Bank of America : Webcast Transcript Q3 2023

Bank of America

Third Quarter 2023 Earnings Announcement October 17, 2023

Third Quarter 2023 Earnings Announcement

October 17, 2023

Participants

Presenters

Brian Moynihan - Bank of America, Chair and CEO Alastair Borthwick - Bank of America, CFO

Lee McEntire - Bank of America, Investor Relations & Local Markets Organization Executive

Participants

Gerard Cassidy - RBC Capital Markets

Jim Mitchell - Seaport Global

Erika Najarian - UBS

Mike Mayo - Wells Fargo

Steven Chubak - Wolfe Research

Matt O'Connor - Deutsche Bank

John McDonald - Autonomous

Vivek Juneja - JP Morgan Chase

Ken Usdin - Jefferies

Manan Gosalia - Morgan Stanley

Chris Kotowski - Oppenheimer

Presentation

Operator

Good day, everyone, and welcome to the Bank of America Earnings Announcement. [Operator Instructions] Please note, today's call will be recorded. [Operator Instructions]

It is now my pleasure to turn today's conference over to Lee McEntire, Investor Relations. Please go ahead.

Lee McEntire

Good morning. Thank you. Welcome, and thank you for joining the call to review the third quarter results. As usual, our earnings release documents are available on the Investor Relations section of the bankofamerica.com website, and it includes the earnings presentation that we will be referring to during the call. I trust everybody's had a chance to review the documents.

I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments, before Alastair Borthwick, our CFO, discusses the details of the quarter. Before we do that, let me just remind you that we may make forward-looking statements and refer to some non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties.

Factors that may cause our actual results to materially differ from expectations are detailed and our earnings materials as well as the SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP can also be found in our earnings materials that are on the website.

So with that, Brian, I'll turn the call over to you.

Brian Moynihan

Good morning, everyone, and thank you for joining us. As usual, we're starting on Slide 2. Our third quarter here at Bank of America was another strong quarter. We delivered $7.8 billion in net income. That is a 10%

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growth over the year ago third quarter. And for the first 9 months of the year, we have earned $23.4 billion, an increase of 15% over 2022.

We grew clients and accounts organically and at a strong pace across all our businesses. Our operating leverage was about flat. We improved our Common Equity Tier 1 ratio by nearly 30 basis points in the quarter to a level of 11.9% against a current minimum of 9.5%. We saw an increase in our deposits, and we maintained our strong pricing discipline.

We continue to maintain $859 billion in Global Liquidity Sources. We also delivered a good return for you, our shareholders, with a return on tangible common equity of over 15% and a 1% return on assets.

Just a quick note of what we see in the economy. Our team of economists predicts a soft landing, with a trough in the middle of next year. We see that in our customer data, our 37 million checking customers, we see their spending slowing down. You can see that on Slide 34. [YTD] (corrected) was up about 4% over 2022 [YTD] (corrected).

Earlier this year, that would have been more of a 10% increase year-over-year. And for the entire year 2022, it increased 10%, round numbers, over '21. This 4% level is consistent with the spending we saw in the pre- pandemic period from 2016 to 2019. That is consistent with a low inflation, lower growth economy. As we moved into October, the spending is holding at that 4% level. So growing, but growing at a basis more consistent with low growth, low inflation economy.

With that, let me turn to Slide 3. We provide various highlights, and Alastair is going to cover a lot of this. Our team continues to focus on driving organic growth, driving digital progress, and operational excellence, which keeps us focused on operating leverage. A few words on organic growth as we flip to Slide 4.

Every business segment had organic growth. In Consumer, in quarter 3, we opened more than 200,000 net new checking accounts this quarter alone. We also opened another 1 million credit card accounts. We have 10% more investment accounts this year, third quarter, than we did last year. In Small Business, we have seen 35 straight quarters of net new checking account growth. We've also seen good Small Business loan growth, and our loans were up 14% from last year.

That was -- in this quarter, our Small Business teammates extended $2.8 billion in credit to small business in America alone. In Global Wealth, we added nearly 7,000 net new relationships to the Merrill and Private Banking franchises. And our advisers opened more than 35,000 new bank accounts for the third consecutive quarter, fulfilling both investing and banking needs for those clients. We also increased our number of advisers. In the past year, across our wealth spectrum, in GWIM and in Consumer Investments, they have combined to gather $87 billion in total net flows.

In our Global Banking team, we added clients and increased the number of products per relationship. Year- to-date, we've added 1,900 new Commercial and Business Banking clients. That is more than we added in the full year last year. Even while activity is low, the Investment Banking team continues to hold its #3 position. In the Global Markets, we continue to see performance establish new records for our firm. I'm going to cover that in a little more detail in a moment.

As you can move to Slide 5, you can see the digital adoption, engagement, and volumes continue to increase. We lead the industry in digital banking and continue to provide the best-in-class disclosures. You can find those disclosures by line of business in the appendix on Slides 26, 29, and 31. We also continue to receive top accolades from third parties around these capabilities. Most importantly, these capabilities are valued by our clients and customers, and allow us to grow with great expense leverage. Let me give you a few examples.

Our Consumer and Merrill clients logged into our Consumer Banking app a record 3.2 billion times this quarter. Even at this scale and stage of maturity of this operation, logins were up double digits from the year prior. Customer use of Erica continued to beat our expectations, with almost 19 million users, up 16% in the past 12 months. CashPro app sign-ins with our business clients are up more than 40%. And we

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recently added the Erica functionality to CashPro to help corporate clients benefit from that artificial intelligence.

Likewise, Zelle usage continues to grow. Zelle transaction levels are up more than 25% from last year, and Zelle is becoming a meaningful way our customers move money. In fact, customers now send money with Zelle at twice the rate they write checks. We're nearing a period where the Zelle transactions sent will exceed the combination of checks written and ATM withdrawal transactions.

As you move across the lines of business on this slide, the story is the same. All these capabilities help us deliver faster, safer, and more efficiently, and all of it gets strong customer and client feedback. When you put that together, that helps us drive operating leverage, and you can see that on Slide 6.

We have a strong record of driving operating leverage in our company. We drove operating leverage every quarter for nearly 5 years before the pandemic. And then again, more recently, we've had an 8-quarter streak leading into this quarter. We acknowledged to you this last quarter, that operating leverage is going to be tough for a few quarters as we navigate through the trough of net interest income.

But as you can see on Slide 6, we managed to grow our revenue year-over-year faster than expense in dollar terms this quarter, even though the percentage change is basically flat. Now in January, we told you we'd manage our headcount down to help make sure we got our expenses in line. Over the course of 2023, we've seen, moving from 2022's great resignation, to a current level of a record low attrition in our company. All that meant the team had to work harder to manage that headcount down.

And they did it. Our headcount is now down [around 6,000] (corrected) FTEs from a peak in January, even with the addition of 2,500 college grads this fall. As a result, you've seen an expense decline from $16.2 billion in quarter 1 and to $16 billion in quarter 2, to $15.8 billion this quarter. And by the way, we've done this without special charges or large layoffs.

Expense will decline again in the fourth quarter, excluding any FDIC special assessment, of course. We expect to report $15.6 billion in expenses in 4Q. Now interestingly, that is up only around 1% from fourth quarter of last year. This is a stronger expense guidance than we thought we could do earlier in the year and sets us up nicely for next year.

Shifting gears, let's focus on the balance sheet. Slide 7 shows the breakout of deposit trends on a weekly ending basis across the third quarter. We gave you this chart last quarter also. In the upper left hand, you can see the trend of total deposits. We ended quarter 3 at $1.88 trillion, up from quarter 2 and better-than- industry results. What you should also note is the cost of these deposits. Our team has rewarded customers with higher rates for their investment-oriented cash, reinitiated deposit growth, and grown share - all with superior mix and cost.

You'll note that we're now paying 155 basis points all-in for deposits, which is up 31 basis points from last quarter. Best that you remember 2 things when you think about the deposits. The rate remains low relative to many because of the transactional nature of our deposit relationships, with $565 billion in noninterest- bearing deposits. And you can see in the upper right alone, in low-interest and no-interest checking, there's $504 billion in Consumer. We remember the importance of the spread against the quarter's average Fed funds rate.

This position is very advantaged compared to past cycles because the transactional accounts in the current cycle are a much higher mix of Bank of America's deposits. I would also add that while we maintain discipline in deposit pricing, we paid competitive rates to customers with excess cash seeking higher yields across all the businesses, if rates fall, those particular products will see the rates come down also.

Dropping into the business trends. In Consumer, if you look at the top right chart, you saw a $22 billion decline. Note the difference in the movements through the quarter between the balance of low- and no- interest checking accounts and higher-yielding nonchecking accounts. You could also see the low levels of

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our more rate-sensitive balance in Consumer investments and CD balances broken out. In total, we have $982 billion in Consumer deposits. In Consumer alone, this is $250 billion more than we had pre pandemic.

The total rate paid on Consumer deposits in the quarter was 34 basis points. This remains very low, driven by the high percentage of high-quality transactional accounts. Most of the quarter's rate increase is concentrated in CDs and Consumer investment deposits were about -- which are about 13% of the deposits.

Turning to Wealth Management, balances were flat. We saw a slowing in the previous quarterly trend of clients moving money from lower-yielding sweep accounts into higher-yielding Preferred Deposits and off- balance sheet products. Sweep balances were down by $7 billion and replaced by new account generation and deepening. At the bottom right, note the Global Banking deposits grew $2 billion and have hovered around $500 billion for the past 6 quarters. These are generally the transactional deposits of our commercial customers used to manage their cash flows. Noninterest-bearing deposits were 37% of deposits at the end of the quarter.

Sticking with the balance sheet but moving to capital, let me give you a few thoughts on the proposed capital rules. As you are well aware, our banking industry in the United States is the most highly capitalized and the most profitable banking group in the world. It's a source of strength for our country and its economy.

The annual stress tests, that are now over a dozen years old, using ever-increasingly harsher test scenarios, have proven that capital is sufficient. Banks have proven to be a part of the solution during the more recent COVID pandemic and the banking disruption in March this year. If we add to our capital, it will reduce our lending capacity to American businesses and consumers, and those trade-offs are being debated. But as far as the rules are concerned, there are many parts of the rules that our industry doesn't agree with because of double counts or increased trading and market risk. And we're talking to those proposals and working, and we're hopeful they'll change.

But in any event, they may not. If they don't, how will they affect us? If you go to Slide 8, you can show the expected impact as we interpret those proposed rules. This assumes that they're proposed today without any changes. The proposed rules would inflate our risk-weighted assets by about 20%. So if I apply the inflation against this quarter's RWA of $1.63 trillion, that means, if nothing else changes in the rules, we'd end up with about $320 billion more risk-weighted assets.

The biggest increase in RWA would be a couple of hundred dollars in operational RWA. The next biggest category would be driven by a fourfold increase in the RWA against non-publicly traded equity exposures. In our case, that really is mostly about the tax-advantaged investments in solar and wind.

Looking at the capital being held against the inflated RWA on the right side of the slide, I'd remind you today that our minimum capital requirement is to hold 9.5% in on Common Equity Tier 1. But based on our G-SIB charges, that are going to come in effect on January 1, 2024, we're going to move to 10%. So I'm going to use that as a requirement. Holding 10% today means $163 billion, that, we finished the third quarter with $194 billion. So today, we have more than $30 billion excess capital.

Now let's assume the proposed changes go through in full. Those proposed changes are phased in from '25

• the middle '25 to '28 under the current proposal. When those are fully phased in - as we used to call it Basel fully phased in, if you remember - we would have a need for $195 billion of total capital. Now if you look on the upper right-hand side of the page, you'll see that today we're at $194 billion.

So we hold the required capital today. And of course, we'd have to build a buffer to that throughout the implementation period. But if you look at the bottom of the page, you can see just in the last 9 quarters the kind of capital generation this company has. Once we understand the final rules, we'll of course have a chance to optimize our balance sheet and appropriately price assets to improve the return on tangible common equity.

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Now before I turn it over to Alastair, I just wanted to highlight one of the businesses that we've talked about over the many years. That's our Global Markets business. Global Markets represent 17% of the company's year-to-date earnings, and it's one of the top capital markets platforms in the world. It's one of a handful of firms that can do what we do, providing advice and execution in every major market around the world.

Jimmy DeMare and the team that run the business asked us for additional investment around 4 years ago, and they've grown this business with an intensity that clients have appreciated and rewarded us with more of their business. This has produced strong revenue growth. We've grown the balance sheet here but have done it efficiently. That's allowed us to grow sales and trading revenue over the past 12 months consistently, and now stands 32% higher than the average of the [4 years] (corrected) leading into the pandemic and the investment in the business.

And through effective cost management, we also generated 11% to 12% returns on capital. This exceeds our cost of capital even as we continue to allocate more capital to the business. Returns are even larger, if combined with the Global Banking business, that many show the businesses combined and take -- because our corporate clients also take advantage of these industry-leading capabilities.

With that, let me turn over the call to Alastair to walk through the quarter. Alastair?

Alastair Borthwick

Thanks, Brian. And on Slide 10, we present the summary income statement. I'm not going to spend a lot of time here because Brian touched on this and the highlights that we show on Slide 3. For the quarter, we generated $7.8 billion in net income, resulting in $0.90 per diluted share. Both of those are up double digits from the third quarter of last year. The year-over-year revenue growth of 3% was led by improvement in net interest income, coupled with a strong 8% increase in sales and trading results, and that excludes DVA, and a 4% increase in investment in brokerage revenue driven by our wealth management businesses.

Expense for the quarter of $15.8 billion included good discipline from our team, which allowed us to reduce costs from the second quarter, even as we continue our planned investments for marketing, technology, and physical-presencebuild-outs, including financial center openings and renovations.

Asset quality remains stellar, and provision expense for the quarter was $1.2 billion. That consisted of $931 million of net charge-offs and $303 million of reserve build. Provision expense reflects the continued trend in charge-offs toward pre-pandemic levels and remains below historical levels. Our charge-off rate was 35 basis points, that's 2 basis points higher than the second quarter, and still below the 39 basis points we saw in the fourth quarter of '19. And as a reminder, that 2019 was a multi-decade low. 30-day delinquencies also remained below their fourth quarter '19 level.

Lastly, our tax rate this quarter was 4%, driven mostly by higher-than-expected volume of investment tax credit, or ITC, deals for the rest of the year. And we can expect other income in Q4 will reflect seasonally higher renewables investment losses when these projects get placed into service.

Okay. Let's turn to the balance sheet, that's on Slide 11. And you can see it ended the quarter at $3.2 trillion, up $31 billion from the second quarter. So not a lot to note here. The driver of the increase was a $34 billion increase in available-for-sale securities. With cash levels so high, we chose to reduce the cash and just put some of the money into short-termT-bills this quarter, and those earn essentially the same rate as cash. Our cash remains high at $352 billion.

In addition to the cash level change, we saw another $11 billion decline in hold-to-maturity securities as those securities matured and paid down. And as Brian noted, Global excess Liquidity Sources remained strong at $859 billion, that's down very modestly from the second quarter, and still remains approximately $280 billion above our pre-pandemic fourth quarter '19 level.

Shareholders' equity increased $4 billion from the second quarter as earnings were only partially offset by capital distributed to shareholders. During the quarter, we paid out $1.9 billion in common dividends, and we

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bought back $1 billion in shares to offset our employee awards. AOCI was $1.1 billion lower, reflecting both a modest decline in the value of AFS securities, modestly impacting CET1, as well as a small change in cash flow hedges, which doesn't impact the regulatory capital. Tangible book value per share is up 12% year- over-year.

Turning to regulatory capital, our CET1 level improved to $194 billion from June 30, and our CET1 ratio improved 30 basis points to 11.9%. It's now well above our current 9.5% requirement, as Brian noted. Risk- weighted assets declined modestly as loans and Global Markets RWA both moved lower. Our Supplemental Leverage Ratio was 6.2% versus a minimum requirement of 5.0%, which leaves capacity for balance sheet growth, and our TLAC ratio remains well above our requirements. LCR ratios remain well above minimums for BAC metrics and stronger at the bank level.

Let's now focus on loans by looking at average balances on Slide 12. And loan growth slowed this quarter as a decline in demand for commercial borrowing more than offset our credit card growth. So we saw that lower commercial demand in lower revolver utilization among higher funding costs. And commercial balances were also impacted by term loan repayments due to borrowers accessing other capital market solutions.

Focusing for a moment on average deposits and using Slide 13. Given Brian's earlier comments, I'd just note the comparisons. Relative to pre-pandemic fourth quarter '19, average deposits are up 33%. Consumer is up 36%, with Consumer Checking up 45%. And you can see the other segment comparisons on the page.

Turning to Slide 14. Let's extend the conversation we've been having over the course of the past couple of quarters around management of our excess liquidity. This slide serves as a reminder of the size of our high- quality deposit book, the magnitude of deposits we have in excess of those needed to fund loans, and the way we've extracted the value of that excess to deliver value back to our shareholders. The excess of deposits needed to fund loans increased from $420 billion pre-pandemic to a peak of $1.1 trillion in the fall of 2021. And as you can see, it remains high at $835 billion today.

That $1.1 trillion of excess liquidity has always included a balanced mix of cash, available-for-sale securities, and securities we hold to maturity. In late 2020 and into 2021, we concluded that additional stimulus was going to remain in client accounts for an extended period, and we increased the hold-to-maturity securities portion so we could lock in value from those deposits. And we made these investments given the core nature of our customers' deposits.

Note the split of the shorter-term investments in cash and available-for-sale securities, and then the longer- term hold-to-maturity securities. And I just draw your attention to just how much cash we have above the actual level we need to run the company. On the available-for-sale, we would just note the duration is less than 6 months as it's mostly all short-term treasuries. And the combination of the cash and available-for- sale securities represents about 47% of the total noted on this page in the third quarter of '23 to give us the balance we're looking for.

And if we look at the hold-to-maturity book, it had grown from $190 billion pre-pandemic, peaking 2 years ago, and now falling to just over $600 billion currently. That $600 billion consists of about $122 billion in treasuries. Those will mature in a little more than 6 years, and about $474 million in mortgage-backed securities, and a few billion Other. Hold-to-maturity securities peaked at $683 billion, and we're now down $80 billion from the peak and $11 billion in last quarter. That $80 billion decline from peak was all driven by the reduction of mortgages from $555 billion to $474 billion.

With less loan funding needs over the past several quarters, the proceeds from security paydowns have been deployed into higher-yielding cash, and this mix shift has been happening at about a 300-basis point spread benefit for these assets. Given the increased cash rates, the combined cash and security yield has risen now to more than 3%. It's up more than 200 basis points since the peak size of the portfolio in the third quarter of '21, and it's risen faster than the rate paid on deposits. In fact, today, it's 178 basis points above what we pay for deposits.

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And remember also, we have $1 trillion of loans that are largely in floating rate, in addition. From a valuation perspective, we did experience a decline in the valuation of the hold-to-maturity book this quarter, and that's in the context of mortgage rates reaching a 2-decade high. Comparing the valuation change to the year ago period, it worsened $15 billion. And over that same time period, we grew regulatory capital by $19 billion and hold Global Liquidity Sources in excess of $850 billion.

And importantly, as we move to Slide 15, I'll make one final comment here, which is the improved NII over this investment period. The net interest income, excluding Global Markets, which we disclose each quarter, troughed in Q3 '20 at $9.1 billion, that compares to $13.9 billion in the third quarter of '23 or $4.7 billion higher every quarter, on a quarterly basis, and that gives a sense of the entire balance sheet working together.

Okay. Let's now turn our focus to NII performance over the past quarter, and we'll talk about the path forward, and I'm going to use Slide 15 for that. On last quarter's call, we guided to expect Q3 NII to be about $14.2 billion to $14.3 billion on an FTE basis. Our third quarter performance turned out to be better than our guidance. And on an FTE basis, NII was $14.5 billion this quarter. We expect Q4 will be around $14 billion fully taxable equivalent, and that increases our full year guidance for NII in 2023 versus 2022 to 9% growth per year.

We believe NII will hover around this expected fourth quarter $14 billion level, plus or minus, in the first half of next year, and then we anticipate modest growth in the second half of 2024. By the time we get to the fourth quarter of 2024, we believe we can see NII up low single digits compared to the fourth quarter of 2023. The good news is we believe NII will likely trough around the fourth quarter level of $14 billion and begin to grow again in the middle of next year.

I'd note a few caveats around that forward view I just provided. It includes an assumption that interest rates in the forward curve materialize, and it includes rate cuts for the second half of 2024. It also includes an expectation of modest loan and deposit growth as we move into the second half of 2024.

Focusing again on this quarter, $14.5 billion NII was an increase of nearly $700 million from the third quarter of '22, or 4%, while our net interest yield improved 5 basis points to 2.11%. The year-over-year improvement was driven by higher interest rates and partially offset by lower deposit balances. On a linked- quarter comparison, NII improved $239 million from Q2, that comes from the benefit of an extra day of interest, a rate hike, and higher Global Markets NII, partially offset by increased deposit pricing. And the net interest yield improved 5 basis points.

Turning to asset sensitivity and focused on a forward yield curve basis, the plus 100-basis point parallel shift at September 30 was $3.1 billion of expected NII benefit over the next 12 months from our banking book. And that expects -- or that assumes no expected change in balance sheet levels or mix relative to our baseline forecast, and 95% of the sensitivity is driven by short rates. The 100-basis point down rate scenario was $3.3 billion.

Okay. Let's turn to expense, and we'll use Slide 16 for the discussion. We previously highlighted that we guided you to a trend of sequential declines in our expense each quarter this year, and we achieved that in Q3 with our expense down $200 million to $15.8 billion. Additionally, we expect the fourth quarter to go down another couple hundred million to $15.6 billion, excluding any FDIC special assessment.

That would mean our fourth quarter expense of $15.6 billion, compared to the fourth quarter of '22, would be up by only $100 million, or less than 1%. And we're proud of that work by the team, especially considering our regular FDIC insurance expense alone increased by $125 million quarterly starting in the first quarter of this year. So without that, we would be flat year-over-year in Q4.

The decline this quarter from the second was driven by the reduction in litigation expense and lower headcount, offset somewhat by investments and inflationary costs. Our headcount is down near 2,800 from the second quarter to 213,000. And that includes the addition of 2,500-or-sofull-time campus hires we

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brought into the company. So that's good work by the team after we peaked at 218,000 in January month end. And you see the movement here across the past year at the bottom left of the slide.

As we look forward to next quarter, we could add $1.9 billion of expense for the proposed notice of special assessment from the FDIC as a possibility. Absent that, we'd expect our fourth quarter $15.6 billion expense target to more fully benefit from the third quarter headcount reductions, and that will allow expense to continue the decline experienced throughout the year so far. All of that is going to set us up well for next year.

Let's now turn to credit, and we'll turn to Slide 17. Net charge-offs of $931 million increased $62 million from the second quarter. The increase is driven by credit card losses as higher late-stage delinquencies flow through to charge-offs. For context, the credit card net charge-off rate rose 12 basis points to 2.72% in Q3, and it remains below the 3.03% pre-pandemic rate in the fourth quarter of '19. Provision expense was $1.2 billion in Q3, and that included a $303 million reserve build. It reflects a macroeconomic outlook that, on a weighted basis, continues to include an unemployment rate that rises to north of 5% during 2024.

On Slide 18, we highlight the credit quality metrics for both our Consumer and our Commercial portfolios. And on Consumer, we just note that we continue to see the asset quality metrics come off the bottom. And for the most part, they remain below historical averages. 30- and 90-day consumer delinquencies still remain below the fourth quarter of 2019, as an example. Commercial net charge-offs declined from the second quarter, driven mostly by a reduction in office write-downs.

And as a reminder, our CRE credit exposure represents 7% of total loans, and that includes office exposure, which represents less than 2% of our loans. We've been very intentional around client selection and portfolio concentration and deal structure over many years, and that's helped us to mitigate risk in this portfolio. We continue to believe that the portfolio is well positioned and adequately reserved against the current conditions.

And in the appendix, we've included a current view of our commercial real estate and office portfolio stats we provided last quarter. We've also included the historical perspective of our loan book de-risking and our net charge-offs, and you can see all of those on Slides 36, 37, 38, and 39.

Okay. Let's move on to the various lines of business and their results. And I'm going to start on Slide 19 with Consumer Banking. For the quarter, Consumer earned $2.9 billion on good, organic revenue growth and delivered its 10th consecutive quarter of operating leverage, while we continued to invest for the future. Note that the top line revenue grew 6%, while expense rose 3%.

Reported earnings declined 7% year-over-year given credit costs continue to return to pre-pandemic level. And we believe this understates the underlying success of the business in driving revenue and managing costs, because PPNR grew 9% year-over-year. Much of this success is driven by the pace of organic growth of checking and card accounts, as well as investment accounts and balances, as Brian noted earlier. And expense reflects the continued investments by the business for their future growth.

Moving to Wealth Management on Slide 20. We produced good results, and we earned a little more than $1 billion. These results are down from last year, due to a decline in NII from higher deposit costs, which more than offset higher fees from asset management. While lower this quarter, NII of $1.8 billion derives from a world-class banking offering, and it provides good balance in our revenue stream and a competitive advantage in the business for us.

As Brian noted, both Merrill and the Private Bank continued to see strong organic growth, and they produced solid assets under management flows of $44 billion since the third quarter of last year, reflecting good mix of new client money as well as our existing clients putting their money to work. Expense reflects continued investments in the business as we add financial advisers and capabilities from technology investments.

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On Slide 21, you see the Global Banking results. And this business produced very strong results with earnings of $2.6 billion, driven by 11% year-over-year growth in revenue to $6.2 billion. Coupled with good expense management, this business has produced solid operating leverage. Our GTS, or Global Treasury Services, business has been robust. We've also seen a steady volume of solar and wind investment projects this quarter, and our investment banking business is performing well in a sluggish environment.

Year-over-year revenue growth also benefited from the absence of marks taken on leverage loans in the prior year ago period. The company's overall investment banking fees were $1.2 billion in Q3, growing modestly over the prior year, despite a pool that was down nearly 20%. And we held onto #3 position given our performance. Provision expense reflected a reserve release of $139 million as certain troubled industries and credits outside of commercial real estate continue to have improved outlooks. Expense increased 6% year-over-year, reflecting our continued investments in this business.

Switching to Global Markets on Slide 22. The team had another strong quarter, with earnings growing to $1.3 billion driven by revenue growth of 10%, and I'm referring to results excluding DVA as we normally do. The continued themes of inflation, geopolitical tensions, and central banks' changing monetary policies around the globe have continued to impact both bond and equity markets. And as a result, it was a quarter where we saw strong performance in our FICC trading businesses, as well as a record third quarter in Equities.

Focusing on sales and trading, ex DVA, revenue improved 8% year-over-year to $4.4 billion. FICC improved 6% and Equities improved 10% compared to the third quarter of last year. And at $1.7 billion, that's a record third quarter for our Equities teammates. Year-over-year expense increased 7%, primarily driven by investments for people and technology.

Finally, on Slide [23] (corrected), All Other shows a profit of $89 million. So revenue improved from the second quarter, driven by the absence of prior period debt security sale losses in available-for-sale securities, and partially offset by higher operating losses on tax credit investments in wind, solar, and affordable housing. As I mentioned earlier, our effective tax rate in the quarter was 4%, and that reflects a higher-than-expected volume of investment tax credits in which the value of the deals are recognized upfront. We also had a small discrete benefit to tax expense from a state tax law change.

Excluding renewable investments and any other discrete tax benefits, our tax rate would have been 25%. And as we wrap up 2023, we expect our full year tax rate, excluding discrete and special items, such as the FDIC special assessment, we expect that full year tax rate should end up in the 9% to 10% range.

So to summarize, we grew our earnings double digit year-over-year. We reported NII that was above our expectations, and we increased our full year expectations. We've managed costs aligned with our guidance and brought expenses down in every quarter so far this year, and we expect to do that again in the fourth quarter. We earned more than 15% return on tangible common equity. We returned $2.9 billion in capital back to shareholders, including a 9% dividend increase. And we built 30 basis points of CET1, positioning us well for the proposed capital rules.

So all in all, it was a strong quarter. It was one where our teams executed well against responsible growth. And with that, David, I think we'll open it up for the Q&A session.

Q&A

Gerard Cassidy

Brian, can you come back to your thoughts when you were talking about the consumer spending holding at 4% right now, obviously, down from the very strong levels of a year or 2 years ago. When you look out, and you mentioned how you guys are thinking the economy troughs in the middle of next year, do you think you

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