Good day, everyone, and welcome to today's Bank of America Earnings Announcement. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Lee McEntire..

Good morning, and welcome. Happy Monday, and thank you for joining the call to review Bank of America's second quarter results. I hope everyone's had a chance to review our earnings release documents.

As always, they're available, including the earnings presentation that we'll be referring to during this call, on the Investor Relations section of the bankofamerica.com website.

I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments, and then I'll ask Alastair Borthwick, our CFO, to cover the details of the quarter. Before I turn the call over to Brian, just let me remind you, we may make some forward-looking statements, and please refer to our 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 actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website.

Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found on our earnings materials that are available on the website. So with that, Brian, I'll turn it over to you. Thanks..

Thank you, Lee, and thank you, all of you, for joining us today this quarter. Thanks to a great team here at Bank of America. We reported $6.2 billion in net income or $0.73 per diluted share. We delivered on our fourth straight quarter of operating leverage.

We grew revenue 6%, while expense rose 1.5% for 4.5% of operating leverage compared to quarter 2 2021. We also saw a 21% year-over-year improvement in NII. These earnings generated a return on tangible common equity of 14% and return on assets of 79 basis points.

As a reminder, when comparing our earnings in the second quarter of '21 to the earnings this quarter, in the second quarter '21, we recorded 2 items of note. In that quarter, net income benefited by $2 billion from a tax adjustment for a UK tax law change, and that was worth $0.23 to EPS.

We also released $2.2 billion in credit reserves during that quarter that benefit earnings by $1.7 billion or $0.19 in EPS. This would bring that quarter's reported EPS to $1.03, down in the low 60s, and that compares to this quarter's $0.73 per share.

This gain is illustrated by the increase in pretax pre-provision income, which includes these 2 -- which would exclude those 2 impacts, and that was $7.4 billion this quarter, improving 15% in PPNR improvement from the second quarter of 2021. So let's go to Slide 3. Let's talk about some of the drivers of results.

The organic growth engine at Bank of America that existed pre-pandemic is back in full place here. And you can see that in the second quarter of 2021.

This reflects in net new checking account openings, net new consumer investment accounts, net new household growth in Wealth Management, very strong loan growth across all products and good performance by Global Markets and investment banking teams, even given a quarter with volatile capital markets.

Our expense management continues strong, and it benefits by the best digital banking platform in the world. Once again, we drove more users, saw more log-ins and usage, and that generated 20% more sales from the platform compared to last year.

Our asset quality remains very strong with net charge-offs in the second quarter of 2021 still 50% below pre-pandemic levels in late 2019 when credit was pretty good. Breaking down the performance by segment, I'd make a few comments.

Our Consumer Banking segment continued to see good momentum as we grew loans at the fastest quarterly pace in nearly 3 years. We added more than 240,000 net new checking accounts in the quarter, in the second quarter alone.

We opened new financial centers and renovated others and deepened digital engagement with both consumer and small business clients. And after considering the highly elevated consumer income tax outflows, payments of taxes is good for the government, we saw good deposit activity.

In our Wealth Management segment, in a period of declining market values where stocks and bonds had the worst first half in 5 decades, revenues still grow in that business 7% year-over-year, and we expanded our pretax margin. Our banking business with clients overcame the market values and weakness.

We added more than 5,100 net new households across Merrill and Private Bank.

Across our entire Wealth platform, Merrill, the Private Bank; and our consumer investments team, Merrill Edge, client balances, including deposit investments and loans, totals $3.8 trillion at 6/ 30/2022, aided by nearly $150 billion of client inflows over the last year into those businesses. Our Global Banking team grew loans 5% linked quarter.

That's 5% in a single quarter, 20% annualized. We also saw Global Treasury Services revenue as customers utilize our service to management quality stand up well in the quarter.

Overall revenue in Global Banking was impacted by the weaker investment banking fees that were available in this volatile market; lower investment banking fees; and we also had marks, as previously discussed, our leveraged finance positions. Our NII improvement nearly offset all those impacts, leaving revenue only modestly down year-over-year.

We maintained our #3 investment banking market share ranking. In Markets, we had a solid quarter of sales and trading results, growing 11% from last year ex DVA.

Our macro FICC business, where we have been investing over the last couple of years, performed well, as did the equity derivatives, while the FICC businesses felt the effects of spread widening and customers taking a more risk-off position.

From a broader enterprise, our P&L perspective, quarter 2 expense was down modestly from quarter 1, consistent with what we told you on our last call. It is notable that we achieved that even as quarter 2 included approximately $425 million in regulatory matters that Alastair will discuss in a few minutes.

As I said earlier, one of the reasons we continue to have good expense results and continued progress on digital engagement across the businesses. I commend you to look at slides 22, 27, 29 in our appendix where we set forth our digital operating results by lines of business. Overall, digital sales continue to grow, up 20%.

Digital choice for payments continue to grow. Sale transactions continue to outdistance checks written, crossing of the last year, and the gap continues to widen. Erica is approaching 1 billion interactions since we started with it. Clients have filled out 8 million life plans, enhancing our asset growth and account retention.

That's one of the fastest-growing product implementations we've had. It is also worth noting the strong credit quality. Most all of asset quality metrics improved again this quarter.

You will note, however, the charge-offs rose in quarter 2, but this increase was largely due to some loan sale accounting and some other credit decisions due to the past pandemic issues. As I've done for several quarters, I want to make a few points about customer activity. Let's go to Slide 4.

Buyer data crossed the 35 million core checking households plus we have in 60 million consumers in America. U.S. consumers remain quite resilient. I would offer a few thoughts as you look at Slide 4. In addition, I'll give you where we see -- what we see so far in July in a moment.

First, customers -- consumers continue to spend at a healthy pace even as quite some time has passed since the receipt of any stimulus. Second, the overall average deposit balances for most cohorts are higher than they were both last quarter and even rose in June versus May. They remain at multiples above the pre-pandemic levels.

And importantly, we're seeing no deterioration in our customers' asset quality, and they have the capability to borrow. Our customer data shows Bank of America customers spent the highest quarterly period on record in quarter 2 at $1.1 trillion in total spending. That's up 12% year-over-year.

This quarter also was the highest debit-spending period on record for us. But as you think about more recently, just to give you the more recent statistics, in June 2022, spending was up 11.3% over June 2021. Transactions also rose more than 6%. For the first 2 weeks of July, the spending is up 10% plus in transactions, again, rising 6% plus.

This is strong consumer resilience. We continue to see shifts in what people are spending on as the quarter took place more on experiences, travel and things like that and a bit more on fuel due to increased prices and less on retail stores.

In quarter 2, we saw that higher gas spend as well as the continued recovery in the travel categories and a continued recovery in restaurant spending. In the lower right-hand chart, you'll note the continued shift in how people spend money. The check and cash volumes continue to come down and are replaced by digital alternatives.

This continues to help on our cost structure. Regarding our customer liquidity, average deposit balance of our customers remained at high levels relative to the year ago in pre-pandemic periods. The larger change for the mass market customers, they rose about 1% over June from May.

The only area where we had any change to the negative was a small dip, 1%, for the most affluent segments of those customers. That reflects the tax payments made in April and the build back coming more slowly for those customers. In addition to this data, I would refer you to Slides 24 and 25, which completes the resiliency picture.

That shows you strong asset quality across our consumers. Also look at elevated payment rates on credit cards. That means people paying off their debt at a good clip. There's no real differentiation across the trends in customer cohorts, even for the very small portion of our card book that is in lower credit quality.

So while all this is good news, it clearly makes the Fed's job tougher when you take these statistics and this activity and combine it with a low unemployment rate. I want to switch gears now and talk a little bit more about credit. We provided more information on credit this quarter as would be obvious, given the debate about a future recession.

Whether it's debate and discuss this potential outcome, we just continue to drive responsible growth at our company, and so we're prepared. So as you look at Slide 5, you can see how much the loan book has changed under more than a decade of responsible growth.

As you can see on the top left chart, our loan book is quite well balanced now between consumer and commercial loans. Focusing on the top right chart, note that the consumer portfolio is even more collateralized with a greater mix of mortgage and less card.

In addition, much less second mortgage, and obviously, second mortgage as they underwritten clearly differently than they were in the mid-2000 to 2010 decade in all consumer portfolios have much higher FICOs. In the bottom left chart, you'll note that more diversified commercial mix as well.

And if you look at the lower right chart, you can see our results on the stress test and how they fared time and time again. When you go to Slide 6, we gave you a little detail on what we look like in the high the last crisis compared to where we are now. You can see the loan portfolio in 2009 when risk were at the peak for Bank of America.

Because this was after we closed the Merrill and the countrywide transactions and the company was all put together. We give you those metrics, what they look like pre-pandemic at the end of 2019 and what they look like today. On the right are the changes we've made under that decade-plus of responsible growth.

Given all these changes, 92% of our commercial loan book today is either investment-grade or secured. And while there is not much difference in something like commercial real estate book, you have to look underlying to see the changes.

For instance, the land development loans increased -- have decreased from $5 billion in '09 to $200 million currently, and secured residential exposure decreased from $11 billion to $150 million now.

We've also included a few slides in our appendix, Pages 23 to 25, to highlight the consumer resilience and delinquency points as well as our consumer lending statistics, highlighting this continued strong quality of all our originations. Take note of the FICOs on the newly originated activity there.

So in the end, despite the worries of a slower economy and other global issues, client activity remained good this quarter, NII has improved quickly, and our customers' resilience and health remains strong.

We recognized some expense from regulatory matters and still managed to keep expenses flat to the first quarter and in line with what we told you. We continue to drive strong operating leverage in a weaker capital markets environment. These earnings are delivering strong returns and delivering capital back to shareholders.

And thinking about capital, remember, first, we use our capital to support customers and related loans, and we continue to invest in the franchise. Second, we are delivering capital back to you, shareholders. We announced our intent to increase our dividend in quarter 3, which we have our dividend 22% higher than it was just 12 months ago.

In addition, we retired shares this quarter. Third, we're going to be building capital given the new higher amounts received during the stress test. It will make our balance sheet even stronger.

Along the way, we believe our expected earnings generation over the next 18 months will provide an ample amount of capital, which allows us to support customer growth, pay dividends and use the rest to allocate between buying back shares and growing into our new capital requirement. And with that, I'll turn it over to Alastair..

First, ESG investment tax credits; and second, roughly $300 million of discrete tax benefits that applied to this quarter. Excluding those tax credits and discrete items, our tax rate would have been 26%. And with that, we'll jump into Q&A, please. Thank you..

We'll take our first question today from Glenn Schorr with Evercore..

So I'm looking at all your credit metrics improving on a modest reserve release in the quarter and everything you said about responsible growth, it's all great.

But my question is, how do you balance making sure that you're not looking too much in the back, the rearview mirror and see where we came from versus what we're going towards and people's obvious concerns about the go forward and the economy.

And maybe within that, let's just talk about what leading indicators you'd look at that drive, say, if you thought about putting up a CECL reserve on the go forward? You don't sound that concerned, but like lot of people looking at a recession here..

Glenn, thanks for the question. Remember, the reserve methodology is a forward-looking methodology. And our core scenario is weighted part of the baseline, part of the adverse and ends up, just to give you a sense with unemployment rate this year in the actual reserve setting scenario, not an adverse case.

But the actual, when we set the reserves was with 5% employment within the next 5 months, so 3.6% to 5%. So it's a -- there's a conservative aspect of how the reserves are set.

And so basically, the high quality of the loan book is not only what we talk about and show you all the stats and you can assess and look at, but also, you can look at the stress test results on a relative 10% unemployment overnight, yada, yada, yada, and you see all the different statistics there.

And you see that page on Page 5 or 6 or whatever is in a slide, you can see us lower than everybody else's, that's because many, many years of responsible growth and while we showed you those pages comparing the different points in time.

And so I think you said something, our reserve is not set looking backwards, it's set looking forward based on the books, based on the CECL methodology. We even do a comparison to where CECL day 1, as we call it, what happened then, and it's consistent. It's consistent. It's just that the credit quality book continues to improve, honestly..

I love the signs of reference. Maybe just one follow-up on RWA, you didn't seem to need to do much. I appreciate the comments you made on the prepared remarks. So the question I have is there seems to be a much higher intent across The Street to mitigate RWA. For obvious reasons, everybody's capital requirements are going up.

So the question I have for you is have you balanced doing more of belt tightening versus using your okay relative capital position to continue to grow while others are tightening the belt?.

Thanks, Glenn. So obviously, we're in a little different place in that we have the capital already. And we feel like over the course of the past several years, we've been quite disciplined around our RWAs. It just remains important for us to stay at it. So you saw us do a couple of things this quarter. We sold a portfolio of loans that were noncore.

We've changed a little bit in terms of as the sum of the 20% risk-weighted assets in our securities portfolio are rolling off, we can replace them with 0% risk-weighted like treasuries with essentially the same yield at this point. So you saw what we did this quarter. We grew loans. We built capital.

We created some RWA flex in the background, and we think we can do the same going forward..

We'll go next to Jim Mitchell with Seaport Global..

Maybe just if I look at the -- you're still projecting relatively healthy asset sensitivity even with the forward curve at a high level. So it doesn't -- I think when I look at the comparison versus the spot, it implies not a real big degradation in betas in the forward versus the spot.

So can you discuss how you think about deposit betas as Fed funds gets above 300 basis points?.

Yes. So we talked about -- the last time we were together, we talked about the fact we're looking backwards to 2015 to 2019, and you saw what our deposit beta was at the time. It was in that sort of low 20s percent. And we said we hope to do better. We have done better than that so far.

Now just as a reminder, generally speaking, we think about how we price so that we grow deposits. Now that growth last year was 7%. We're expecting growth this year that we said in the low single digits. But we're going to have to see how the rate structure develops. We've been pretty clear on that as well.

And we're going to be competing in the market with others, so we just have to watch that develop over time. The core operating balances, consumer, we continue to add there over time. And if we're seeing any kind of runoff, Jim, it's really only in the very high end of Wealth Management, and it's in the non-operating balances in commercial.

So we're keeping a tight eye on it, but our NII reflects, we think, are reasonable assumptions around deposit pricing..

So just to clarify, you -- go ahead..

And Jim, just look at Page 10, and you can see if you look at the upper right-hand corner and see the size of the noninterest-bearing and interest checking, which is different than money it moves.

And you think about that even in the Wealth Management deposits on the lower left and then the operating deposits in the commercial book, we just have a lot of these deposits that are money and movement in the household. And we've gone through this discussion a lot a few years ago.

And so they're very intensive rates only because the money is always moving, and it's just the average collective balances in these households as opposed to money that's for investment purposes, which will move.

And you saw it move a little bit in the Wealth Management business this quarter, and some of the corporates will continue to position them for more investment-oriented cash for lack of a better term. And so we'd expect that to occur.

But I think history is some guide here, but also at the end of the day, we've grown 1 million new checking accounts year-over-year. So that brings them more and more stable core checking balances, which don't move around much. And so think about all that, and we've been through it before.

And as rates go up, the stuff that moves due to rate is relatively modest. And we have a huge bucket of noninterest-bearing that sits with us..

Right. So I mean, clearly, you guys have a high-quality deposit base. So I think the implication is even over 300 basis points, you think, betas can stay sort of in that well under 50% range, if not putting words in your mouth..

Yes. We tell our team to price consistently so they can grow faster, slightly faster than the market. They have been growing a lot faster than the market because of the stimulus and stuff like that, but let's -- even the market, they will grow much faster. But that's what we tell them. And so we don't do things to hurt the franchise..

Right.

And then on the capital side, just trying to get a sense of how quickly you want to get to a buffer and how to think about a buffer on your -- whether it's 2024 minimum or '23, can you still do some buybacks between now and then?.

So we already have a modest buffer relative to what we expect at the end of October. And then we've got, obviously, future capital generation, and we've got some balance sheet optimization we can do. So we feel like we've got a lot of flexibility. So we feel like we've got some ability to do some share repurchase.

And then in terms of where we end up, I'd say, go fast forward to January of 2024, that's when we get the next 50 basis point step up. So we've got to generate that 50 basis points over the next 6 quarters. So we think we'll have some ability to do a little bit of everything..

We'll go now to Mike Mayo with Wells Fargo..

Well, thanks for the NII guide. I guess my -- well, first, we're going to be here -- it's probably January 18, 2023, 2 quarters from now, we'll be on the earnings call, and we'll see if your guidance is correct or not.

And I know you don't want to give guidance that you don't meet, but you just guided for almost $2 billion in higher NII in the next 2 quarters, implying an $8 billion uptick in the annualized run rate for NII. I just want to make sure I heard that correctly. And then on your definition of majority of that should fall in the bottom line.

How do you define majority? Is that 50.1%? Or is it more than that?.

So I'll answer the question. Yes, I think you're right. We said $900 million to $1 billion this quarter coming up and then at least that, the following quarter. So yes, you're right to think about that as a couple of billion. We'll get a little more precise with fourth quarter as we get to, obviously, a quarter from now.

And with respect to falling to the bottom line, I'd say that's going to be the vast majority, but I'll leave that to Brian..

I think, Mike, we're bouncing around $15 billion to $15.5 billion of quarterly operating costs. And you can look backwards and see that, that's been fairly constant. And so you'd expect that to continue. And so the vast, vast majority falls to the bottom line. It's out of the business model.

And you know, Mike, as well as anybody that, that revenue comes through the businesses that don't need to add people or activity to get the value of it, i.e. the consumer business in the Wealth Management business and Commercial Banking business. And you saw that year-over-year.

I mean as much as it's a strong projection going forward, we captured like $2 billion last year second quarter, this year second quarter. And I think a lot of it fell to the bottom line on an apples-to-apples basis..

I mean just as one follow-up. I mean, look, you've changed the firm since the global financial crisis when the company overpromised and under-delivered. And you've really gone out of your way to under-promise and over-deliver.

And so when you say phrases like vast, vast majority, don't you want to hedge a little bit? I mean you have a lot of inflationary pressures. You're hearing talk about it's harder to hire people, harder to retain people. You have rents. You have all sorts of things happening here.

And you're saying vast, vast majority of these additional revenues should fall to the bottom line.

Any hedging at all you'd like to give here?.

I think basically, what -- I don't -- I'd look at the quarter-to-quarter linkage expenses of 15.3 and NII, we told you it was up, what did we say, 650 last quarter, turn to 850. So we exceed our estimates. That's why we stayed in the next couple of quarters because we've got a pretty good line of sight to those, Mike. So we feel pretty good about it..

The question that you asked all or you kept asking me last quarter is how you do this, keep investing in franchise. So we increased marketing. We added people in the places we want to add people and took people out of the place that we didn't need them so much.

We continue to add new branches in the many cities and towns we didn't have the brand structure and repositioned. In other words, we invested this quarter, $800 million in technology co-development that got implemented.

And so -- but it's -- this is -- the confidence in the next quarter, frankly, is it's already 3 weeks in almost, and it's pretty well set up. So we feel pretty good..

Our next question comes from Betsy Graseck with Morgan Stanley..

Two questions. First is just on the investments that you're making in expanding your market share and capital markets activities. You've obviously made a decision to do that and it's panned out.

And I wanted to understand at this stage, given the higher that you have, will you still be leaning into investing and trying -- and looking to take more share in the capital markets-related businesses?.

Yes, they're largely, as Jimmy DeMare would say, the so-called growth plan that we talked about starting almost 2.5 years ago was implemented, then in order that we increased the size of the balance sheet. You can see a little bit on Page 18 trading-related assets, but you'd have to go back a quarter, a year before that and see it have increased.

And so he's built the balance sheet up to the size he thinks is relevant. We built the product capabilities out. He continues to hire people in certain areas. And so we feel pretty good that we're pretty well built. It's just that we've done it in market times, it got pretty interesting, pretty fast.

And that being said, if you look at the trading revenue sort of first half of the year over the last 3 years has been relatively stable at $8 billion-ish or something like that. So it's -- so he's done a good job. They build it up. And so it doesn't need another big hump -- chunk of balance sheet on top of that. It's really in pretty good shape now.

And so it's a relative size of the platform is pretty well set..

Okay. And then as we think about the capital ratio and the buffer, I think you had been running with a 100 bps buffer.

And should we now expect that you're going to be running with 50 bps over?.

Yes. You should. That -- frankly, as it gets larger and larger, it gets to be a little bit -- you don't need quite the buffer. And so that 50 basis points is to the -- if you think about we get to 1/1/24, put 50 basis points on top of your card, and that's what we're trying to end up..

We'll take our next question from Matt O'Connor with Deutsche Bank..

Just a follow-up on the expenses. How are you thinking about costs in the back half of the year? And then I think you had full year guidance out there of around $60 billion. Obviously, you had some higher reg costs this quarter.

So how are you thinking about that?.

So we haven't changed much, Matt, in terms of the way we think about running the company. Brian mentioned already, if you look at the last 6 quarters, we're sort of running the place right around $15 billion, out-of-sight. So we still feel like that's the right place, that $60 billion flattish year-over-year.

And then I just make sure you back out and add that reg matter. That's all. The core remains the same..

Okay. Just want to clarify that. That's helpful. And then within credit, I guess, what types of mortgages did you sell that generated those losses? And then in All Other consumer, you had higher losses and you did mention there were some other actions that you took, and I was just wondering what those were..

So on the resi mortgage side, that's -- we sold an old portfolio of residential mortgages that we put in All Other sum number of years ago. So this allowed us an opportunity just to exit that. We do that periodically anyway. But in this case, it was about $3.3 billion, I want to say. And we did have a loss, so you see that loss running through.

But just so you're aware, it was largely offset by a gain somewhere else. So I wouldn't think about it as much of an economic loss, but it did temporarily inflate the charge-offs, which is why we called it out. And then there are a couple of other things in there that related to write-downs around pandemic and stimulus and offsets with overdraft.

But again, not what I would consider to be anywhere near the core consumer credit portfolio that we run..

Okay.

Some about overdraft shows up in the All Other consumer charge-offs, right?.

In this case, yes..

We'll go now to Erika Najarian with UBS..

I just wanted to keep on Mike's theme of under-promising and over-delivering. So I'm going to try to ask the NII question another way. Alastair, one of your peers has started to frame NII with regards to an exit rate in the fourth quarter.

And as I'm just thinking about the rate sensitivity and the forward curve in your comments about loans and deposits and deposit repricing, obviously, you're alluding to $13.5 billion by third quarter.

Is it possible by the fourth quarter, relative to everything that you're seeing going on in the company right now, that the exit rate for NII could approach $15 billion?.

Well, I'd say it's too early for us to tell you that right now. So one of the reasons that we're comfortable giving you next quarter's guide is we have a pretty good sense for where loans are, deposits are, what we think the growth will look like, et cetera. The further we go out, the less we control.

So we try to give you that spot sensitivity, and we try to give you the forward sensitivity so you just get a general sense. And then what we're comfortable saying right now is it's going to be in that $900 million to $1 billion for Q3. And Q4, it's just a little early to say with that kind of precision.

So we just wanted to say we think it will accelerate again in Q3 -- sorry, in Q4. So that's as precise as we want to be right now, Erika. And it's less about under-promising and over-delivering, it's more about there's just a lot going on right now in the markets generally, and we'd prefer to be precise -- more precise about it. That's all.

And I think all we're trying to convey though is we think the fourth quarter is going to be higher than the third quarter increase. And that's just something.

I think we'll give you -- we'll be able to give you more sense for that based on the rate structure and what we see in deposits and loans over the course of this quarter when we meet in 3 months' time..

Erika, this isn't going to give you a specific NII guidance. We're just trying to make sure you see the leverage in the platform for a quarter or 2. And you guys can take that and extrapolate based on your own economic projections, but it's meant just to give you a sense of what we see in terms of loans, deposits and the pricing dynamics, et cetera.

In the near term, we're more sure. Just like last quarter, we said it'd be 600-odd billion, and it turned out to be 800-ish because we're careful what we think and what we give you..

Got it. And my second question is a follow-up on capital.

I guess the first is are you working to actively reduce the stress capital buffer? And maybe remind us where you think the pain points were for this year's test that you think you could address for next year? And second, should we -- what is the pacing of buybacks like from here as you potentially -- as you -- or not potentially, as you build towards that January 1, 2024, new hire minimum?.

On the second question, that's going to be dictated by our LOBs use of the balance sheet. Our #1 goal is to keep them in the market winning every day and let the capital support that. That's what we do because what they're doing is providing good returns and stuff.

So that requires us to -- well, it will be driven by, frankly, loan growth more than anything else in the near term because the markets business will bounce around but won't move much. In terms of the stress test, look, the losses and stuff are pretty good.

It's the operating expenses, and that's more continuing to point out the differences between how we run the company, et cetera. And we'll continue to, as we look at the next year's test fashion. There's not a lot we can do on the loan book and stuff. It's the best in the business as dictated by their results.

So it's going to be more on convincing on operating expenses and operational losses and things like that over time..

We can go now to Gerard Cassidy with RBC Capital Markets. Brian..

Can you guys share with me -- if you look at your deposits at the end -- or the average deposits in your fourth quarter of '19, I think they totaled about $1.4 trillion. Today, you have $2 trillion. And granted consumer has grown very nicely, as you pointed out, Brian, I think it's up $358 billion over that time period.

Can you share with us your color or your guys' outlook on as quantitative tightening goes into full speed of $95 billion or so a month, how do you think that could affect your balance sheet as you look out over the next 12 to 18 months?.

Well, we're obviously curious with that trajectory as well. We haven't seen any great shift yet in deposits. This second quarter was largely just a return to the normal second quarter seasonality we see. We didn't see the last 2 years because there was pandemic cash inflow, fiscal monetary stimulus.

And this quarter, it was probably a little more elevated. You saw the headlines talking about tax receipts this year were bigger than normal. So we felt that. But we haven't seen a great deal of impact from QT just yet. And it feels like our customers still want to hold a pretty healthy deposit balance.

So I think it's natural to think about -- go back to Q4 '19, you think about the fact that the economy is bigger. You think about the fact that the monetary base is bigger. So there's probably a floor, but we'll be watching things from here in the same way that you are..

Gerard, we can't really go widdershins against the market here because at the end of the day, that growth affects the monetary accommodation, the physical stimulus, et cetera.

But remember, as you're thinking about that 1.4, 1.5 and today 1.9 to 2, you do have to remember that it's 3 years and with inflation and the economy is bigger, it was a economy back then, I think it's 25-ish now.

So you got to kind of not only put your normal growth rate, which you mentioned, but you also got to add to that sort of the size of the economy and our market share because DDR deposits reflect the economy moving in and out of the system and across different -- as you have money movement from consumers to businesses, businesses consumers as paychecks and stuff.

So I think I'd be careful just saying, "Oh, let's go back to normalized growth rate off that, you have 2% GDP and 2%, 3% because you're missing that there's a step up in size that we picked up and kept and we grew market share." So it will be higher.

We know that, but there will be some impact from monetary tightening or else it wouldn't occur and it wouldn't be the way the Fed actually controls the economy to some degree..

Gerard Cassidy:.

:.

Gerard, we don't manage that number -- we manage the liquidity resources and leave that aside. But we have a deposit business that generates deposits from customers, not from pricing and not from going into sort of broker deposits or secondary markets. These are all core deposits coming in from core customers. So that dictates our overall size.

Then we turn around and make loans to the customers based on the credit standards and capabilities we have in their demand for credit, and that turns into $1 trillion of loans. And so it's not a number Alastair or I or others at the top of the house, say, if that number is 62, it's good and the 50, it's bad.

It's just it is a result of running the customer franchise. The amount of liquidity we have, that is much more planned, obviously, and planned by the microsecond every day. And you can see that our ratios and stuff over the course of time far in excess of what we need. And that will come back down.

That's probably going to be more apt to come down as part of the monetary tightening process and things like that.

But that's basically what we're doing now to manage the capital of all this is taking RWA lower -- 20% RWA assets and moving them into zero RWA to help that and give the rooms -- the business to have more room to grow the core loan book, but we never managed to a precise number.

We let the businesses operate and then we balance the interest rate risk and the capital questions and the liquidity question at the top of the house, but it works pretty well right now..

And if you just look at the last couple of quarters -- if you just look at the last 2 quarters, you sort of see as the loans growth has continued to return, as the securities have matured and prepaid, we've just taken some of that liquidity and put it against loans. Because remember, that would always be our first choice even in pandemic.

It's just that the loans growth wasn't there. It's back. So we're using those securities and replacing them with higher-yielding loans..

We'll take our final question today from Ken Usdin with Jefferies..

Just a couple of follow-ups on the balance sheet. So just following up on the deposit side, Alastair, in your prepared remarks, you talked about modest growth in loans, modest -- and deposits from here.

So I'm just wondering, should we be thinking about when you talk about modest growth in deposits, that off of your period end balance when you think about that after we get past this tax seasonality?.

Yes, think about period end because that's where we are. We've seen the deposits in the first few weeks of July, will be relatively stable. But yes, you got to go off a period end because that's what you got. There's some fluctuations as you get the month end and all that stuff as you well know, but that's where we start from..

And Q3 and Q4 seasonally tend to be the place where we build deposits..

Yes. Okay. And then on the NII side -- sorry, on the loan growth side, again, obviously, you're putting up very strong results as a big industry, especially in commercial and in card.

Can you just talk about you're thinking in terms of how loan growth looks in the second half relative to the last couple of quarters? And any changes you're just sensing good or bad within the customer base and across the various loan buckets?.

Well, not a tremendous amount of change. We've had good loan growth. We anticipate we'll see good loans growth. That said, obviously, full year, we're kind of at 12%. We said we thought that we'd have mid- to high single digits. That's kind of what we're still expecting is mid- to high single digits.

There are a couple of places where, for example, our mortgage pipeline is done just with higher rates. I think it'd be natural to think that in some areas where other areas like securities-based lending, as rates go up, that might damage some loans demand there. And it feels like business leaders may talk themselves into less confidence.

So that may dampen loans growth. But as of right now, we think it's still in that kind of mid- to high single digits..

Got it. And then just one clean-up, last clean-up here. Premium am was about a $300 million helper to $0.6 billion.

How much more improvement could you see? And is that built into your expectation for third and fourth quarter?.

Yes. It's built in. It will keep going down, obviously, as rates go up, but it's going to -- it's not a linear relationship. It's more curved. So it's -- and it's -- our expectations are all built into our NII guidance..

There seeing no more questions, let me just close by thanking you for your time and attention. As you think about Bank of America for the second quarter of 2022, as we said earlier, the pre-pandemic growth engine has kicked back in.

We're mindful of the debate about a future recession, and we have prepared the company across the last decade-plus through responsible growth to be prepared for that. But as we see our current customer base, we are not seeing them slowdown in terms of their activities.

So the story is one of organic growth with operating leverage driven by -- and using our capital wisely. Thank you..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..