Hello and thank you for joining the Bank of America Third Quarter Earnings Announcement. At this time, all participants are in a listen only mode. Call. Please note this call may be recorded. I will be standing by should you need any assistance.
It is now my pleasure to turn today's conference over to Lee McIntyre. Please go ahead.
Good morning. Thanks for joining the call to review our Q3 results. I trust everybody has had a chance to review the earnings release documents. They're available on the Investor Relations section of bankofamerica.com's website. Before I turn the call over to our CEO, Brian Moynihan, let me remind you that we may make forward looking statements during the call.
After Brian's comments, our CFO, Paul D'Onofrio, will review more details of the 3rd quarter results. We'll then open up for questions. Please try to limit your questions so that we can get to all the callers. And for more information on the forward looking comments we may make, please refer to either our earnings release documents, our website or the SEC filings. With that, take it away, Brian.
Thank you, Lee. Good morning, everyone, and thank you for joining us to review our Q3 of 2019 results. These results reflect our success in the U. S. Economy that continues to grow at around a 2% GDP level.
In that kind of economy, our job is simple, drive solid customer activity, manage risk well, manage expenses well, all while investing heavily in our competitive advantage. That's what we've been telling you is then what we call responsible growth. The investments we have been making in the franchise for many years and our disciplined responsible growth approach are evident across every line of business results in respect to customer basis you'll see in the materials. Today, we reported $5,800,000,000 in after tax net income and $0.56 per share for the 3rd quarter. Those results include a previously announced $2,100,000,000 pre tax impairment charge.
This charge relates to the investment in our Bank of America Merchant Services joint venture from 2,009 that negatively impacted our EPS by $0.19 That charge positioned us to meaningfully invest in our integrated payments platforms in our commercial side businesses over the next several years. Excluding that charge, 3rd quarter net income was a record $7,500,000,000 after tax and EPS of $0.75 per share. On this adjusted basis, net income increased 4% from the Q3 of 2018, while earnings per share increased 14%. This reflects an 8% reduction in average diluted shares from Q3 of 2018. Returns after adjusting for the impairment charge were strong.
Return on assets of 123 basis points, return on tangible common equity of 15.6%. So before Paul dives into the quarter's results for the lines of business, I wanted to cover a little bit about client activity, costs and operating leverage at an enterprise level. These are the items that we focus on for you that allow us to drive our competitive advantage. But first, some general context around the operating environment. Despite the repeated discussions or the continuing discussions around a potential recession in the United States, I want to offer some data from our customer base, which represents the activity of a substantial portion of American consumers.
Our annual customer outgoing payments on the consumer side of our company are nearly $3,000,000,000,000 or about when compared to the U. S. Economy about 15%. Consumer payments year to date are up 6% compared to the same period in 2018 through 9 months. For the Q3, that pace was a solid or slightly increased from earlier in the year.
This means the U. S. Consumer continues to benefit by strong employment prospects. Now interesting on the commercial side clients, at roughly $325,000,000,000 in average U. S.
Commercial loans outstanding, we do see a lot of client flows as the market leader in United States. Our total commercial loans grew 6% compared to the Q3 of 2018 with good middle market utilization rates. And importantly, our small business segment also grew 6%. As such, we are the largest U. S.
Commercial lender and the largest small business lender in the United States according to FDIC data. This solid activity means the commercial customers continue to fare well. These are tangible examples that the U. S. Economy is still in solid shape despite the worries and concerns about trade wars, capital investment slowdowns or other global macro conditions.
Now let's turn to Slide 3. Across nearly every line of business, we are seeing strong customer activity. You can see that on the slide. I won't take you through all the statistics here, but let me highlight a few. On the consumer business on the left hand side of the slide, our deposit growth has consistently been above the average for the industry average for many periods.
It's axiomatic that we're gaining market share and not just in balances, but year to date we've seen something that's interesting to us. We've had a 2% growth in a number of net checking households, a 700,000 increase. This is the 4th year of growing net checking households after a decade of consolidation of accounts, relationships and other changes to our business that began a decade ago to reposition. It is also record levels of primary accounts and record levels of total balances and average balances in those checking accounts. 92% of our customers, we have the primary checking account in the household and the average balances reaches $7,000 Now through a renewed focus on growth in our wealth management franchise, Handysee and Katy and Oxford leading the charge and we've seen net new Merrill Lynch and private banking relationships up over 30% plus in each case.
And we're expanding the franchise by bringing our retail franchise, our consumer banking franchise to markets where we had long established wealth management or commercial client coverage. Paul is going to cover the continued growth in digital uses across our client base, which provides an important dual benefit of strong customer service and lower cost structures. Now on the commercial and corporate side, as you can see on the right hand side of the slide, as well as the institutional investor coverage we have, we're also growing the client basis. We have been investing in the client facing teammates in our commercial banking for a few years, and we've increased our investment banking coverage, especially in the middle market, And we've added new traders and sales staff in Europe as we opened our Paris brokerage office. As you can see, these efforts are in deepening relationships with 3% growth in solutions per household customer relationship in commercial.
This investment has led to an improvement in our client coverage and investment banking market share. Earlier this quarter, my teammate Tom Montag highlighted some of the gains we're making in Middle Market Investment Banking coverage at a conference. We expect to see that we have seen that continued success and we expect for it to continue in the future as we continue to bring our capabilities to our great commercial banking franchise in the United States. Let's turn to Slide 4. This increase in client activity can be seen in the growth in deposits loans.
On Slide 4, we look at the deposits. Average deposits grew $59,000,000,000 or 4.5 percent year over year. For 4 years now, we have grown deposits compared to the prior year for every one of those quarters by more than $40,000,000,000 when compared to the year before, all while we've improved the mix of deposits. Deposits with our consumers grew $38,000,000,000 in total or 4%, reflecting the value clients place on the relationship benefits offered by the convenience store network. The value of our leading digital capabilities and our unique preferred rewards program.
Global Wealth Management was responsible for $16,000,000,000 of that $38,000,000,000 in consumer deposit growth, reflecting client expansion and preference to hold cash in lieu of investments as well as inflows of about $8,000,000,000 from the conversion of some money market funds deposits at year end 2018. Our consumer banking deposits grew by $22,000,000,000 or 3% year over year. More importantly, you can see in the upper right hand side of slide that these came from checking balance growth. One additional point we'd focus on here is a long term trend of deposit growth, even in a moving rate environment. When the Fed started raising rents at the end of 2015, many of you had questions as whether our deposits could continue to grow and what rates we'd have to pass through the customers.
Since the end of 2015, our average consumer banking deposits are up $145,000,000,000 in balances, 3 quarters of that coming from checking accounts. These balances are either no interest or very low interest on our core relationship in the households of America. Our rate paid remains low due to that superior mix of deposits. Now when you look at Global Banking, the lower right hand side of the slide, dollars 23,000,000,000 in deposit growth reflects the rising rate environment and additional bankers we have deployed over the last few years to continue to sell our superior global transaction services capabilities. As we move to Slide 5, we see the loan side of the equation.
Overall, average loans are up nearly 4% year over year despite selling about $9,000,000,000 of non core consumer real estate loans out of the all other category over the last year. Average loans online of business grew $52,000,000,000 or 6% year over year as both consumer and commercial loans both grew at a 6% pace. Middle market borrowing, as I said earlier, continued to complement large corporate financings. As you can see in the bottom right hand chart, we continue to demonstrate a fairly consistent range of responsible loan growth in our commercial businesses in all our business segments. Within Consumer, you'll note the strong residential mortgage growth, but also the more stable credit card balances, which reflect our decision last year to continue to manage less profitable promotional balances down while driving core balances and our relationship, especially in preferred rewards capabilities.
Within commercial, I want to highlight a couple of areas of activity important to understand as you think about commercial clients in the state of the U. S. Economy. 1st, as I said earlier, small business lending. Over the last year, we've grown small business loans 6%, regaining our market position as the number one lender to small businesses in the United States.
Supplying capital to small business is very important as they are the key driver of employment in U. S. As we continue to innovate around capabilities and offerings to an important client base, another portfolio with our commercial loans and leases book is our global equipment financing portfolio. Growth in this portfolio is a sign that commercial clients have invested are investing capital in the U. S.
Economy at a faster pace in the overall economic growth. This portfolio is $65,000,000,000 and it grew $6,500,000,000 plus or 11% in the past 12 This reflects investments by clients and equipment to drive their business and invest in renewable energy products. These are just a couple of examples when our stable lending portfolio is growing and supporting clients in a real economy and growing the size of smaller competitors' entire lending portfolios. As we look to the expense side of the equation on Slide 6, we've been driving our response to growth. Part of that is to have sustainable growth, which means we self fund our investments and find ways to handle the inflationary cost to keep expenses relatively flat while we continue to invest heavily, dollars 3,000,000,000 in technology, new branches, new teammates.
Slide 6 shows a 2 year expense trend here. I'll talk about the expense on Slide 6, excluding the impairment charge we took in our investment in Bank of America Merchant Services. We've been operating in a tight range of $13,000,000,000 to $13,300,000,000 with only one exception for the last few years. So we've been able to operate at $53,000,000,000 annualized expense base despite increased investments in technology and infrastructure, buildings and people and philanthropy and other costs. At $13,100,000,000 this quarter, we were basically flat compared to quarter 3 2018 despite elevated litigation costs of about $350,000,000 compared to a 6 quarter run rate of about $100,000,000 per quarter.
Regarding headcount, year over year headcount went up. It went up in the sales category by 1700 people. We offset that cost through the reduction in other teammates. As you look to the next slide, Slide 7, you see the familiar operating leverage trend, which has been a highlight for the firm's culture of funding investments to operational earnings. Despite the immediate revenue impact of a lower interest rate environment and other revenue challenges with a slowing economy, we have a good track record of generating operational savings, we're able to keep operating leverage relatively flat.
Essentially, expenses and revenue grew about $500,000,000 less than $500,000,000 each. On a more core operating basis, taking account the elevated litigation, you could see operating leverage even in this difficult NII environment. As I've said before, generating operating leverage does get tougher and we told you that over the last several quarters after 4 successful years of keeping expenses declining and holding relatively flat. This will continue, especially as we work through periods of interest rate cuts, but we remain focused on our mission to continue to grow revenue faster and expenses. The question we ask ourselves is how much flexibility and the question you ask us is how much flexibility we want to leverage from initial spending on technology or infrastructure or hiring, or we just keep in order we keep investing to build our market share momentum.
As we talk to the investors who own substantial portions of our stock, they continue to tell us to invest in our client and customer successes to take advantage of our strong position and continue to invest in times. But even with that, you can see in this chart that we maintain our discipline around operating leverage. With that, I'm going to turn it over to Paul for a few details in the quarter.
Thanks, Brian. I'm starting on Slide 8 with the balance sheet. Overall, compared to the end of Q2, the balance sheet grew $30,000,000,000 driven by loan growth, which ended the quarter more than $9,000,000,000 higher. We also grew the balance sheet in global markets to support additional client activity. Liquidity remained strong as average liquidity sources were unchanged linked quarter.
Shareholders' equity declined $3,000,000,000 driven by a $2,000,000,000 decline in common equity as positive OCI from lower rates and net income totaling $7,000,000,000 was more than offset by $9,000,000,000 of capital return to shareholders through common dividends and share repurchases. The remaining $1,000,000,000 decline in equity resulted from the redemption of preferred stock in Q3 after issuing lower yielding preferred shares in Q2. With respect to regulatory metrics, we remain comfortably above our minimum requirements. Regarding CET1 ratios, given the reduction in capital I just reviewed, our CET1 ratio standardized decreased to 11.4%, which is nearly 200 basis points above our minimum requirement. And as mentioned in our SEC filing, the impairment charge recorded this quarter reduced regulatory capital, but had no impact on our capital plans announced in July.
Our risk weighted assets increased modestly as a result of increased client activity and higher loan balances across the businesses. Lastly, our TLAC ratios also remained comfortably above our requirements. Turning to Slide 9 and net interest income. On a GAAP, non FTE basis, NII was $12,200,000,000 $12,300,000,000 on an FTE basis. Compared to Q3 2018, GAAP NII was up $126,000,000 or 1%.
The year over year improvement reflects solid loan and deposit growth as well as modestly higher average short term rates year over year. As you know, lower rates are a headwind. The Fed cut short term rates in July September and average long end rates are down over 100 basis points year over year. However, versus the linked quarter, GAAP NII was flat. There were 2 primary negative impacts to NII in the quarter.
First, lower short term rates reduced yields on floating rate assets. And second, because of lower long term rates, we experienced faster prepayments on mortgage backed securities, increasing the level of bond premium write offs. Offsetting these negative impacts were one additional day of interest, loan and deposit growth, reduction in the cost of our long term debt and a small decline in the interest rate paid on deposits. In addition, Global Markets NII benefited from lower funding costs and a shift in mix of client activity. While NII improved in Global Markets, results are better assessed by studying together both NII and trading account profits as client activity from 1 quarter to the next can shift in mix between these two revenue lines.
In fact, sales and trading revenue in the quarter, which includes both NII and trading income profits, was down slightly versus Q2. With regard to deposit pricing, we were disciplined. First, note that customers who have borrowed from us on a variable rate basis benefited from an approximate 30 basis point decline in LIBOR on a linked quarter basis. At the same time, we lowered the rates on interest bearing deposits by 5 basis points to 76 basis points. Roughly half of our $1,370,000,000,000 deposit book in our Consumer Banking businesses, where our customer pricing remained relatively unchanged, while the deposit rate we pay in Global Banking and Wealth Management declined 12 basis points versus Q2.
As you know, in our banking book, we have more variable rate assets than variable rate liabilities given the quality of our deposits, descriptive to call us liability insensitive. In any case, this asset sensitivity increased compared to Q2, driven by the forward curve at the end of September, which was lower than the curve at the end of Q2. Looking forward, on our Q2 earnings call, we reviewed our expectation that net interest income could grow roughly 1% for the full year of and the expectation for another short end rate cut in Q4, nor have we changed our expectation that Q4 NII is not the case with the Q3. In Q4, we expect the decline in short term rates will more fully affect yields on our variable rate assets. In addition, given the decline in long end rates over the past couple of quarters, reinvestment rates on securities and mortgages is expected to dilute current portfolio yields.
However, LIBOR rates have reduced the cost of our long term debt and the funding of our Global Markets business. This, plus loan and deposit growth, are expected to partially offset the headwinds. Turning to asset quality on Slide 10. We saw no meaningful change in asset quality, which continues to be strong. We have maintained our responsible underwriting standards for years now, and we remain disciplined again this quarter in a relatively solid U.
S. Economy. Similar to Q2, we sold some non core consumer real estate loans where the sales price was above our carrying value due to prior charge offs. This resulted in recoveries that reduced net charge offs and provision expense in both Q3 and Q2 this year. Recoveries in Q3 and Q2 were $198,000,000 $118,000,000 respectively.
Including these recoveries, total net charge offs in Q3 were $811,000,000 compared to $887,000,000 in Q2. Adjusting for the charge offs excuse me adjusting for the recoveries excuse me, net charge offs were just over $1,000,000,000 in both periods and the net charge off ratio would be 42 basis points in Q3 and 43 basis points in Q2. On that adjusted basis and comparing to Q3 2018, net charge offs were $77,000,000 higher, reflecting modestly higher commercial losses and seasoning of card losses. Provision expense was $779,000,000 and included a modest $32,000,000 net reserve release. The prior year period included a $216,000,000 reserve release driven in part by energy releases.
On Slide 11, we break out credit quality metrics for both our consumer and commercial portfolios. And as you can see, asset quality remains strong. Consumer nonperforming loans declined as a result of loan sales and in commercial, ratios tracking nonperforming loans and reservable criticized exposure remained near historic lows. Turning to the business segments and starting on with Consumer Banking on Slide 12. Consumer Banking produced another solid quarter of revenue and earnings growth.
Earnings grew 5% year over year to $3,300,000,000 Revenues grew 3%. We believe our efficiency ratio of 45%, which is one of the lowest among our peers, is driven by our digital delivery platform and simplified product offerings, which enables not only ease of use, but also efficiency. Our investments in this business continued at a steady pace and client activity remains strong with respect to loan and deposit growth as well as consumer spending. Again this quarter, we added sales people, expanded in new and existing markets, renovated financial centers and improved capabilities for consumers as well as small businesses. And even as we continue to invest, the cost of deposits year over year declined to 100 and 50 basis points, nearly offsetting the increase in rate paid, which is now 11 basis points.
Deposit growth was up $22,000,000,000 or 3% and centered in low rate checking. Loan growth was up 7% year over year. The low long term rate environment continued to generate momentum in consumer real estate as new originations nearly doubled from last year to more than $20,000,000,000 Asset quality in this segment remained strong as the net charge off ratio was 118 basis points, down modestly from both last year and the previous quarter. In addition, we saw origination spreads improve in both mortgage and consumer vehicle lending during the quarter. Consumer investment assets grew $19,000,000,000 to $223,000,000,000 as strong client flows were partially offset by market declines.
Turning to Slide 13. Note that our 3% year over year improvement in revenue was driven by both NII as well as fees. NII benefited from deposit and loan growth. Card income was up 4% year over year as we experienced solid spending levels, partially offset by rewards, which continue to be a headwind. Each quarter, we show you the improvement in the consumer digital statistics, which are highlighted on Slide 14.
Customers continue to transact and interact with us in person as well as through digital channels. So we continue to invest in both by adding financial centers and renovating existing ones as well as enhancing and adding capabilities to our number 1 ranked digital banking platform. In fact, over the past year, we have opened 98 financial centers, renovated 562 and installed nearly 1,000 ATMs and remain on track to hit where we had previously no retail presence. And remember, while many are new markets additions from a retail perspective, other lines of businesses like Commercial Banking, Merrill and our private bank have been serving customers for decades in these markets. Turning to digital.
In the Q3, we saw nearly 2,500,000,000 consumer interactions across all channels, with digital accounting for more than $2,000,000,000 and digital sales now represent 26% of total sales. And by the way, our digital and physical worlds are increasingly connected and synergistic. Digital appointments are a great example of that. 13% of our financial center platform traffic is now driven by appointments set in advance. This allows us to better prepare and staff for the specific needs of our customers and improve their experience.
Turning to Global Wealth and Investment Management on Slide 15. Strong results were aided by growth across AUM, loans and deposits and generally good market conditions in the quarter. Client balances are approaching $3,000,000,000,000 as a result of flows and market valuations. Referrals across the company remained strong. Net income was $1,100,000,000 and grew 8% from Q3 2018.
Pretax margin was a record 30%. The business created nearly 300 basis points of operating leverage year over year as revenue increased 2%, while expenses declined 1%. Within revenue, positive impacts from growth in deposits and loans drove NII higher. Asset management fees grew year over year as fees from AUM flows and market valuations more than offset general pricing pressures. Transactional revenue declined modestly versus Q3 2018.
With respect to expenses, investments in sales professionals, technology and our brand were more than offset by lower intangible amortization and deposit insurance costs. Mobile channel uses among wealth management households grew 45%. Moving to Slide 16. Gevo results reflect continued solid client engagement in both Merrill and the Private Bank. Strong household growth contributed to higher client balances, which exceeded $2,900,000,000,000 AUM flows were nearly $6,000,000,000 in Q3 or $21,000,000,000 in the past 12 months, boosting AUM balances to a record 1,200,000,000,000 dollars On the banking side, average deposits of $254,000,000,000 were up $16,000,000,000 or 7% year over year, driven by client growth and a 2018 year end conversion of balances from money market funds.
Average loans were 5% higher year over year, reflecting strong growth in mortgage and custom lending. As you turn to Slide 17, before I review the slide and as I've done in the past, I want to provide summary information on Global Banking and Global Markets on a combined basis to allow comparison against competitors that may not break out these businesses separately. So on a combined basis, these two segments grew revenue to $9,100,000,000 and earned nearly $3,000,000,000 in Q3, generated a return of more than 15% on their combined allocated capital. Looking at them separately and beginning with Global Banking, the business earned $2,100,000,000 and generated return of more than 20% on allocated capital. Earnings were strong, up 3% from Q3 2018, driven by an increase in investment banking income and leasing related gains.
The year over year growth in earnings was mitigated by the absence of prior year reserve leases, primarily from energy exposures. Growth in Investment Banking fees was the largest contributor to the 8% improvement in revenue year over year. Strong deposit and loan growth reflects the benefits of adding hundreds of bankers over the past few years as well as continued advancements in how we deliver our loan product and treasury services. Expenses were up 4% as we continue to invest in technology and client facing associates. Looking at trends on Slide 18 and comparing to Q3 last year, as you heard Brian mentioned earlier and Tom discussed at an investor conference last month, we have made steady progress in investment banking over the past year.
Our steady progress with clients is reflected in both our improved fees as well as market share rankings and lead tables. IB fees in Q3 were more than 1,500,000,000 for the overall firm, up 27% year over year. Advisory was particularly strong at approximately $450,000,000 as we advised on 5 of the top 10 transaction completed in the quarter. Pointing to our strength and leadership in credit underwriting, activity in debt capital markets was strong with some record weeks of debt issuance. In Q3, we continued to add regional investment bankers with a focus on expanding our geographic coverage in the U.
S. To match our coverage model and market leadership in Commercial Banking across the U. S. One of the reasons for growth in deposits and Global Banking has been our consistent investment over multiple years in digital capabilities within our transaction services platform. Referring to Slide 19, note the growth in mobile and digital usage at the top of the page and our focus on solutions for clients on the bottom of the page.
Treasurers are looking for the same type of convenience as consumers, and our consumer and commercial teams work closely together to leverage technology advancements and drive usage and adoption of mobile and digital solutions. We now have over 500,000 CashPro users, and mobile CashPro users doubled year over year. Mobile payment approvals by these users were $144,000,000,000 over the past 12 months, nearly doubling year over year. Switching to Global Markets on Slide 20. As I usually do, I will talk about the results excluding DVA.
Global Markets produced $858,000,000 in earnings. When comparing results year over year and quarter over quarter, note that both prior periods included similar sized equity investment gains that were noted in previous earnings calls. And in both cases, these gains were not included in sales and trading results. Year over year, revenue was down 2% as the segment's share of improved investment banking fees and the modest improvement in sales and trading did not offset the prior year's gain on an equity investment. Sales and trading improved 4% year over year.
FICC was flat with Q3 2018, while equities improved 13%. Fixed revenue showed improved results in mortgage trading and municipal trading, but was weaker in FX and credit products. The improvement in equities to $1,150,000,000 was driven by growth in client facing activities as well as continued as well as we continue to invest in our equity financing products. In 2019, in equities, we added new clients and increased our market share with existing ones. Benefits derived from increased scale have improved the efficiency of our balance sheet as well as return metrics.
Expenses were up 2% year over year as we continue to invest in technology, plus Brexit preparedness continued to add expense. On Slide 21, you can see that our mix of sales and trading revenue remains weighted to domestic activity where global fee pools are centered. Within FIC, revenue mix remained weighted towards credit products. Finally, on Slide 22, we show all other, which reported a loss of $1,600,000,000 Results here included the joint venture impairment charge. Excluding this charge, the segment would have reported a profit of roughly $100,000,000 A few other items impacted results here.
1st, provision benefit from the recoveries totaling $200,000,000 related to the sale of primary non core consumer real estate loans, totaling up $1,800,000,000 2nd, the elevated litigation expense Brian mentioned is booked here and third, the effective tax rate this quarter was 16% and included discrete benefits booked here and related to the resolution of several tax matters. We continue to expect the effective tax rate in Q4 of around 19%, excluding unusual items. Okay. With that, let's just open it up to Q and A.
And we'll take our first question from Jim Mitchell with Buckingham Research. Please go
ahead. Hey, good morning guys. I guess I'll ask the question and you can decide not to answer it. But just if there's any help you can give us on sort of the NII outlook beyond 4Q. I know there's a lot of moving parts, but given the forward curve and maybe you could also help us think about the premium amortization year to date, what that drag has been and how that would play out in a stable rate environment from here?
Thanks.
Sure. So, let me start with the premium amortization. If I'm not going to give you any precise number, but if you think about the extra day we had from Q2 to Q3, the increase in premium amortization in the quarter more than offset that. In terms of but going forward, unless long end rates fall meaningfully from here, we wouldn't expect that level of increase in premium amortization in Q4 or even next year without significant increase significant decrease in longer rates. In terms of the outlook for 2020, obviously, that's going to be highly dependent on future Fed activity and on deposit pricing across the industry.
We don't think it's really prudent right now to provide specific guidance at this point. You have our thoughts on well, I'm sure we're going to be talking about Q4, and you have our thoughts on that from our prepared remarks. You've also going to have our asset sensitivity disclosures. So the only thing I would remind you is when you think about Q1, we will have one less day of interest, which impacts NII by about $80,000,000 but we'll get that day back in the Q3.
Right. So maybe just a follow-up
on that, just on the balance sheet growth. It seems like both loans and deposits have accelerated a little bit. You indicated some pretty strong trends in sort of new account growth in both consumer and wealth. Do you and coupled with sort of a lower rate environment, do you see deposit growth picking up across you've had good in commercial across the consumer franchise broadly, whether it's wealth or traditional banking?
Yes, I think we have if you go back many quarters ago, we discussed our thought process is to tell our teammates to price to achieve sustainable deposit growth of 3% or more faster in the economy, which means you're in an axiomatic point there as you're gaining share at all times, if the economy is growing less. So they've been doing that. We are staying very careful and disciplined. There were some adjustments made on the wealth management business. If you look back last year, we had some growth there that we slowed down because it was a little too tied to bidding too much for rate.
They changed that process, they flattened out. Now they're growing again. On the commercial side, the process. They flattened out. Now they're growing again.
On the commercial side, the changes of interest bearing and non interest bearing and the fees for services and all that stuff calculations change. But I'd say you should expect us to continue to grow at the rate we're growing now or faster because frankly, we've been very disciplined about how we've been driving against core checking accounts on the consumer side, core checking and savings accounts in the wealth management business and obviously GTS business. And so I'd expect it to continue to grow maybe faster 3%, 4%, 5%. But the thing about that is that is incredible amounts of new customers at very advantaged pricing that we can put to work.
Great. That's great. Thanks.
Yes. I think one thing Jim, just as I said in my prepared remarks, there was a lot of discussion when the Fed started raising rates what would happen and what I said back there was consumer increased their deposit balances by $145,000,000,000 since the 1st Fed rate increase and now there's been 2 decreases, right? So think about that machine just churning out growth and growth and growth, 75% of that was checking balances. That's the real encouraging part of the story and consumer. All time customer satisfaction high in those businesses, all time employee satisfaction high, all time customer growth rates high for 15 years or so.
And you just take that and play it out, it's pretty important. Yes, it seems like
it could be a good leading indicator. Thanks.
Our next question will come from Mike Mayo with Wells Fargo. Please go ahead.
Hi. I'm a little stuck on Slide 7 with the efficiency. And you mentioned all the investing that you're doing. So are you willing to go to negative operating leverage or with the investments like you have the new salespeople in the branches and you had more deposit growth, you have new regional banking coverage, you have more investment banking. So the investments are paying off.
So what's your confidence in growing revenues faster than expenses over the next year, even though you're not giving specific guidance? But more generally, what's the role of technology inside the firm that's enabling this operating leverage, for example? How many data centers do you have and how many are you going to close? What percent of your applications do you expect to migrate to the cloud? Just a little bit more color of what's happening behind the scenes that enables your operating leverage and your expectations for continuing that?
Mike, those are good questions. I think we are going to invest some long term value of this company and our clients. And so if this quarter we were sort of flattish on operating leverage, if we happen to go negative, I'd argue and that was the right things to do based on everything we're assessing at the time you do it. These quick changes in rates obviously have an impact that you then outgrow with the volumes coming in and producing the value. So, but that takes some compounding through the quarter.
So our attitude in talking to our investors is, if we're gaining share and doing the right things, keep going. But the real key is back to your sort of your second question, which is we are getting the benefits of sustained long term investment and the changes of the way this company operates that continue to push through. And so 2.5 years ago, we said we'd operate this year on $53,000,000,000 and change in expenses and we hit that number and a lot of you had us in a $57,000,000,000 or something like that. Next year, we told you we'd be in the low $53,000,000 s again and we still are sticking to that. And so that's 3, 4 years out, you're saying how can you plan that with all the investments we're making.
That is because we know we're making investments at the same time they're taking out costs. The cloud journey for Bank of America is an interesting one. We started about really the new BAC framework for those of you who remember that that came out of that into early days of simplified, improved. We had 200,000 plus servers, those server counts now down to 70 1,000. The first decision we made was to actually create an internal cloud.
Those servers were operating about 30%, 60 some data centers, very much dedicated by line of business, by operational unit, by risk or whatever. We took all that away and built common architecture. So the line share of our applications run around 8,000 servers. We still have 70,000 servers, but those are more dedicated for very specific things and we'll continue to work to take them down. We're down to 23 data centers.
Those who've been around the company for a while know we took a $350,000,000 charge a few years in the Q2 of 2017 to pay for part of this changeover. But in that timeframe, we've reduced expenses by basically around 40% or $2,000,000,000 a year on our backbone. And so at the same time, if you looked on pages 14 19, you can see just over the last couple of years the volume of transactions. So we're up 86% in mobile logins, we're up 39% in wire transactions and things like that. So what you've had is this scale effect that we've been able to internalize in our provisioning services from what we can get in the external cloud is still 25%, 30% cheaper, which we expect to change honestly.
And so we are working with potential providers to take the next step, which was discrete data centers and resources to internal cloud, save a ton of money, then use that power to actually negotiate with third parties to how they might help you and support you and that's going on with Kathy Bissot and her team right now and Howard Goldfield runs this for us. But so far, we're still cheaper and so far, we have to make sure that the external providers are safe, sound, lead the data just for us to use with our customers, don't mix it with other people's data, etcetera. And that discussion negotiation goes on as we speak, but we will we're not we don't need to own hardware, we just need to find out who can provide it the right way.
Well, thanks for providing data that others have not provided yet. So just one follow-up then. Again, and the spirit behind this is you're getting the operating efficiency while you're making investments, you're doing stuff behind the scenes like this. So if you've gone from 60 data centers to 23 data centers, how much further do you have to go? If you've gone from 200,000 servers to 70,000 servers, how much more do you have to go?
And what percent of your applications do you expect to migrate to the cloud over time?
The last question I'd leave to people more expertise, but Mike in the spirit of constant improvement, I never give people a number that I'm satisfied with because and you shouldn't either. In other words, if we think we can we're at X for Howard and the team in this case or any of our businesses, you can improve it every day. And so that is the cultural change we've made in this company and frankly the stability of having not had any acquisition activity since 2,009 and any other inorganic movement, you can plan these things out and execute them. Some of these things take 3 to 4 years to get done. So you have to be patient, you have to be consistent, you have to keep allocating investment to them to cause a change to happen and then be disciplined about the cost coming out the other side.
But I'll never tell people we're done because then they'd stop working at it.
All right. Thank you.
Our next question will come from Glenn Schorr with Evercore. Please go ahead.
Hi. Thanks very much. I'm curious, now that you've taken a charge on the merchant servicing JV, I'm curious about the go forward. Like, can you talk a little bit about what is built? What do you want to build?
Is there going to be an impact on expenses that we'll see? And how soon we'll see progress and what we'd see? Just curious
to learn more.
Yes. Sure. Glenn, let me start with a high level comment and then I'll let Paul, because remember, many of you don't know don't probably remember that Paul ran GTS for a while and had as part of his portfolio. So, the but he can hit some of the details. But philosophically, we wanted to control our destiny to be able to provide this type of service to our clients in a much cleaner way.
And we had a great partner in FDR and at some point that was good for what was going on in the world then has changed. So we're making a change. So a lot of the discussions on terms of where we take this, the team is working with FDR closely to unwind the venture as per the contract, etcetera. But it's been a good relationship. Expect to continue in various ways.
But on the other hand, we had to get control of our destiny, the sales force, the implementation. Paul, why don't you hit some of the pieces in terms of the numbers and that he was asking sort of what impact on expenses and things like that revenue?
Yes. I mean, I guess,
in terms of expenses, I would remind you that the accounting for BAMs doesn't change until the JV actually ends in June. That's the first point. And so when you get out to Q3 2020, we'll begin reporting our share of the revenue and our share of the expenses versus today where we record that share as net earnings in the other income line under the equity accounting method. Right, as we sit here today, given all we have to do between now and then, we're not disclosing specifics. There's a lot of work to do and the bottom line impact is really not that impactful.
As we get closer to, I think, the actual dilution, give you some more guidance.
Do you have a lot to build in terms of being able to service clients and deliver everything that you want to deliver to them? Everything that you're doing now, I'm assuming your current partner is doing. So I'm just curious how much of that you can do behind the scenes as you lead up to June 2020?
I mean, we're working on our plans, and we have a fair amount to do. But as you think about technology spend and incremental build costs, I would that's going to be prioritized within our normal $3,000,000,000 or plus a year that we're investing.
Okay. Brian, maybe one just high level one on loan growth. I think growing loans core loans 6% in a 2% world like you described would be considered great by most metrics. Just curious if you think that's sustainable if we're going to sustain this 2% world?
Yes, I think it will ebb and flow and you've seen it over the last, if you look at that one page on the lower end quarter, it shows you across 6% to 3% to 6% for commercial. So what have we been doing that's helping drive that? One of the major things we did is, I think if you calculate, we have 4 segments which go against commercial lending, the small business segment and our consumer business, the business banking segment, the global commercial banking segment, which mostly we call middle market and then our GCIB for large companies. If you look across those segments, especially in small business, but and importantly in Business Banking and Global Commercial Banking, Eitra Williams who runs Business Banking and Alistair Borthwick, those guys have been investing in headcount and people and relationship management. And a precise number for each of them, but think 25% more bankers today than they were 3 years ago, which gave us an opportunity to divide the portfolios of clients further, so people had less clients to get more depth of relationship and that's why you see statistics about key products per relationship.
And then secondly, with the capacity we added to get new relationships, all consistent with our credit. So we often get asked to grow in commercial loans. We're not we always ask ourselves, are we sticking to our credit standards and we've been able to do that. So I think it's sustainable in mid single digits, maybe 6 a little higher, maybe 5, maybe 4, maybe 6, this economy is a 2, but this taking market share because of the deployment of the capabilities into the middle market and business banking franchises along with some of the work that's going on with investment banking and others is a good place to be. And it's a 3 or 4 year investment, takes about 3 years to get a commercial banker coming into our franchise up to speed, honestly.
And then on top of that, we've there's a fellow named Robert Schleicher who runs a group that does the underwriting process, the whole enterprise behind all these businesses. And we've invested tremendously in the technology and the support of that group for their underwriting capabilities, turnaround time, all the things in that is allowing us to frankly have, as we're told, the fastest turnaround time of banks large, smaller, bigger or smaller. And so we feel that we're creating the kind of competitive advantage that this franchise has embedded in.
Awesome. Thank you, Brian.
Our next question will come from John McDonald with Autonomous Research. Please go ahead.
Hi. I wanted to follow-up on Jim's questions around NII, Paul. You mentioned the full year outlook for the 1% hasn't changed. The prior outlook for the Q4 was to be around $12,000,000,000 You came in a little bit higher this quarter. Just as we think about jumping off point into next year, you're still thinking about a 4th quarter NII around that $12,000,000,000 Is that a fair reading of your disclosures and things like that?
Yes, that's a fair reading.
Okay. And then just could you remind us how to read those disclosures and think about the impact of another Fed cut from here? There's some differences to the 10 Q disclosure you mentioned prior, like it's only the banking book, it's relative to the forward curve. How should we net all that and think about what one rate cut is if we're going to model that going forward?
Sure. So, you'll have our sensitivity disclosures in our normal filings. But when you look at them, you're going to see that over the next if the Fed were to cut rates by 25 basis points and remember, that disclosure is beyond the forward curve, which has 3 rate cuts in it, right? But if you look at that disclosure, you'll see that a full 100 basis points would equate to around $3,300,000,000 on the short end. You just divide by 16, dollars and you're going to get the impact on a quarterly basis of about $200,000,000 But it's going to be a little bit less of that because, again, that forward curve includes 3 rate cuts and then you're talking about 100 basis points on top of that.
So you'd literally be that forward curve literally, I mean that sensitivity disclosure literally means you'd be at 0 interest rates. And obviously, the next rate cut, we're not going to be at 0 interest rates. So it's not going to be the full $200,000,000 when you do the math on that disclosure. In addition, as you point out or alluded to, that's just our banking book. And if you include Global Markets, which is modestly liability sensitive, that decline would be even further mitigated.
Okay. So something I think you've said maybe before in the $125,000,000 to $175,000,000 or something less than $200,000,000 Yes,
it's going to be less than $200,000,000 And I'd even tell you it's going to be meaningfully less than $200,000,000
John, so these things, I know you guys would like us to round it out to 6 digits each time and give it to you for the next few years. But the reality is, we gave you an estimate for this quarter, last quarter, I mean Q4, the current quarter and we gave it to you last quarter and in fact there's been more rate cuts and we're still holding the same guidance of 12,000,000,000 dollars and change. And that shows you that we're managing the heck to try to avoid some of these impacts and how we price deposits and better growth in deposits and we may have estimated that. So there's a lot estimation. But we're trying to give you thematically as Paul is talking about over time, but it's not this imprecise, there's just a lot of moving parts that frankly we've managed better than we thought we could.
I totally get it. That's totally appreciated, Brian. Just with that one more nitpick, Paul, just from the 3rd to the 4th quarter, 12.3% this quarter, the pressures that you have in the 4th is kind of the combination of the LIBOR and then also the premium M, is that why you could come down a little more than 200% in the 4th quarter and again subject to all the caveats?
Look, as you're thinking about the Q2 versus the Q3, remember we had one extra day. We had a second rate cut that came at the end of the quarter. So as we sit here today, we don't have that extra day. We've got 2 rate cuts fully baked in, that are going to affect asset yields, plus you've got in that forward curve. So everything we're talking about here assumes a forward curve.
You've got another rate cut. I already told you that I thought that the premium amort would not be as significant anywhere near as significant as it was 2nd quarter to 3rd quarter. We're going to have loan and deposit growth. We're going to have we're going to again, as Brian just said, work hard on all the other levers we have like deposit pricing. And so you get to I'm not giving you guidance, I gave you kind of how to think about it based upon those sensitivity disclosures.
But that's why it's a little bit different going from 3Q to 4Q versus Q2223Q.
Okay, great. Thanks. Very helpful. Thank you.
Our next question will come from Betsy Graseck with Morgan Stanley.
Good morning, Betsy.
Hi, good morning. The question that we get with everybody we speak with is around how you're thinking about the competition in retail brokerage with some of the e brokers obviously going to 0 commission on cash and options and different players, different price points there on different products. But just wanted to understand how you think about that? I realize it's a small piece of the revenue line you've got, but just want to see if you think that this is at all something that you need to address in the marketplace?
So Betsy, let me take that because if you remember right, I had that business when we introduced $0 commissions in 2,006. So it's not a new concept to Bank of America. And so about 87% of the current commission, current trades are $0 in the area that in the Merrill Edge in the self directed platform, it's been true forever. So this is not a change to our operating strategy, but we don't focus on trying to drive a pure trading type of thing. We think about the relationship and the Merrill Edge and things like that.
So if you look at the consumer investment assets on page 13, you can see they're up $20,000,000,000 year over year. We're driving a whole relationship into these managed portfolios that's based on financial advice to that. Yet we still have a very competent capable against some redoubtable competition, we have a very strong platform that grows also. But the $0 change won't affect us much largely because we frankly introduced it 13 years ago.
Right. That's with preferred accounts. And so when people look at Page 16 and they see the brokerage rev line there, it's like $700,000,000 this quarter. That is really commission on other things than stocks and options. Is that a fair way to read it?
That's really not relevant here because that's in the wealth management business. Where this stuff shows up is actually back in the consumer side because Merrill Edge is in that area and that's where the lion's share of this is. So it's not that $700,000,000 is the financial advisory team under A and E selling things that closed end funds, muni bonds, stocks, then a lot of other things. So that's been under pressure for years. And as you well know, and so that's a constant change of fighting the average yield for the total client assets in that business, but that's not affected by this decision.
Got it. And you'll see us push a little bit on some of the qualification preferred to open up this capability in other set of clients, but we only have 13% less to go.
Got it. Okay. And then just separately, one more question on NII, Paul, if you don't mind, but in the quarter, the markets NII helped out this quarter, I believe, and just let me know if I'm reading that right.
Yes, yes. You're reading right. Markets NII went up this quarter. As you and we've said that the markets business is liability sensitive. So it does help NII if rates decline.
I just would point out that we really manage that business looking at total sales and trading revenue, not NII. And although the trading book is liability sensitive, it is really important to remember that client activity and product mix in global markets can vary quarter over quarter and will drive sort of income statement geography, which can produce an increase, as you saw this quarter in NII or maybe reduce NII in another quarter with the offset is going to be in trading account profits. So that's why the real key here is to focus on the sales and trading disclosures as opposed to the mix between NII and trading account profits.
Got it. Okay. Thank you.
Thank you.
Our next question will come from Saul Martinez with UBS. Please go ahead.
Hey, good morning, guys. I'll also ask a question on NII. The one it seems like obviously Q3 is a little bit better than maybe expected and you're retaining the 1% growth in kind of implies $12,000,000,000 for the Q4. You obviously have had rates come in, long ends come in, forward curves pricing and at least 2 more rate cuts. But it also feels like maybe you're a little bit more optimistic than about the NII trajectory than you were maybe earlier this quarter.
Is that a fair reading, Paul? And if so, I mean, what makes you a little bit more optimistic about your ability to sustain NII? Is it just that loan growth is coming in better? You've been able to reprice deposits a little bit faster? What gives you a little bit what makes you a little bit more confident that your NII trajectory could be a little bit better than what you thought maybe even a couple of months ago?
I think we do feel good, and I think we feel that way because we've seen how our teams are performing in a different interest rate environment. We've seen how teams and our clients, by the way, have reacted to appropriate adjustments on deposit pricing, given the change in LIBOR. And remember, all of our clients are getting a huge benefit in what they're paying on their loans. So it's appropriate to adjust We've We've deepened relationships and we've improved our capability to service them on both the loan and deposit side. So I think it's just another quarter under our belt where rates were different and we've seen how the teams have performed and we're feeling good.
Okay. No, that's helpful. And on the deposit cost side, you did, I mean, obviously, interest bearing deposit costs were down 5 basis points and it seems like that's going to be given the limited scope in retail, wealth and commercial, you're being proactive there as you should. But you're coming from a lower starting point on deposit cost than most of your competitors to begin with. So I mean, just can you just talk to how much more room you feel like you have as we get further along in the rate cycle?
How difficult does it become or does it become more difficult to be more proactive in terms of lowering your deposit costs?
I think back to the in the earlier discussion that sort of general guidance we give our teams is you have to get us 3% in the current economic environment we want to see 3 percent in core growth in deposits and you have to then price to achieve that both and then also at the same time achieve your goals on NII and things like that. So I think we try to be consistent, we value relationships, we focus on the core. On the commercial side, the GTS relationships drive the economics in the business as you well know. On the wealth management side, we're driving the economics in the business as you well know. On the wealth management side, we're driving not only the investment cash, but all the transactional cash and you have to think of those as 2 separate executions and putting teammates investing by putting teammates into the Merrill Lynch offices who can help the client will help.
And then on a consumer side, obviously, it's just the power of the brand and the franchise and digital competency. So, but we don't let people off the hook either way. And that said, we want them to grow, but we want them to grow with pricing that if somebody comes in and says that can grow by issuing a bunch of term CDs at premium price, we say that's kind of interesting, but that doesn't qualify for what we want. So, and that then leave aside the movements as rates moved up and following, you're seeing as you leave aside the movements as rates moved up and following, you're seeing as you stabilize and even come down a little bit, you're seeing them able to continue to grow while managing rate paid carefully.
And should we expect non interest bearing deposits to grow disproportionately in this environment? It seems with lower rates, it seems like higher yielding CDs become less attractive. And this is a for a bank like you, it's a national bank and this great franchise and the national franchise, it seems like a pretty attractive environment or a good environment for you guys to take share and suck up demand deposits at maybe a faster rate than some of your peers?
I think, yes, we expect to grow at a faster rate than our peers. That's kind of axiomatic when you gain the shares we're doing. But if you look at the slides on the deposits, you can see that growth in consumer drives the equation on the non interest bearing and very low interest cost deposits and the team there, Dean and the team have done a good job of they've gone from 6 basis points to 11, that's due to mix. And as Paul said earlier, we are liability insensitive to some degree because we have got the mix deposits and but if you got to remember on $700,000,000,000 11 basis points is $700 and some $1,000,000 a year of costs. There's only so much price leverage in there.
So we say just keep growing and grow in the right categories. Yet they have CDs and the CDs grew year over year.
The only thing I'll add there is, I think you all know this, but if interest rates are lower, then deposit rate paid is less important relative to all the other things people reasons why people invest with us or I should say deposit with us. So theoretically, you might see more deposit growth in a lower interest environment, because trust is more important, the deep relationship they have with us across preferred rewards and other things we do for them. And mobile, the online capabilities, the nationwide network of financial centers, our global GTS capabilities, those just all become more valuable to customers if rates are lower.
Great. Thanks so much.
Our next question will come from Ken Usdin with Jefferies.
Hey, guys. Just a quick one. Brian, you mentioned that obviously delivering positive operating leverage gets harder the rate environment where it is. But as you look ahead and you've done this good job of keeping this $53,000,000,000 or so, what are the incremental things that become more productive underneath that allows you to fund the incremental investments? Like do we transition to other parts of the business becoming more productive or other pieces that you haven't maybe still haven't yet attacked that could still provide that underlying support?
Thanks.
Sure. I mean, we have the operational excellence platform, which a fellow named Tom Scribner had, now he's moved over to work on part of the operations group under Kathy, but Ann Walker has, she had to simplify and improve. This is an ongoing program which has literally every manager in the company that a couple levels down from my team constantly working on coming up with a mapping of the process, improving the processes and asking for investment to help improve those processes. So there are areas where we're very digitized and very no paper and very electronic and you can think of that in some consumer areas. There's areas where we're still just now getting the benefits of major investments we may think about the underwriting area and commercial I talked about earlier that we're now bringing the people, the teammates on the platform to drive it.
And so all our platforms have efficiency ratio in each of the business units are industry leading, apart from our scale and part from just the discipline of the teammates. So, and we look at deployment of the relationship management talent, are we getting the calls and the customer visits and the productivity out of that? We're looking at, we continue to work on our real estate configurations that were down 50,000,000 square feet in real estate from the start of 2010. And yet we don't satisfy ourselves in the occupancy rate. Can we push it up?
Can we densify the space? The new building we built in New York will be also this new modern style of work environment that will allow us to make economic at a higher rental cost. And you look at every aspect of the company and continue to look at managers, we're down 10,000 managers over the last 3 or 4 years. That continues to drift down as we continue to look at what a manager does and how we test that. But we let attrition work for us and by not hiring and making sure we're planful on hiring, we can drive it out.
And so everybody wants to say what's the silver bullet. The answer is everywhere there's opportunities and we don't know how far this goes with machine learning or artificial intelligence. These things you hear about are still in being applied. And by the way, we spent $1,500,000,000 in data work over the last 5, 6 years, largely around all the CCAR stuff, but ultimately in that and some of the work we're doing, but really to get all the data rates is actually the robots and things that can operate are operating on good data. And that investment then allows us to take advantage of it and we're still in the early days courts that we invested in the markets business.
So it's from one side of company to the other. And going to the earlier comment, what target do you have? The answer is, we don't have a target except to improve every month, day, month, week and quarter and we'll continue to do that.
Thanks a lot,
Brian.
Our next question will come from Brian Kleinhanzl with KBW. Please go ahead.
Yes, thanks. I just
have two quick questions here. On the wealth investment management, I heard that you were bringing down the non interest expense. Can you go into a little bit more detail if there's still more that can be done on expenses in there? I mean it's surprising to see the positive operating leverage with expenses down?
Yes, it's you have the pre tax margin if you think about it once you pay the talent teammates we have in the financial advisory platform and the private banking platform, you're working on about half the revenue and we're getting 30% of that to the pre tax line. So the idea is you've got to improve in all directions. It's not just expenses and it's efficiency expenses, simplification of product, especially for the clients with $500,000 $600,000 continue to add straightforward products that are digitized on both the way they're delivered and the way they're statement and everything and then making the advisors able to handle more clients and that allows us to get more efficiency, real estate configuration. There's a lot of paper still in this business just because the history of it. So they're probably in the first inning of really it's a very digital business in some ways when you think about trades and how they go through, but it's a very paper intensive business in other ways.
The way we do AML KYC refreshes, we're going to recognize a team that took several 100000 hours out of several 1000 hours out of the work to do that. It's just a 1,000 things. And so, but importantly also by driving the growth in loans and deposits and stuff that is less creates more free tax profit margin frankly off the strength of the bank's balance sheet and the size of our company. That gives us unique positioning. So we're running industry leading margins and we know we can continue to push them up.
It is a very slow thing and we don't change the way we pay people. We really focus in on working around and making all our teammates ability to have a great career, make more money and serve the clients better, while we keep making the place more efficient.
And then a separate
one for the U. S. Cards. I mean, it's like you saw the gross interest yields still tick up in the quarter despite the rate cut and the change in prime rates there? Was there something unique going on that allows you to kind of expand yields
by the way of it? It's
the card portfolio, right?
Correct, card portfolio.
Yes. Look, we've been focused on profitability. We have been careful about growth as we're growing. We're adding 1,000,000 new cards a year and again with a focus on profitability. So we've reduced we've sort of scaled back on people we think are trying to game the system or just going after promotions.
So that's improving the profitability overall. I think you saw that in the RAM that you're referencing, which is up year over year, and that's mostly being driven by NII, I mean, NIM growth in the card.
Great. Thanks.
Our next question will come from Matt O'Connor from Deutsche Bank. Please go ahead.
Hey, Matt. Good morning. If we look at your expenses ex the impairment and the legal costs, it's about 12,700,000,000 dollars Obviously, if you annualize that, it's below the $53,000,000,000 you're talking about next year. And I know there's some seasonality in the first half of the year that drives costs higher. But I guess first, is there anything in the twelveseven that's kind of not sustainable or unusual?
And why isn't there maybe some
downward flexibility that could be great?
Correct, correct.
Yes, I think it's just the Q3 was just a little bit of timing. We're increasing our investment in people, in financial centers, in marketing, but it's not even throughout the whole year. So you got to think about the guidance we've given for the full year as opposed to just any given quarter.
Okay. So just some ebbing and flowing there?
Yes.
Yes. It's just ebbing and flowing on marketing and other areas, which will rebound investments. We expect some of that to rebound in the Q4.
And Matt, that's why if you go back to that earlier page in the deck, why we should if you think about the last couple of years, there's always ebbing and flowing, but we're showing that we're kind of holding it here. And as you look over the next couple of years, we think we can hold it here. And then at some point, we'll start growing or trying to grow the we're trying to spend 3% more a year, but only grow the expense base. 1% is kind of a long term picture. We're trying to take maybe 1% to 2% and with revenue growth of 3% to 4% in a normal environment that creates great operating leverage and EPS growth.
That's the long term view that we keep holding to. When interest rates move quickly in a quarter, those are things that deal with it, but over time, that's what you're trying to achieve. And so you could take that as sort of the general operating principle we push our teams towards.
Okay. And then just separately, you talked about deposit growth potentially of 4%, 5%, accelerating a little bit from where we're at right here. And then you talked about loan growth potentially being in the call it 4% to 6% range. As you think about the overall balance sheet, should it grow in line with deposits or are there some opportunities to bring down debt and you'll see a little bit less earning asset growth?
Yes. Look, on the specific point, are there opportunities to bring down debt? There's a little bit of opportunity there. Our TLAC ratios are probably a little bit higher than we want them to be. But that was because we were adding a new bank in Dublin, adding a new broker dealer in Paris.
And by the way, splitting up our broker dealer here in the U. S. On to resolution planning. So we have a little bit of opportunity there. I wouldn't make too much of
a
big deal about that. Basically, our balance sheet is going to grow as we grow deposits. With all that deposit growth going into loan growth, we still have the non core portfolio running off a little bit. And whatever doesn't go to loans is going to go into the securities portfolio.
And then you have the markets business, which also because of financing activities and equities, not a lot of risk, but notional growth of the balance sheet that you've seen.
Yes. Okay. Thank you.
And we will take our last question from Gerard Cassidy with RBC. Please go ahead.
Thank you. Hi, Brian.
Hey, Gerard. How are you?
Good. First, I just want to thank you and Bank of America for the continued support of the Bank Alice Association meeting. You guys do that dinner every year like you're doing this year. So thank you very much. We really appreciate that.
The second point, credit is very good for you folks in the industry. Can you share with us what when you look out over the next cycle, where are you guys spending extra time today just making sure that you don't take your eye off the ball because of some potential problems that could be on the horizon?
Well, Gerard, you asked the question that Paul and I and Jeff Green are our Chief Risk Officer and importantly our Enterprise Risk Committee led by Frank Bramble, our Board of Directors. We keep saying how do we make sure that we're sticking to our knitting so to speak. And you do that by you see all this goes to industry limits, country limits, leveraged underwriting limits, you pick just limits after limits, house guidelines exception. So I think one of the things I think my peers and I would say is with stress testing and other things, you're required to think of the worst of times and hold capital for it. So I think in the industry generally that has had a great impact in terms of us all thinking through the long term impacts.
But importantly, the data and the capabilities that we built starting 10, 12 years ago are just tremendous. So when we asked the question, we can actually see in very discrete areas, where's our exposure to this or that or the other thing. And that's important because then you can manage at that level. And the team under Jeff has done a great job of sort of bringing that data to 4 and making sure we're always watching all the different pieces. So Mick Ancrum is in charge of credit risk of the company.
I'll call him up after the Houston hurricanes a couple of years ago. I said Mick, what's our exposure? So what zip code you want it for and which product you want it for and do you want the card versus the mortgage and people have both and all that's just as this is all like a Saturday night or something like that. Not to say he doesn't have more fun things to do, but so I think that allows us to keep track of it. But it's just all those limits and those granular limits and then the intrusion of the underwriting process requires really for any reasonably sized loan, a risk manager to specifically sign off along with a banker on a commercial side and consumer side, the parameters of the buy box, so called or set by with risk and joined during that.
It's kind of beaten in the system. It's not something we people argue about or think about. So our real estate exposure is limited by a limit that Simeon Damar presents and as the head of the real estate exposure for the whole company and from the line side and supported by the team on the risk side. So it's just in the 30 years I've been around this business, you just see the grain on it. We used to say what do we have and people have to run out look, now you have it, and then you can manage a lot more effectively on a go forward basis.
Very good. And then pivoting a bit, you touched on it in your prepared remarks about the regional bankers that you guys have been hiring here in the States. Tom talked about it at a conference recently. You had good numbers in your investment banking area this quarter and are taking some wallet share. Is it because of hires that you're making across the globe?
Or is it because some of your competitors are still struggling to really get back into the old groove of what they were, let's say 10 or 12 years ago?
Yes. I think that Matthew Koehler and the team have realized we had the capabilities of franchise tools. We just needed to really drive the effort and he's done a great job of doing that. Alistair Borswick and Matthew together you have been working on building out this middle market team which is good. It's not only just pure investment banking, everything's M and A or maybe debt capital markets, but also the exposure plays into a lot into the markets business, hedging fuel cost or hedging interest rate risk or currency risk because the average midsized U.
S. Company is engaging all over the world and that's a competitive advantage only a few of us have is to be able to deliver in India for a midsized company in United States and help them think through that or other places. So I think the team has done a good job there. We work very closely with the wealth management team in terms of referrals and coverage of the entrepreneur segment thinking of a private banker or financial advisor Merrill Lynch and their clients working with a commercial that we measure that. We goal it.
It has to come sort of naturally by money in motion or transactional activity, but the awareness of the capabilities and the coverage is they've done a good job. And so we will always be susceptible to the biggest deals that activity slows down, all of us have that issue. But that underlying middle market is just a lot more companies, 10000, 5000 companies that you can get out, that there's just a lot higher probability of 1 of them doing something on a given day than the top 1,000 companies.
No, very good. And thank you and look forward to seeing you in 3 weeks. Thank you.
Okay. Thanks, Gerard.
And there are no further questions at this time. So I'll turn it back to Brian.
Thank you very much for your time and attention, and thank you for attending our earnings call. I think the themes for this call, you heard them in the Q and A and earlier presentations are the years of investments that the team has made and managed are paying off. We're using loans our loan and deposit growth above industry averages and above the market on a conservatively responsible growth basis continues to help offset the NII pressure due to rate changes, which is which all of you are focused on and should be. We still continue to make sure we stay dedicated, responsible growth to make sure the credit risk and market risk we take on is consistent with how you expect us to manage it. And we continue to manage investments and expenses and run that sort of dual brain side of saying we can grow our investments we can also continue to manage our expenses carefully and relatively flat.
And then on top of all that, over the last few years, our ability to have sustainable, predictable earnings and excess capital is coming back to you along with 100% of the earnings at levels which are unprecedented among our peers. So that's helping drive down the share count and helping produce EPS growth that we need. So consistent with responsible growth and we look forward to seeing you next time.