Star 0. Good day, everyone, and welcome to today's Bank of America earnings announcement. At this time, all participants are on a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touch-tone phone. You may withdraw yourself from the queue by pressing the pound key. Please note, this call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Lee McEntire.
Good morning. Thanks to everybody on the phone. Thanks for those that are joining us on the webcast as well. Welcome to the fourth quarter earnings results presentation. Hopefully, everyone's had a chance to review the earnings that we released. It's available on the Bank of America investor relations website. Before I turn the call over to Brian and Paul, let me remind you, we may make some forward-looking statements. For further information on those, please refer to either our earnings release documents on our website or our SEC filings. With that, I'll turn it over to our CEO, Brian Moynihan.
Thank you, Lee, and good morning. Thank all of you for joining us this morning to discuss our fourth quarter results. Before Paul Donofrio takes you through the details of the quarter, I just wanted to provide some overall context on our progress in 2015 and the opportunities and challenges ahead. As you know, for the fourth quarter, we reported $3.3 billion in earnings or $0.28 per diluted share. For 2015, we had net income of $15.9 billion. That's the highest net income we've had in a long time. Full-year return metrics are 74 basis points for ROA and 9% for return on tangible common equity. During 2015, we continued to drive our eight lines of business forward. We focused on driving responsible growth across all our businesses.
As you look at the annual earnings of the company and see how they fell, you can see how they came through. Our Consumer and Wealth Management business, serving mass-market customers all the way to the wealthiest Americans, delivered $9.3 billion in net income this year. Our Global Banking business, which provides services to small, medium, and large companies around the world, produced $5.3 billion in net income this year. When our institutional investor clients, our Markets business, with its market-leading research capabilities and a top-tier platform across the globe, delivered $3 billion in earnings after adjusting for DVA in a very challenging market. What's clear in these earnings, despite the gyrations of the markets, especially at the end of the year last year, is the annuity nature that we get from our franchise by driving customer and client flows.
That's the power of the company, its balance and its scope, and its strong customer base. We aim to continue to improve it every day for our clients and customers and our shareholders. These results reflect the work we've done over the past several years to develop a more straightforward, simplified operating model and focus on responsible growth. As you can see on slide two, across a variety of measures, loan growth, business activity, capital liquidity, credit losses, and cost management, we've made meaningful progress and believe we're positioned for a variety of economic cycles. At the foundation of all this is a strong capital liquidity base. We added to our record liquidity levels in 2015, when we believe we're well-positioned against the 2017 LCR requirements, with total global excess liquidity sources now at over $500 billion.
This amount represents nearly a quarter of our balance sheet, and we now have enough apparent liquidity to last more than three years before we'd need to tap the market for funding. Our liquidity levels were driven by strong growth in deposits this year, and we were able to put that funding to work to grow loans on an absolute basis for the first time in several years. Loan growth was all driven by organic activity and consistent with our risk posture. Our change of common equity of $162 billion is at record levels as well. We returned $4.5 billion to shareholders this year in common dividends and share repurchases. Our tangible book value per share improved 8% in the past 12 months to a new high of $15.62. Our responsible lending focus also shows in our underwriting results.
Our net charge-offs were down to $4.3 billion this year, consistent with last of 2014, but much lower than previous years. Commercial charge-offs increased off a very low base, mostly from oil-related charge-offs, while consumer losses at their core continue to improve. This reflects both our responsible underwriting as continued improvement in our legacy portfolios. Finally, we get to the cost management side. At the heart of our work has been improving expenses, which you can see are down sequentially from last year, mostly on lower litigation costs, but also on improved LAS and other operating costs. These have improved steadily across the last several years. We began Project New BAC in 2011 and completed it in 2014. Since then, we've been using our Simplify and Improve initiatives to find savings that more than offset increased compliance, merit, and other inflationary costs.
Most importantly, those savings fund investments in our business, whether it's in technology, our sales force growth, or other infrastructure costs. As we move to slide three, we include a few examples of trended business activity in our Consumer Banking Wealth Management business, $52 billion or 7% comparing year-over-year fourth quarter periods. These deposits are up over $105 billion in core deposits since the end of 2012. This is strong organic growth as a result of hard work and improving the customer satisfaction in our franchise by making it easier for customers to do business with our bank and strong product management simplifying the product set.
All this has been done while we've optimized our delivery network, reducing our financial centers, divesting certain markets, and also expanding our award-winning mobile capabilities and the customer base that uses that. As you can see, this work also extends to our wealth management business. We've had long-term net flows every quarter for six and a half years in wealth management. We have record low levels and significantly higher deposit levels. Good products and advice, a growing sales force, and two of the leading brands in business positions flow here. When you move to our Global Banking Markets area, you can see in the institutional side of the house laid set up for us on slide four, we saw a solid activity in 2015. Loans to commercial and corporate clients around the globe have grown nicely.
Client demand has been good. Our bankers have met our challenge to capture market share responsibly. This focus allows us to demonstrate a strong 12% growth in loans in Global Banking in the past 12 months. You can see the deposit growth has been strong here over the last year as well. If you look at the Global Markets business, Tom Montag and team have done a good job of reducing assets and lowering the risk and still generating relatively stable revenue. Despite the recent market challenge, we remain quite profitable in this business and well-positioned around the globe with both a strong FICC and equity platform. As we step back, we remain focused on our core customer strategy. We continue to invest in the future, even as we continue to address the legacy issues of the past.
We've been able to grow even as operating an economic environment remains in a low-growth mode. Our model is solid, there's still plenty of work to do, there's plenty of opportunity ahead for us. Overall, I'm pleased with the progress we made in 2015. We have more to do in 2016. In 2016, you should expect us to continue to focus on responsible growth. We'll continue to drive the investments made in the franchise to deliver the value to you as shareholders. We'll continue our sharp focus on risk management. We'll continue our cost discipline as we look to continue to improve the return on capital metrics of our company. With that, let me hand it over to Paul.
Thanks, Brian. Good morning, everyone. Starting on slide five, we present a summary of the income statement and returns for this quarter, as well as the fourth quarter of last year, which had similar seasonal aspects. We earned $3.3 billion in the quarter compared to earnings of $3.1 billion in 4Q 2014. Earnings per diluted share this quarter were up for $0.28, up 12% versus a year ago. Results include two significant charges that were previously announced and impacted EPS by $0.06. First, we recorded a pre-tax charge of $612 million associated with trust preferred securities, which phased out of Tier 2 capital at the end of 2015. Second, we had a tax charge of $290 million associated with the U.K. tax changes that were enacted during the quarter. Lastly, we had a few other items that benefited EPS this quarter by $0.01 on a net basis.
These included a negative net DVA impact in sales and trading that was more than offset by positive impacts of market-related adjustments in net interest income and some one-off tax benefits. Revenue on an FTE basis was $19.8 billion this quarter, up 4% from Q4 2014. Expenses were $13.9 billion, approximately $300 million or 2% lower than a year ago, driven by good expense discipline across the company. We also provide returns and a few other metrics on this page. I would remind you that client activity and revenue in our Global Markets segment tend to be lower or lowest in the fourth quarter, affecting returns and other statistics. As many of you are aware, there was a recent accounting change that requires certain unrealized debit valuation adjustments to be recorded directly to OCI rather than through the P&L.
We've early adopted this change effective as of the beginning of 2015. The slides and the supplement earnings materials that present 2015 results have been adjusted. Turning to slide six and focusing on the balance sheet, we grew deposits by $35 billion from Q3, and we used these increased deposits to fund responsible loan growth. In total, assets climbed $9 billion as increases in loans and security balances of $30 billion were more than offset by reductions in trading-related assets and cash. Liquidity rose to just over $500 billion, a record level, and time to required funding remains over three years. Tangible common equity of $162 billion improved modestly from Q3 as earnings were offset by both the return of $1.3 billion in capital to common shareholders and negative OCI driven by security values. Tangible book value per share increased to $15.62, another new record high.
Turning to regulatory metrics, we began reporting regulatory capital under the advanced approaches for the first time this quarter. On a CET1 transition ratio under Basel III, ended the quarter at 10.2 and really has no comparable metric as transition ratios in prior periods were reported under the standardized approach with lower RWA levels. On a fully phased-in basis, CET1 capital improved modestly to $154.1 billion under the advanced approaches compared to Q3 2015 pro forma estimate. The CET1 ratio increased slightly to 9.8%. RWA was essentially flat as growth from commercial exposures was mostly offset by lower activity and balance sheet levels in our Global Markets segment. We also provide our capital metrics under the standardized approach. Here, our CET1 ratio was flat at 10.8%, with modest improvements in capital offset by modest increase in RWA.
In terms of the supplementary leverage ratios, we estimate that as of 12/31, we continue to exceed U.S. rules applicable beginning in 2018 at both parent and bank. Turning to slide seven. We had strong loan and deposit growth this quarter. Reported loans on an end-of-period basis increased $15 billion from Q3. This is the third consecutive quarter of reported increases in total loan balances. We continue to see solid loan demand in our primary lending businesses, partially offset by runoff in LAS and All Other. Excluding declines in LAS and All Other, ending loans in our primary lending segments increased $22 billion from Q3. $8 billion of this increase was in consumer loans as GWIM increased mortgages and security-based lending. Consumer Banking also saw good loan growth in mortgages as well as vehicle loans.
We also had some seasonal growth in credit card, partially offset by selling $1.7 billion of card receivables at the end of the quarter. Commercial loans grew $15 billion, spread across multiple industry groups. Turning to deposits. On managed basis, they reached nearly $1.2 trillion this quarter, growing $78 billion or 7% from Q4 2014. Growth was solid across the franchise. Consumer led the way, growing 9% year-over-year, while both Global Banking and GWIM each grew at a 6% pace. Turning to asset quality on slide eight. While still strong, we did see net charge-offs increase modestly from recent levels. Total net charge-offs increased $212 million versus Q3. $144 million was from consumer items previously reserved for and lower recoveries on the sale of NPLs in the fourth quarter versus Q3. We also saw a $73 million increase in net charge-offs from our energy portfolio.
Outside of these two areas, net charge-offs were stable compared to Q3. Provision of $110 million in Q4 was relatively flat with Q3. Reserve releases in consumer real estate and credit card were partially offset by reserve builds in commercial, which were driven by increases in criticized exposures as well as loan growth. Reserve releases, excluding the previously reserved items I mentioned earlier, were roughly $200 million. On slide nine, we provide credit quality data on our consumer portfolio. Net charge-offs increased $137 million. The two items of note that make up this increase were reserved for in prior periods and did not impact provision expense in the quarter. $119 million was a result of collateral valuation adjustments. In addition, we had some small charge-offs associated with our 2014 DOJ settlement. We expect to complete our commitments under this settlement in the first half of 2016.
Adjusting for these two items, consumer net charge-offs were relatively flat versus Q3. Delinquency levels and NPLs continue to decline, and reserve coverage remains strong. Moving to the commercial side on slide 10. Net charge-offs increased $75 million, primarily from losses in our energy portfolio. Outside of the energy portfolio, commercial losses remain very low. Given the focus on the impacts of low oil prices on companies in the energy sector, we want to spend a minute to describe our energy portfolio and provide some perspective. The pie chart breaks down our $21 billion of utilized exposure to the energy sector. This represents a little more than 2% of our total loan balances. Within that $21 billion, $8.3 billion, or less than 1% of total loans, is loans to borrowers in two sub-sectors: exploration and production, as well as oil field services.
We consider these two sub-sectors to have significantly higher risk than the rest of the energy portfolio. Of our $8.3 billion utilized exposure to these two higher-risk sub-sectors, $2.9 billion has already been downgraded to criticized. 35% of the higher-risk sub-sectors has already been downgraded to reservable criticized exposure, thereby driving a portion of the reserves. And allowances for loan losses for the entire energy portfolio is approximately $500 million, or 6% of the funded exposure of these two sub-sectors. Companies in the vertically integrated sub-sector represent $5.8 billion of the energy portfolio. We believe this sub-sector has a better ability to withstand lower oil prices. Nearly 100% of the companies have a market cap of $10 billion or more, or they're sovereign-owned, and the average company has a market cap greater than $60 billion.
We believe the remaining exposure in refining and marketing as well as other is also less dependent on oil prices. As part of our standard risk management process, we stress test our credit portfolios, including our energy portfolio. Our stress analysis of the energy portfolio includes various sustained low oil prices over extended periods. As an example, if we held oil prices at $30 per barrel for 9 quarters, we estimate our potential losses on the energy portfolio would be roughly $700 million. In energy and across our commercial sector, we continue to support clients while managing lending limits and actively engaging with stressed borrowers. Before moving from asset quality, I want to refocus on total provision expense and how one should think about it over the next couple of quarters.
As we continue to assess and react to future changes in the energy sector, we could see lumpiness that could potentially drive provision expense over $900 million. Turning to net interest income on slide 11. On an FTE basis, NII was $10 billion, increasing roughly $300 million from Q3. NII included a negative $612 million charge associated with three trust preferred securities. These securities were scheduled to be completely phased out of Tier 2 capital as of January 1, and with 7%-8% coupons became expensive debt. NII also included $116 million in positive market-related adjustments to the amortization of bond premiums under FAS 91. NII, excluding market-related adjustments and the charge on the trust preferred, improved $188 million from Q3 to $10.5 billion. This improvement was driven by increased deposit balances, which we used to fund growth in loans and securities.
As we move into the first quarter, please note the following. First, we will have one less day of interest. Second, recent changes by Congress will lower the amount of dividends we receive from the FRB by approximately $50 million a quarter. Having said that, if the forward curve is realized, and if we have some modest deposit and loan growth, we still expect to show some growth in NII in Q1 2016 relative to our adjusted NII of $10.5 billion. With regard to asset sensitivity, at the end of the fourth quarter, our overall asset sensitivity decreased slightly as a result of increases in loan and rates, as well as security balances. As of 12/31, an instantaneous 100-basis-point parallel increase in rates is estimated to increase NII by approximately $4.3 billion over the subsequent year.
A little more than half of that improvement comes from the increases in short-end rates. A little less than one-quarter of the benefit comes from market-related adjustments. Turning to expenses on slide 12. Non-interest expense was $13.9 billion in Q4, $300 million lower than Q4 2014. This was driven by good expense discipline across the company. Litigation expense was a little higher this quarter at $428 million, exhibiting some lumpiness as we work to resolve legacy issues. Keep in mind that annual litigation expense decreased from $16.4 billion in 2014 to $1.2 billion in 2015. Legacy Asset Servicing costs, excluding litigation, finished Q4 a little better than our targets of $800 million. As we have said, our next goal is $500 million per quarter. Expenses, excluding litigation and LAS were $12.6 billion and represents the fifth quarter out of the past six below $12.8 billion.
We continue to look for ways to streamline and simplify how we do business. This is important because it allows us to invest in growth while maintaining relatively flat core expenses in a sluggish revenue environment. Importantly, this relevant flatness continued even as we invested in additional sales professionals and improved technology. Looking towards expenses in 2016, let me remind you, in the first quarter, we will record, as normal, approximately $1 billion in costs for retirement-eligible incentives. In addition, the first quarter typically includes seasonally higher payroll taxes of roughly $300 million. If we experience a traditional rebound in Q1 sales and trading revenue, this would also increase incentives and other associated costs. Turning to the business segments and starting with Consumer Banking on slide 13. Consumer earned $1.8 billion, 9% greater than Q4 last year. These results reflect good operating leverage on increased customer activity.
The segment generated a strong 25% return on allocated capital. Revenue of $7.8 billion was up modestly from Q4 2014. Net interest income benefited from higher deposit and loan levels. Non-interest income was down slightly from lower mortgage banking. The decline in mortgage revenue reflects selling fewer non-conforming loans as we hold more on our balance sheet. In addition, there was the absence of $30 million in quarterly revenue from the Q3 sale of a small non-core appraisal business. Expenses declined 2% from Q4 2014 as the savings from reductions in financial centers and personnel more than offset higher fraud costs and investment in increased sales specialists. The cost of operating deposit franchise remained low at 177 basis points. Operating leverage drove improvements in the efficiency ratio to 56% as we continue to experience shifts in customer activity away from branches towards self-serve options.
Mobile banking users increased to 18.7 million, which is up 13% from Q4 2014, and deposit transactions from these devices now represent 15% of deposit transactions. Slide 14 presents consumers' progress across a number of customer activities. I would highlight activities in three areas: loans, deposits, and brokerage assets, where we continue to grow responsibly. These three products are at the core of our rewards programs, where we share benefits with customers who deepen relationships with us. Average loans grew $12 billion from Q4 2014 in mortgages and vehicle lending. Ending deposits growth was strong at $48 billion, or 9% from Q4, while the rate pay declined to four basis points. Regarding brokerage assets, Merrill Edge assets levels of $123 billion are up 8% from last year, even with declines in equity markets this year. Total mortgage production was up 13% from Q4 last year and stable with Q3.
Looking at card activity, which includes GM, card issuance was strong at 1.3 million. Average U.S. card balances of $89 billion were down modestly from last year but up seasonally from Q3 2015. U.S. card credit quality was strong as net charge-offs remained at decade low levels of 2.5% with a risk-adjusted margin of 9.4%. Credit spending volumes finished on a high note, as Q4 spending was 5% higher than last year, outpacing what we believe to be total market spend levels. Debit spending was strong as well. For example, on Christmas Eve day, we saw record debit card spending of more than $1 billion. In our Consumer segment, we expect technology adoption by customers to continue to be a cornerstone of not only improved customer satisfaction, but also efficiency gains and operating leverage. The latest examples of this are around digital selling and appointment setting.
Digital sales in the fourth quarter were up more than 31% from last year. Digital appointments reached more than 16,000 in a recent week. We expect these adoption trends to play an increasing role in future performance and customer satisfaction as we continue to advance online and mobile capabilities. Turning to slide 15. Global Wealth and Investment Management produced earnings of $614 million. Results were down from Q4 last year, driven by lower transactional revenue and the impact of the market decline on asset management fees. Transactional revenue continues to be impacted by the shifting of activity from brokerage to managed relationships, as well as market uncertainty. NII benefited from solid loan growth and solid deposit growth, was offset by the company's ALM activities, leaving NII relatively flat with Q4 2014. Non-interest expense was modestly higher than the year ago period.
Investment in client-facing professionals continues, while lower revenue caused a decline in incentive compensation that was more than offset by amortization of stock awards issued in prior periods. Pre-tax margin was 21%, down from Q4 2014. Beginning in the first quarter of 2016, we will benefit from lower expense resulting from the completion of amortizations related to advisor retention awards given at the time of the Merrill Lynch merger. Moving to slide 16. Despite the volatility in market levels, we continue to see solid client activity and we continue to invest in the business, growing wealth advisors 5% from Q4 last year. Long-term AUM flows were $7 billion and remained positive for the 26th consecutive quarter. Deposit flows were strong, growing end-of-period balances $15 billion from Q3. By the way, this may have been driven in part by client concerns with market volatility.
Loans continued to grow, improving 10% from last year. This is the 23rd consecutive quarter of average loan growth in this segment. Turning to slide 17. Global Banking earned $1.4 billion, down 9% from Q4 2014, still generating a 16% return on allocated capital. The earnings decline from Q4 was driven by higher provision expense. Provision expense was up $264 million from Q4 last year, driven by higher energy-related charge-offs and reserve builds for loan growth and energy-related risks. Revenue increased modestly from Q4 2014, while expense declined modestly. Driven by higher loan balances, NII improved despite spread compression and the allocation of the company's ALM activities, including higher liquidity costs. Non-interest income benefited from higher treasury services revenue, higher leasing revenue, and a small gain from the sale of a foreclosed property. Partially offset by lower IB fees.
Looking at trends on slide 18 and comparing to Q4 2014, IB fees of $1.3 billion were down 17% as leveraged finance and equity issuance was partially offset by advisory fees that were at second highest level since the Merrill merger. From a market share perspective, we maintained our number three global fee ranking. Looking at the balance sheet, loans on average were $320 billion, up 12% year-over-year. The growth was broad-based across C&I, real estate, and leasing. We continue to experience some spread compression, although it has moderated relative to a year ago. Asset quality of new loans was consistent with the overall portfolio. On deposits, we saw good performance with average deposits increasing by $16 billion or 5% over Q4 2014. The mix of these deposits remains very good, with less than 5% classified as 100% runoff balances.
Switching to Global Markets on slide 19 and comparing to Q4 last year, we are pleased with the results here given challenging market conditions as the teams increased revenue while using lower asset levels and less VaR. Global Markets earned approximately $200 million. We think one should consider results excluding DVA. On that basis, adjusted earnings were $308 million, which was relatively flat to Q4 2014 on a similarly adjusted basis. Note that our net DVA loss this quarter was $198 million and compared to the loss of $626 million in Q4 2014, which included an initial FVA adjustment. Total revenue excluding DVA improved $313 million or 10% from the fourth quarter last year on improved FICC sales and trading. Outside of sales and trading, Global Markets share of lower investment banking fees was offset by a gain on the sale of an equity investment.
Non-interest expense increased 9% in line with revenue improvements. Moving to trends on the next slide, focusing on the components of our sales and trading performance. Sales and trading revenue up $2.6 billion excluding net DVA was up 11.5% from Q4 2014. Compared to Q4 last year, FICC sales and trading of $1.8 billion improved 20%, reflecting improvements across most products, notably in rates and credit-related products. Equity trading of $822 million declined 3%, reflecting lower client activity. Average trading-related asset levels were down 9% in Q4 2014, while VaR was down 14%. Turning to Legacy Asset Servicing on slide 21. This segment lost roughly $350 million in line with the prior year. Focus areas here are mortgage banking income, the number of delinquent loans, and expenses, all compared to Q4 2014. First, mortgage banking income, which improved slightly, was driven by three factors.
Rep and warranty provision improved $237 million to a provision of $9 million this quarter. That favorability was offset by a decline in servicing fees of $108 million as units serviced declined, as well as a decline in net MSR hedge performance of $152 million. Next, the number of first mortgage loans that we service that are 60-day delinquent continued to decline and are now at 103,000 units. Last, the team did an excellent job lowering expenses. Excluding litigation, we achieved our goal of $800 million, moving costs down $309 million or 28%. On slide 22, we show All Other, which reported a loss of $289 million. This was an improvement of $86 million from Q4 2014. This loss was driven by the $612 million pre-tax charge associated with our trust preferred, as well as the impact on the U.K. tax law changes.
This was partially offset by gains on debt security sales as well as reserve releases on consumer real estate loans booked in All Other. A comment or two on taxes before wrapping up. The company's effective tax rate for the quarter, excluding the U.K. tax charge, was 25%, reflecting reoccurring tax benefits plus a few small one-off benefits. We would expect the tax rate to be in the low 30s for 2016, excluding unusual items. Before closing, we want to cover our early adoption of DVA accounting in more detail. In January of this year, the Financial Accounting Standards Board issued an update to allow early adoption of a new rule regarding recognition of DVA on financial liabilities from changes in our own credit spreads. The update means that these types of debit valuation adjustments will now flow through OCI instead of the income statement.
We believe this change makes our earnings comparisons more meaningful and easier to understand. Therefore, we adopted early. We restated all periods this year per the FASB rules, and those numbers are contained in the supplemental package. This had no impact on capital as it moved dollars between retained earnings and OCI, but it did impact revenue, earnings, taxes, and EPS in the first three quarters of 2015. The changes reduced previously reported EPS by approximately $0.02 each in Q1, Q2, and Q3. This accounting standard adoption did not impact DVA on derivatives, which continued to flow through trading account profits. Okay, let me conclude by offering a few takeaways. Although the U.S. economy is improving slowly, revenue growth remains challenging. This quarter, we continued our progress on those things we can control and drive.
These include delivering for clients and customers within our risk framework and driving client and customer activity that will result in sustainable profits and returns. Our results reflect this focus. We maintained a strong foundation of capital and liquidity. We grew loans, deposits, and investment flows. We continued to invest in our franchise by adding sales professionals and improved technology. Our strength, global capabilities, and experience allowed us to deliver for clients in a challenging market environment. We did all this while closely managing expenses. With that, we'll open it up to Q&A.
At this time, if you would like to ask a question, please press star one now on your touch-tone phone. That is star one on your touch-tone phone. To withdraw yourself from the queue, you may press the pound key. We'll take our first question from Matt O'Connor of Deutsche Bank. Your line is open.
Good morning.
Morning, Matt.
Can you talk about the outlook for the core costs beyond some of the lumpy items in 1Q? Specifically maybe comment on how you feel like your markets business is sized. We've obviously seen some cost-saving announcements at your U.S. and non-U.S. peers, want to get a sense of how you feel you're positioned for the markets.
This quarter, the fourth quarter, I think represents, as I said in the comments, the fifth quarter out of six that we've been below $12.8 billion. As you know, I think we've been talking about maintaining core expenses below $13 billion. We feel really good about our progress. I have to remind everybody that we're maintaining those core expenses at those levels while we're investing in front-office professionals, while we're investing in technology, while we're absorbing the natural increase in pay for our employees and fraud costs and CCAR costs and other things. I think we feel good about the work we're doing there. In terms of Global Markets, what was the question?
Just in terms of the staffing and the positioning there, how you feel for, I don't know about the current environment, but just not bouncing back in a big way. Obviously we're seeing reductions being announced at some of your U.S. and non-U.S. peers. How are you feeling about the sizing of your business for the environment you expect?
Matt, in the fourth quarter, we did reduce headcount in the markets businesses and the related capital markets business. We didn't make a big announcement, but that led to the $130 million in severance in the fourth quarter numbers that you see. We'll continue to adjust that headcount. Tom and his team will continue to adjust it, but they made an adjustment to headcount in the fourth quarter. It just didn't make quite the press other people's did.
The only thing I'd add, Matt, is my focus was on core expenses. We're going to see full expenses, I think, continue to come down as we work on LAS and continue to hopefully see some moderation on legal expenses.
Just on the timing of the LAS getting to that below $500 million, you did disclose a big drop in the headcount if we look year-over-year. Obviously there's a delay in terms of the cost themselves coming down. What's the timing of getting to that $500 million or below?
Look, I think we've made great progress in terms of getting expenses down. I think we started at, what, $3.1 billion quarters ago? We made great progress getting down to $800 million. Our next milestone is $500 million per quarter. That's going to be a little bit harder. It's just as you get lower and lower, it's a little bit more unpredictable. We're not really giving a target at this time, we're going to get there as soon as we can.
Okay, thank you.
You should expect us to make good progress towards this, Matt, toward this year. As you look towards the end of the year, we should be getting there.
Okay, thank you.
We'll move next to Betsy Graseck of Morgan Stanley.
Hi, good morning.
Morning, Betsy.
I just wanted to dig in on a couple of things. One was on energy, since it's flavor of the day. You gave a lot of color there, and you indicated that if $30 holds for nine quarters, that's a loss of $700 million. I just wanted to understand, is that already reserved for, or that's over and above case if we go below 30, what you've got baked in? I don't think it's linear. I just wanted to understand how you're thinking about it.
Sure. Well, look, as we said in the comments, we've got reserves against that energy portfolio of $500 million. That's 6% of the high-risk subsectors. We develop reserves on an incurred basis. We develop them by looking at loss given default, probability of default, exposure of default. We go loan by loan. We have a lot of imprecision. Other factors that we look at for imprecision, and we put judgment on all of that. One of the things we look at when we come up with our judgment of what we should be is our stress testing. That's how that gets factored in to our reserve, which again, has to be on an incurred basis.
Right. When you indicated that if $30 holds for nine quarters, your model suggests a loss of $700 million, that's already reserved for, or that's on top of what you already have reserved?
In part, that's because the idea is you can only incur for what you see through today in terms of the operating structure of these companies and the asset-based lending. These are asset-based loans, reserve-based loans. If you were nine quarters from now and oil was still at that price, you'd have to have a reserve for what's left of the portfolio. The exposure's been coming down. It would come down during those nine quarters by the losses you took at least in resolving those credits. It's in part covered, but not fully, because that's an estimate of a future that we, as Paul said, it's an incurred view of the portfolio.
Okay, I get that.
The way I would think about it is we've got a $500 million reserve. As we go, theoretically, you go through the nine quarters. If that $700 million would've come true if our model was perfect, it would go against that $500 million, but you'd be building reserves as you went through that process. If you told me what you wanted to end the nine quarters at, if you wanted to end at $500 million, you can do the math. If you wanted to end that at more or less, it's going to be more or less in terms of you kind of build.
Could you talk a little bit about the reserve release that's still possible from the other portfolios? You had a $200 million reserve release this past quarter. Just wondering what the legs are on that. We've seen other institutions essentially finish up the reserve release. I know you had a big legacy book, so maybe there's a little more legs there. Just wanted to understand how you're thinking about the trajectory there.
I think you got it. I think we have a large legacy portfolio on the consumer side. As we continue to work through that, and if home prices continue to stay where they are or improve, the economy stays where it are or improve, I think you're going to continue to see reserves from us in 2016. Reserve releases, I should say, from us in 2016. They're going to moderate from what they have been in the past.
Okay. There's still some legs, but at a decelerating pace.
Yeah. Some of that swings over to the commercial books.
Yeah.
As we saw this quarter, Betsy. We have come down from a lot of reserve releases last year. I think it was $800 million or so in the fourth quarter last year, $700, $800 million or something, down to $200 million. You expect that to kind of mitigate during the course of 2016.
Yeah. We build reserves in commercial.
All right. Thanks.
We'll move next to John McDonald of Bernstein. Your line is open.
Hi. Good morning. Paul, I was recalling, I think you had for a goal this year to generate positive operating leverage. Was wondering how you feel about the ability to achieve that. What kind of revenue environment are you planning for, and how will you manage expenses to try to get some positive operating leverage this year?
I think we feel good about the operating leverage we achieved in 2015. You can see that with the revenue growth relative to the EPS growth. I think we're looking to continue that trend. We got hopefully a little bit of a tailwind here on rates. We're going to continue to manage expenses carefully. In terms of our EPS growth in 2016, we don't give estimates, but in terms of our EPS growth in 2016, I think it'll be more of the same. Revenue growth with some hopefully expense discipline that will get us some operating leverage.
Okay. Brian, could you talk a little bit about what your goals will be with your 2016 CCAR submission? Are you looking to make some progress on both the dividend and buyback potentially, and maybe you could share some thoughts about that?
John, we haven't seen the scenarios yet and stuff like that, I think it's probably premature to discuss that. Our goal long term is to return more and more capital to shareholders through dividends and stock buybacks. At this price, obviously stock buybacks are favored. When we see the scenario and play that out, it'd be getting ahead of the process to talk about today.
Okay. Paul, one quick follow-up on the NII. Is there a benefit from the pay down of trust preferreds that you'll get in 2016? Is that why you're able to grow the core NII a little bit in 2016?
I wouldn't say that's why, but obviously there's a benefit from paying off those trust preferreds. They had, I think it was $175 million in a quarter. Did I get that right? Yeah. There's a benefit there. The way I would think about those is we're not going to, quote, "replace them because they don't count for regulatory capital." Why would we replace them? We're going to have a capital structure that meets our regulatory requirements, which requires us to have a certain amount of CET1. We're going to have the appropriate amount of preferred and sub debt. Of course, we have to meet the TLAC requirements. That's how I would think about it.
Okay. It's really just the loan growth and pretty stable rates driving some core NII growth?
John, if you look at it, what was affecting us 2013, 2014 was we continued to run off portfolios that had yield to them. Obviously the reinvestment rates on the investment side of the house as we ran those off were flattish. That's kind of all run through the system. Now what you're seeing is $80 billion of period deposit growth from fourth quarter last year to this year, the overall pay rate for that is in the low single-digit basis points. All core, all in consumer wealth management, driven by middle market and the banking business. That's the deposit funding side. The asset build is now good core loans that have reasonable yields to them, you're starting to see NIM pick up just a hair from that.
We expect it to keep driving that forward as long as the economy continues to grow a couple %.
Okay, thank you.
Hey, John, just real quick, I want to correct one thing I said. The 175 is full year.
Okay.
We'll move next to Paul Miller of FBR & Company. Your line is open.
Yeah. Thank you very much. On your NPAs, you have really good disclosure, you getting it down to 103,000. Did you sell any this quarter, or was that all workouts through your servicing?
We sold a little bit, but not as much as we had in the past.
Largely, Paul, it's very incremental at this point on the sales side.
At this point, when do you think you can get that down to, I guess it's not a normal level because you're just going to run this whole portfolio off. Do you have any idea when that'll be over with?
Well, Paul, the 103 is the total portfolio, so there's a normal piece in that and an abnormal piece in it.
Okay.
We should be driving it down to the 60 days. The 103 is across both portfolios. That number should come into, I don't know, pick a % or % and a half of the service loan units. It's still got some room to go. That's the key that I think Matt pointed out earlier, is the FTE headcount in LAS. We had a 2,000-person headcount drop in the company overall in the fourth quarter, about half LAS, half the rest of the company. The LAS percentage rate was eight percentage points, not annualized to the quarter of 30%. It's still dropped in its headcount, but it's getting flatter. Now we've got all the old costs to drive out of the portfolio.
In terms of thinking about real estate and old systems and stuff, and so that's what takes a little more time now than just the people cost.
Okay. Hey, guys, thank you very much.
We'll move next to Jim Mitchell of Buckingham Research.
Hey, good morning. Maybe just a quick question on deposit behavior since the rate hike? Have you seen anything unusual. I would assume it would be more on the institutional side where you would see movement at this point. Maybe you can kind of give some update on how you're thinking about the deposit betas this year.
Sure. The short answer is that we have seen no real movement. Of course, we're very focused on making sure that we pay an appropriate deposit rate. So far there's been no movement. We have been modeling deposit betas on our interest-bearing deposits in the high 40s.
You still think that makes sense, or do you think that's relatively conservative?
We think that makes sense. Given the quality of our deposit base, as Brian sort of walked through already, the portion we have in our Consumer and GWIM franchises, the number of primary checking accounts, even on the wholesale side, if you look at our deposits, less than 5% of them are 100% runoff deposits. We feel good about our $1.2 trillion in deposits. Even this year, the deposit rating came down another basis point to four basis points for the all deposits. We feel good about that modeling.
Jim, remember, that modeling is not 40% of everything. It's nothing and a lot less for the first couple of bumps. I think that's what you're thinking about. If we continue along with one or two rate rises, there'll be a lot more capture than as it gets up into the higher.
Right. It'd be more back-end weighted.
Exactly. If that's what you're asking.
Okay. Just one last question, maybe on the expense side. You guys have done a good job, but if you look at your core expenses normalized for all the puts and takes, it still seems like your efficiency ratio would be sort of in that 63%-64% range, and a lot of your peers are well below 60%. Is this sort of you grow into the improving efficiency ratio with the revenues as you reinvest, or do you think you can get there more quickly? Just trying to get a sense of how you get the trajectory into more in line with the peer group on the efficiency ratio side of it.
If you look at the full year 2015, you do those puts and takes with the things that we've talked about through the year, you make any sort of a reasonable guess as to the progress we're going to make around LAS, we're sort of in the kind of 65% range. We're going to continue to focus on growing responsibly and working on our total expenses, as we talked earlier. With a little help from growth and some more work on expenses, we think we're in shooting range.
As we model ourselves and look at sort of the peers and the average efficiency by business units and model against our business mix, we're going to be a little higher because of high level wealth management-
Right
in our business relative to total. Look, three things on expenses. Number 1, we're continuing to drive at them and funding all the growth in FTE for sales side. We had 6% growth in consumer FTE sales side, 3% wealth management, maybe 8% in Global Banking year-over-year. We're paying for all that, paying for all the incentives attached to it, paying for all the infrastructure attached to it. We're going to continue to drive it down. Just rest assured. We are not satisfied in the mid-60s% efficiency ratio of the company, we should be able to drive that down, it'll come from both just hard work and then, as you say, with a rate lift and stuff, which we're still affected a little bit more by the low rate structure than other people.
We should pick it back up. Don't think we're complacent on this.
Okay, appreciate it. Thanks.
We'll move next to Glenn Schorr of Evercore. Your line is open.
Hi, thanks. I think you put the heat on a little bit on loan growth over the last couple of quarters, and if you look at lending in your primary lending segments, it's picked up, and I think that's good. The question I have is with new information that we have, the market's digesting and anticipating, I don't know if I'll call it a recession, but a lot of fear around recession on lower oil and China-related fears. The question I have is, if you look at the core loan growth, are you still okay running it at this level? Do you feel like your customer base that you're making these new loans to are a little more insulated to the world that the market is fearful of?
Outside of energy, we are not seeing asset quality change, nor are we seeing a reduction in appetite for credit. I would remind everybody that we are very focused on our customer framework and our risk framework. Within that framework, we continue to see a lot of opportunities to help our customers grow their businesses. If you look at this quarter, and you just focus on the core, we had 3% quarter-over-quarter growth or an annualized growth rate of a little over 12% for $22 billion. I'm not going to sit here and tell you that's what it's going to be next quarter, but we're not seeing material decline in conversations with our clients about how to help them grow.
I think to give additional color, if you think about it, if you go back a couple of years, we grew the international business because we had to round out that franchise. We sort of slowed that down. 24 months ago, that started to drop, Glenn, in terms of growth rate.
Because of the client selection criteria there is very high-end clients, multinational clients, et cetera. We slowed it down just to keep the company in balance, and that's been our watch word. If you think about in the consumer, no subprime, no lowering FICO scores. If you look at the coming on FICOs are higher in the portfolio still, which is almost hard to believe. The charge-offs, delinquencies in both home equities, delinquencies across the last 4 year-ends continue to get lower every year. This year was the lowest they've been all the way back a long time in both credit card and home equities. If you look at the client selection in the U.S., a couple of things. One is we're adding officers in the middle market business, but they're going after our target clients, and this is not go find new industries, et cetera.
Whether it's the way we lend in commercial real estate, which is very high-end real estate developers, et cetera, the way we lend in middle market is very strong. If you look across, it's client selection in the middle market business has been strong. The best news that we're seeing is things in our business banking and small business portfolios. We're actually starting to see growth there, again, sticking to our credit risk, which is the first time in many years because we had to run off some stuff that came in through LaSalle and Merrill and everything else that we're finally seeing nominal growth. I think it's client selection. We slow down international. It's sort of always watching and, in fact, using your stress test to make sure you stay balanced.
If you look at us, we feel we're pretty balanced between the consumer and commercial, sort of 50/50. Within the consumer, we're really sticking to our knitting, which is very strong, high-quality, creditworthy borrowers.
Great. One follow-up on the FA growth you noted of 5% year-over-year. I'm just curious, there's not a heck of a lot of core growth in that business. I'm just curious how much is coming from your training programs versus recruiting both traditional and non-traditional sources.
It's coming from both. The reality is that the number 1 issue they face in the wealth investment brokerage services revenue line is the decline in transactional revenue. It has gone from two years ago, probably $600 million a quarter even in not robust market times down to, I don't know, $300 million or $400 million a quarter. That is hard to make up in annuity streams. Even though they're having record net flows, it's just that the revenue rate on that is less. That's the factor. It's not to do with really recruiting. The production per FA continues to be solid at $1 million plus. It's really that core fundamental issue that they're facing, and that transition is what we're all going through.
It's getting to the point where it's becoming less material and, i.e., less material to the total revenue line from the transactional side.
The other thing I would just remind everybody that we've got significant positive loan base in that business. So again, if rates rise, we're going to see some benefit there.
All right. Thank you very much.
We'll move next to Steven Chubak of Nomura.
Hi, good morning.
Morning, Steven.
I actually had a quick follow-up to a topic that Glenn was just addressing relating to WIM and just some of the margin pressures that we've been seeing over the last couple of quarters. I wanted to get a better sense as to how much of that do you think is cyclical versus secular, whether it be DOL-related pressures or just intensifying competition for advisors. Along those same lines, whether a 30% margin target is still achievable once we get to a more favorable rate backdrop.
Let me start with the last one and pick up on just some comments Brian made again. The decline in margin has been because of decline in transactional revenues. In addition, over the last couple of quarters, there's been a lot of market volatility, and markets have ended down in certain months, and that affects what we make on asset management. We would hope in a better market environment, we would see some improvement in some aspects of the transactional business because there's a lot of selling of mutual fund products and other products there. Then again, as I point out, we've got a business here with close to $140 billion in loans and $240 billion-$260 billion-ish of deposits. As rates move, we're going to start seeing some benefit from that, on which the payout ratio is quite different than on the more traditional asset management products.
That I really do think is the revenue story that will affect margins. Again, in the first quarter of this year, we're going to see a $100 million reduction in expenses because of the runoff of the compensation program to put in place around the Merrill merger. I think that's what I would say about the margin. What was the second part of the question?
It was just about to what extent if you could at least segregate the secular versus typical headwind components on the revenue side. I think that you adequately addressed that in your response.
I think people ought to think about too, when the margins come down, we think it is flooring out here and will start to pick back up, in part because of some of the unfundamental changes in the ATP program running off and stuff. We have invested in the PMD program. It cost a few hundred million dollars of drag to do that. That is the right thing to actually build the advisor base over time to service the clients. The team, if you look at it underneath the U.S., the flows and stuff are strong, and the U.S. Trust business is having some of its best quarters ever just because the difference in that it did not have the secular runoff you referred to in terms of the fee-based business. It does a good business. It does a good job with clients.
We expect more out of it, and that is the job for John and Keith and Andy and Terry going forward.
All right. Thanks, Brian. Maybe just switching over to the credit side. I appreciate the detailed disclosure you guys have given on the energy book, and was just hoping you could provide both exposure and reserve levels, maybe some other areas of the commodities complex, specifically metals and mining.
We feel good about our metals and mining exposure. It's about $8 billion. Most of that exposure is much more short-dated and much more collateral. We feel good about that exposure.
Okay. Just as a follow-up to the initial provision guidance you'd given, just thinking about it from a modeling perspective, is the right way for us to be thinking about the provision rate for 2016, taking that $800 million-$900 million quarterly run rate plus whatever additional energy-driven reserve building we should be contemplating, which presumably is incremental.
Yeah, that's not a bad way to think about it. Again, if you remember our guidance from last quarter, we said $800 million-$900 million for the first two quarters of 2016. The way I would think about those two quarters would be, yeah, we could see some lumpiness.
I think the one thing overall is that as you look at the question on exposure that we're also paying close attention to, is it sort of a demand or supply issue for oil prices? If it's a supply issue, that affects these companies and related companies and demand from. If it's a demand in the broadest context, i.e. economies continue to slow down, that's the broader concern. We're looking at not only the impact on all the portfolios, thinking about who gets the benefits in our portfolio basis from low energy costs, which are serious benefits to consumers and to companies that consume energy versus those producing it. There's a balance here that we got to think through. Right now, it's pretty isolated to the energy companies.
Even if you look at the consumers who work for them and are bases by ZIP code and unemployment levels and stuff, we've seen relatively modest deterioration or none in the consumer side of people employed in these businesses. I think as you think about it, the real question it's going to come down to for 2016 in terms of all our industry is, are we in a demand-driven issue, i.e. a general economic issue, or is the U.S. going to plug along? If it does, then I think Paul's guidance is the right one. If you're in the supply, it's going to all be localized on these industries.
Yeah. Look, it's not demand. It's again worth emphasizing. There are a lot of people who are helped by low oil prices. That helps our asset quality, not only on the consumer side, but also in places like India and manufacturers all around the world.
All right. Got it, guys. Very helpful. Thanks for taking my question.
Yes.
We'll move next to Eric Wasserstrom of Guggenheim.
Thanks very much. I was just wondering if you could help me think through a little bit your gap and risk-weighted assets over the first half of the year given the growth dynamics that are pretty robust and some of the runoff. Also some of the changes that are going through on the RWA calculations.
You're talking about over the first half of 2016?
Correct.
Well, on a standardized basis, I think you're going to see RWA trend up if we're able to grow deposits and loans. On an advanced basis, there's all sorts of puts and takes there. I don't think you'll see as much growth as you would on a standardized basis. Did I say advanced? On advanced basis, yeah. As you would on a standardized basis as we continue to work on our RWA.
Okay. What are the implications of that then for your regulatory capital ratios?
We need to get to regulatory from a CET1 under advanced basis. Our goal is to get to 10% plus a buffer by 2019. We're at 9.8. I feel like we have the time to do that. We're certainly not going to need to take all that time. We would expect to get there soon. It is impacted by changes in rates, changes in OCI. We're hopefully returning capital. We feel like we're on track to get to 10% plus an appropriate buffer.
This is an.
The only other thing I would add is, we still have some opportunity to optimize RWA from an advanced perspective. That's in two fundamental areas. There's always stuff you can do in markets, in other areas, but in two fundamental areas. One is, the extra RWA we got on the wholesale side when we exited parallel run. That's not a permanent thing. We need to work on our models, work with our regulators, and hopefully over time, we can make some improvements there. The other one is operational risk. We have $500 billion of RWA for operational risk under the advanced approach. That is 25% more than the next highest bank. That operational risk is for businesses that we are no longer in. It's for products we no longer sell. It's for a risk profile that we no longer tolerate.
Again, that will take time, but that's another opportunity for us to lower RWA from an advanced perspective.
Thanks. If I can just sneak in one more. When you talk about an appropriate buffer, are you thinking in a method 1 or a method 2 as a baseline?
I think the buffer to the capital?
Yeah, Basel III Advanced.
Oh, yeah. We're basically thinking the buffer we need to be above the
Yeah
requirements at 10%, and we'd say 25 to 50 basis points would be where we're at.
Got it. Okay. Thanks very much.
We'll move next to Ken Usdin of Jefferies.
Hi. Thanks. Good morning. Just a quick follow-up on the loan growth side. I know you talked about the credit quality underneath the commercial side, but after a 13%, 14% loan growth year, do you think you can maintain that type of pace of growth given some of the concerns we've seen underlying, even if quality is holding up? Just, I guess, your general outlook for loan growth rates, and can you match or maintain what you did last year? Thanks.
Yeah. Look, I'm not sure we're in the business of giving guidance on loan growth. We think we can grow. If you were looking for some perspective from us, I wouldn't even call it guidance. Mid-single digit is what we hope we can accomplish.
Okay. Continue to be driven by commercial, would you say?
I think it's going to continue to be driven by commercial, but you're going to see growth in consumer as well.
Yep. Just a quick second one. You've been growing the mortgage business again. What's your outlook for continuing to take share in the mortgage business, and have we seen the bottoming of results on the fee side of mortgage?
Well, in our mortgage business, I think we are focused on originating prime and sort of non-conforming loans. There's been good progress there, I think. If you look over the last year, the number of non-conforming loans that we are originating has increased meaningfully. I would remind everybody that those loans we book on our balance sheet. That affects NBI. When you're selling less loans, it's going to affect your NBI income, but it's going to come through as NIM on a more annualized basis.
Absolutely.
From a broader, leave aside the fees because of the geography and how the accounting works, I think we put 60%-70% of loans on balance sheets. In terms of overall production, we expect to continue to make progress because you can see that in the numbers that as other people are flattening out, we continue to have lots of opportunity with our core customers. Seven out of 10 that are credit worthy in our customer base are still getting a mortgage elsewhere, and that's what the team's chipping away at. It's never going to be the hugest business of Bank of America compared to things like the very large business in consumer or the credit card business in consumer. We expect to get broader market share from each of the segments.
Yeah. I think it's interesting. I'm not going to sit here and tell you this directly is 100% correlated, we've done all the work, we've added sales professionals in our branches. They're focused on originating mortgages that are more prime oriented. We've got them working with our GWIM specialists who, that client group is generally more prime oriented. We see progress. We see the prime loans growing.
Good. Thanks, guys.
We'll move next to Brian Foran of Autonomous Research.
Hi, good morning. I guess on commercial, if you could follow up on the ex-energy comments. In your experience, what are some of the best leading indicators for the commercial credit cycle? What kind of trends have you seen, again, ex-energy and those leading indicators over the past couple of months that gives you confidence that things are stable?
Well, I have to think about that. Look, we spend a lot of time, our credit people do spend a lot of time just combing through that portfolio and looking at cash flows from the companies and making sure we understand the collateral, making sure we fully understand our structures. I think it's just a lot of blocking and tackling, and talking to clients and making sure we understand what's going on with their businesses in terms of the energy portfolio. I would emphasize again that outside of the energy portfolio, we are not seeing movement in NPLs and criticized assets. Our NPLs continue to come down.
If I could ask a follow-up along the same lines on the consumer side, I guess two parts. One, you made the point that even in energy-heavy geographies, you're not seeing any adverse change in the consumer. In cards specifically, just since it's such a big credit line, are early delinquencies still coming in better than expected? Are they stable or how would you characterize the current early delinquency trends? On home equity, since again that's another big outsized portion of the reserve, is there any update you can give us on how the first wave of HELOC recasts or switches to amortization schedules have performed versus what you had modeled?
Sure. In terms of card, when we look at our credit losses, they are at low points, historic low points, and they've been bumping around at that level. We've seen a little bit of increase the last couple of quarters, but that again I think is just a reflection of things just bumping around at really low levels. In terms of the home equity end of draw, based on the volume we've seen to date, which we've seen a lot of volume, the portfolio is performing in line with our expectations. We continue to monitor the end of draw portfolio and continue to work with our customers to manage the risks. I just would remind everybody that these borrowers have paid through the downturn. This portfolio continues to improve as home prices improve.
The risk is an ongoing part of our reserve process, and we think we're well reserved.
Thank you very much.
Just on card and whether it's 30 days delinquency or 90, it came down during the course of from the end of 2014 all the way through 2015, and in both cases is running at multiple year lows in both percentage-wise and nominal amounts. We're seeing no deterioration of credit in either of those, the same with the home equities. In the home equity, just have a little more cleanup because of the legacy-ish portfolio in there.
We'll move next to Brennan Hawken of UBS. Your line is open.
Brennan?
Pardon the interruption. We lost Mr. Hawken. If you would please re-press star one. Please re-press star one. We'll move next to Mike Mayo of CLSA. Go ahead, please.
Hi. I have one question for Paul, one for Brian. Paul, lower energy prices, you said can help certain segments such as consumers. Can you give any examples of that? Also on the energy topic, if oil stays at $30, your provisions for energy would go up by how much? I didn't understand the answer from before.
Oil. Let me do the last one first. We've got a reserve on our energy portfolio of $500 million. That is 6% of those two subsectors that we think are high risk. We have done modeling, stress test modeling at various oil prices. The one we've been talking about on this call has been at $30, and that's over nine quarters. If oil stayed at $30 for nine quarters, we would think that our losses over those nine quarters would be $700 million. Again, that would go against the $500 we already have reserved. One would presume we'd be building reserves during that time period to make up the difference.
Mike, when you look at consumer benefits from the oil and gas, just to give you a simple thing. If you look at our card base in the fourth quarter of 2015, the spending on debit credit cards rose 4% from the fourth quarter of 2014. If gas prices would've been stable, it'd have grown at 5.7%. What that means is the consumers had effectively on that base of 1.7% that they received the benefit of year-over-year. If you translate that to dollars, round numbers that's $20 million a day of less spending on gasoline by our consumers and our portfolios per day. From like $90 million down to $70-ish million or something like that. That is the benefit they get. For a large number of consumers, median income, the cash flow increases, and that gives them more money to spend.
Do you think people are being too negative on the decline in oil prices? You're implying it has a nice stimulative effect, but people sure aren't thinking that these days.
I think, Mike, it comes down to the question whether you think the oil price is a reflection of a broader issue of growth in economies, or we're going to get slow growth, 2.5% in the U.S. and whatever the IMF said, I guess 3.5% in the world. If you're going to get that 2016, it's going to be isolated. The negatives could be isolated to the oil companies and related commodity producers just because of slow growth environment. If you're saying there's going to be a much different economic scenario than most so-called consensus predicts, it's a broader base problem. Right now, it's really the oversupply of oil driving prices down, and that's impacting the people in the industry and the rest of the consumers. Corporate customers and consumers that use oil and energy are getting a good benefit.
Again, Mike, the only thing I would say is, I mean, Brian's spot on, because the demand issue, we're going to see it in other parts of the economy. However, we have not seen that yet. We have not seen a change in our asset quality outside of energy.
If I can shift gears, Brian, I know I've asked this question in other years, but I know you're not satisfied with the mid-60s core efficiency ratio, and I know you're not satisfied with a single-digit ROE. What is your specific financial target for efficiency and ROE, and what is your timeframe to get there?
As we said, we ran about nine, adjusting for everything, about nine and a half for the year in return on tangible common equity. We believe we have a path to get that to 12. Rates get us part of it, hard work on expenses and core revenue growth and driving gets us the rest of it. An LAS expense drop, and we're chipping away at that. If you look from 2014 to 2015, we made a substantial step and we'll continue to drive away. We haven't put a specific timeframe on it. It's just a goal to keep driving, and we'll drive beyond that. On efficiency, it follows that sort of math that right now we're operating 66%, 67%. 67% probably normalized for 2015, and between LAS, we can drop that down to 65%.
That's just hard work, and we're grinding away at it every day. You're seeing loans grow, you're seeing deposits grow, you should see an improvement in 2016.
Any expense initiative plan paused since you've had a couple of quarters now to take a look at that. Are you looking for an extra $1 billion or kind of like a new BAC program, or what are you thinking about there?
Expenses are on our mind every day at Bank of America. We have everybody focused on expense discipline. That's translating to our culture under our Simplify and Improve program, where the teams are always coming up with ideas to make it simpler for our customers, make it simpler for our employees, and improve the expenses of the company. That's how we're going to achieve our objectives around core expenses that we talked about on this call. We're all very focused on expenses.
All right. Thank you.
It appears that we have no further questions at this time. I'd like to return the program back to our hosts for any concluding remarks.
Thank you, everyone. We look forward to talking to you next quarter.