to be Slow down in the crisis with 15% unemployment peaks and the final demand being crushed In the Q2 of last year, then turning that crank back up and just watch that fly, we'll start to take off. That's what we have good confidence in terms of getting right back on loan growth.
But if you add it all together and we grew 5%, it'd be $45,000,000,000 of loans. So To Paul's point, you still have tremendous excess capacity because the deposit growth is so strong on core transactional deposits with the commercial and consumers.
Our next question is from Betsy Graseck with Morgan Stanley. Please go ahead.
Question, Brian, on Just capital allocation. And you were one of the only GSIBs to really kind of Trim down so that your G SIB number didn't go up recently. And I'm wondering if You're thinking about the opportunities there to lean into a higher GSIB, maybe do more in Capital Markets. I know traditionally you've Been looking to keep your RWAs and markets very tight. And I'm wondering if there's Any thought to maybe leaning in at this stage, given all the excess capital and liquidity that you have, is that potentially an option that's on the table in addition to the buybacks you discussed earlier?
Yes. So Betsy, and the 2 are not mutually exclusive at all, except way at the margin, way away from where we are now. But With stock price increases and all the things that go into that calculation, as you well know, and they're not all related to straight risk In terms of share size and stock price, just things that go in, it is harder to maintain Where we were at the end of last year and you might expect that we may move up a bucket and take advantage of that by actually expanding the business In the markets business, with the opportunities there based on the capabilities that Jimmy and the team and Tom and the team have put together. So why would you do that? The reason why we do that is our clients have been growing and we kept about a third of the size.
But and even if you Took away some of the growth just due to the deposit things. It has come down around 20% the size of the company and the idea is to keep it in synergy And synchronize it with the company over all size, but the company is growing around in another step. And so we told Yes, Tom and the team are working on ideas to continue to do that. We stay we're a little bigger now than we were at year end, obviously, Q1 activity, but you shouldn't expect us Now those ratios aren't effective for a bit of time here. So we'll see how it plays out.
But if the We'll take them. The team has done a great job and managed the risk well. If you look at the trading results for the quarter, look at for last quarter, look at throughout the pandemic, they They've done a great job in managing risk and we're proud of them and the work they've done and we're going to support them with some more capital.
Okay. That's great. Thanks. And then separately, one of the most tedious discussions that I have with people is Comping your skill set in digital consumer apps and everything you're doing there, not only for consumer, but also for Corporate and SMBs with FinTech players. And I say it's tedious because you have a huge market presence, Okay.
But I don't feel like you're getting your message out there beyond this call. So have you given any thought to trying to get The message of what you've done for consumers in the digital and the FinTech that you actually Or bring to your clients beyond the 4 walls of your clients?
Well, let's always start with the First thing that the reason why we do this is to serve our clients and do a great job and it flows through the numbers. As Mike said earlier, the idea that we run This huge consumer business at a cost advantage, which is significant due to the Digitization of all the consumer activity due to the way customers interact with us, the way we can help them, the way we can give guideposts And frankly, the way we can take the fee structure out and that's we dropped over to our fees dramatically over the years, made up for it in terms of efficiency Yes, and other types of things. And so we get the word out. We tell everybody we win all kinds of awards and the list Go on and on in terms of the different ranking agencies and you've seen it in the Merrill Edge growth is over $300,000,000,000 now. And so Our job is to do a great job for our customers.
And I think I'll leave it to you and your colleagues to debate the relative merits of Fintech versus ours. But I will tell you, for a company making $8,000,000,000 and having 40,000,000 new digital customers that are fully active on the consumer side, $5,000,000 on the digital side. The impact on our ability to have expenses be flat from even with extra money Of $1,500,000,000 or so the Q1 from 6 years ago shows the impact of the ability to digitize this company. And we learned more about it this And last year in areas that we didn't do. So we'll keep pushing it out there.
You can kind of tell the story, but the reality is, is that the number one person we want to understand is our customers and that Means attrition. The attrition of customers is way down. The penetration of the wallet is way up. Just look on the wealth management statistics we threw in and see how that they've adopted to it. These are major changes the size of which Don't exist much out there.
So, we'll keep pounding away. You keep telling the story, we'll keep telling the story. But the key is, it's producing. It's producing the kind of earnings we're producing and the kind of efficiencies we're producing, which continues to rebound our benefit going forward. The neatest thing about this stuff is where we go next with where we've been going with it.
So, Erica, there's just nothing close to it out there and driving with volumes and Thanks. Zelle, if you look at the charts on the pages and show it. So it's the usage and the personalization and the ability to help people manage Their payments and their things for the mass market and their investments. So we feel good about it. We'll tell the story as often As we can, but the reality is, I'd just like to see us keep growing the number of customers and driving it on an integrated basis.
We're putting major investments In a couple of areas, we had to improve merchant services payments on the commercial side at the merchant level and we're putting major investments in the 401 technology You know to push that, number 7, that business is lowest market position of any business we have, number 6 or 7 or whatever we are. So these are major investments. We're making 100 of 1,000,000 of dollars a year that go into that expense base, but are paid for by the efficiency of the core businesses.
And our next question is from Steven Chubak with Wolfe Research. Please go ahead.
Hi, good morning. So
I wanted to
ask a follow-up on the NII outlook and really specific to premium amortization. Now just given the sheer amount of growth we've seen in the MBS portfolio, the deployment of all the excess liquidity, Paul, I was hoping you could help size what the premium and benefit would be if we did see prepayment speeds revert to more normal levels? And how much of that benefit is contemplated in the $1,000,000,000 increase in the exit rate for 2021?
Sure. Let me just give you a couple of perspectives. 1, the premium amortization in the Q1 It was about $1,500,000,000 And as you point out, the securities portfolio has grown. So as you try to size what it could come down to, you just can't go back to last year and look at what it was because the portfolio has gotten a lot bigger. That's sort of 1.
2, as I think about that $1,000,000,000 I would say the most important Driver would be the modest loan growth and the second most important driver would be the reduction in premium amortization. So maybe that's Enough guidance right there. Again, we're not going to go down to where it was in Q1. Well, I think 4Q 2019 because we've grown so much, but it's going to be meaningful in terms of a few More than a few $100,000,000 in terms of that guidance we gave you.
Okay, understood. And for my follow-up, just wanted to ask on capital. If I look at your SLR Ratio, excluding the relief and your CET1 ratios, if I assume maybe like a 10.5% target on CET1, 5.25 percent on SLR. The CET1 is still your binding constraint today. But just looking at the sheer amount of balance sheet growth you guys saw this past quarter, I think it was about I think it was about $150,000,000,000 or so.
Our analysis suggests that you maybe have another $160,000,000,000 to 200,000,000,000 of balance sheet growth headroom before the SLR becomes binding. And as we consider expectations just for additional QE, Fed balance sheet growth, Now how are you preparing for that potential? What sort of mitigating actions might you take if the SLR does in fact become binding?
It's just way out there, Steven. I don't think your numbers are right, Matt. We'll have Lee take you through some calculations, but I think The number is a lot bigger than you think?
Yes. We've done that work and we come up with a bigger number in terms of balance sheet capacity.
On the SLR, it's 100 basis points times a much bigger base or 75 basis points, for example, maintain 5 a quarter. So It's multiples of that. It's multiple it's bigger than what we've grown so far probably by the law.
Yes, I guess like I think what the difference is, There's the lens of like what constraint becomes more binding and the CSLR. I recognize you have excess under both. But if the ratio is going to shake out sub-six, pro form a that relief, I guess, at a 5% ratio, That's $500,000,000,000 of capacity to grow. But in terms of like where you have the most excess, it looks like SLR becomes binding In relatively short order, we're just maybe a couple more quarters of $150,000,000,000 plus growth in the balance sheet. So I guess that's what I was trying to get at is, would you look to mitigate it given that becomes a little bit more binding than your CET1 constraints?
We've managed all the capital ratios to maintain the minimum requirements. That's not the issue. But I think it's just it's 100 of 1,000,000,000 of dollars away.
So We're at 6.1 pro form a, right? So, April 1. And that's $700,000,000,000 ish of capacity down to the regulatory minimum. As you said, we'd want to have a buffer, But that's the rough math.
Okay, fair enough. I can take it offline with Lee Later on anyway, but that's very helpful in how you framed it. So thanks very much for taking the question.
And the next question is from Jim Mitchell with Seaport Global Securities. Please go ahead.
Hey, good morning. Maybe first on just maybe the cadence for card charge offs. Obviously, we had a little bit of The an increase this quarter, but 30 plus day delinquencies are now back down to almost near lows. Should we expect I think we hit charge offs that were in the 400s in the 4th quarter. Are we heading back towards that?
Or how do we think you have a lower balance? How do we think about the trajectory of card charge offs given your view of the delinquencies?
Just if you go to Page 4, Jim, you can see it. I mean, you kind of summarized it, but Yes, we went from $400,000,000 up to $600,000,000 So turn back down just because look at the charts, you can see that what produces next quarter's charge offs is obviously on the right hand side of this page and It's coming down. So, yes, balance was lower, but also just have sheer delinquency. And as you think further out, it's going to come from the left hand side of the page and migrate to right from actual Charge off, we decide the projected and provisioning under the CECL. But just so you've got it right, it comes down.
And you would hope, Frankly, that if we get the growth, it might change its dynamic in 6 months or something like that just because it takes a lot of Get any delinquency out of anything, maybe even much longer than that, but this bodes well for the next couple of quarters.
Right. So I mean, the reason I ask is that if you look at Charge off ratios late last year they were lower than pre COVID levels. So you still think we can sort of keep that very low level at least for now Until balances maybe start to grow more significantly. Is that the takeaway?
They're probably yes, they'll go down as Balances grow because there'll be no delinquency then a year later when the delinquency from those balances whatever minor amount it is comes through it might add to And so the denominator effect will push even down further on percentages if the balances go up near term. Right. Okay. And maybe
my follow-up on the technology side. You guys did an acquisition, A small one, obviously, of Axia in your Merchant Processing business. Can you just sort of give your thoughts on the opportunity set As you build out that platform, are there more acquisitions do you think involved? What's your Excitement level, I guess, of building that platform
out. Look, it's a great little company that we can put across the Platform has a wonderful market position where it plays, and we're very proud of the deal. And But the key is that we you got to go back to the whole history of merchant services. We sold half of it in a joint venture 15 years ago now or whatever it was, Raising capital come forward, we bought it back. Remember, that's one of the reasons why expense run rate moved up by $800,000,000 $900,000,000 a year that People forget about us because we brought that in last year for half a year and it wasn't in 2 years ago.
But the reason why we brought it back is really to invest around the Platform. So what's exciting about it is things like the acquisition to take us in the medical area. What's exciting about it is the ability to actually sell it Through this sales force without having to have a non owned sales force selling it in our small business, in our business banking colleagues That thousands of people out there can help deliver the product. And then what's really exciting is the integration of payment scheme that we've been working on Yes, for commercial payments. So it's the integration of the P2B, the Zelda small business And all these payment gateways, which is outside the traditional merchant business, but you have to be completely flexible along all payment schemes to actually route it much more favorable to the merchant With very low cost to them and real time, you have contemporaneous value exchange.
So what we're doing with real time payments and Zelle in combination into the Your business platform through the merchant through the payment gateways, these are all exciting things. And you go larger end, it's different Elements and blockchain payments and everything else. So that's the core of the business on the commercial side, but it goes all the way from small business all the way up to large companies. And so that investment As part of that, the new investments part of that and you'll expect us to keep driving at the implementation. The good news is we're getting the network effect Zelle and things like that, when you look at those pages that Zelle's half the credit card charge volume used by our consumers to make payments now, Noodle on that for a minute.
I think 35,000,000 credit card people out there charging the Zelle is reaching half of it. Check's down 25 Over the last couple of years in terms of checks rate volume by our consumers, it's so you get the network effect of that and then you get the merchants to use it with real time. So this is all part of a thing that Tong Nguyen and Mark Monaco and the team are leading at Bez Ahmed on the commercial side that you should expect to see a lot of investments been made, Including a major replacement system that's coming through the P and L this year and the change in bringing the people on fully on balance sheet. And a lot of investment will be made, including acquisitions like we just made.
Okay. That's great color. Thanks, Brian.
Our next question is from Ken Usdin with Jefferies. Please go ahead.
Hey, thanks. Just one question on just Card and stimulus. And how do you guys get the sense of how much of the stimulus and incremental deposit growth is Sticking around versus now kind of starting to be spent. And what's the trade off with regards to the staging around that re leveraging or that balance growth that might
I think just on It depends literally when you look in customers' earnings power and things like that. But largely, I think, Paul, last I saw was 30 odd percent of the stimulus money has been spent to make it to be a simple minded about it. And so the other 70% sitting in people's accounts, it's a little different by stratification of earnings power of the household. And so That's to be spent. That bodes well for economic reopening and stuff.
And has it had an effect on balances and card and stuff? Yes, because Consumers have used to pay down their debt in part of what it has been spent, has been spent to pay down card balances. And then with the limited travel, you're just not getting as much usage. The good news is you've watched January to February March With the virus and vaccine pathways coming to fore with the, you're starting to see the purchase numbers go up, and the Payments rate was, as you observed last year, 30% through last year and this quarter. But You'd expect that that might be more constant and the usage rate will go up and start to drive some balance growth, which is good news.
So the good news is the consumers are healthy from Every aspect. We have no deferrals left except in the mortgage business. So all the debate we had about those last year this time Through the system, delinquencies down, consumers sitting with money in their accounts and the economy open up, which bodes well. And that's what you saw in the retail sales numbers today. And you expect that number those numbers to even be higher in the month of April because March was a partly reopened A month and the weather isn't too pleasant in the Northeast to go out and eat even if you want to eat outside, so in northern parts of the central country.
Okay. Got it. And that's the offset. The offset is in Jim's question about that better credit could stick as an offset as well if there's 70% sitting around. So that's we'll take that trade off.
Yes. And remember, where we play where we lend money In the consumer space, we never came close to what the projected losses were. We decided that the Models projected that you knew by watching the consumer delinquency and unemployment levels of our consumers, they're much lower than Society and as that became clear that's what you're seeing coming through the reserve releases right now.
Thanks Brian.
I'll return the floor to our presenters for closing remarks.
All right. Well, thank all of you for joining us. Thank you. And the company produced $0.06 of earnings per share, dollars 8,000,000,000 return on tangible common equity is 17 We look forward to talking to you next quarter and we'll continue to drive responsible growth while we're doing that. Thank you.